Supermarkets' buying power is just getting stronger. This does not make the role of the fruit and vegetable trading companies any easier. Rob Morren, ABN Amro's Food sector banker, sees increasing attention being paid to mapping the social cost of production. This is called True Cost Pricing. Here follows an interview with him. It is over Brexit, Blockchain, and Convenience. Online fruit and vegetable sales and robotization were also discussed.
Rob Morren
"The larger fruit and vegetable trading companies certainly have a handle on the risks around Brexit," says Rob. "We did an impact analysis at clients who do a lot of exports to the United Kingdom. Concerns remain particularly high regarding logistics."
"If a truck is delayed for a few days, it will affect the products' quality. On the other hand, the UK has a fruit and vegetable self-sufficiency level of less than 40%. This level means it will remain a net importer. Whichever scenario is adopted, the need for Dutch quality products will remain."
"Suppose there is a hard Brexit; the British consumers will pay for it. Currently, the fruit and vegetable sector is at an advantage. These are reasonably cyclically insensitive products. The main problem is how hugely uncertain everything is."
"Two years ago, we thought we would have a definite answer a year before Brexit was to happen. Now, we have to keep waiting for the result of the next crucial vote. Two weeks before the deadline, we still know nothing. Sending a large number of products to the UK now is also not that easy either. There is a large shortage of refrigerated storage space in that country."
Avoiding discussing prices
Meanwhile, retailers are continuing to scale up. This is causing pressure on trading companies to continue unabated. "Retailers are getting even more purchasing power. That puts pressure on the rest of the chain. You then also see that people are increasingly buying directly from the source."
"The challenge for trading companies is to respond to the retailers' buying criteria. In this way, they can, in part, avoid price discussions. They must work together and add real value. Think, here, of them focusing on the management, convenience, and product development categories. And also on being the star pupil on the class when it comes to sustainability", explains Morren.
"Here in the Netherlands, we also have to deal with high advertising pressure. This pressure has increased again. The situation is actually more suited to a less favorable economic climate. Consumers expect to see their favorite product on sale. They have been taught that something can always be cheaper."
"The advantage of these promotions is that they can lead to higher consumption. However, it can also lead to far higher pressure on margins in the chain. Promotions are, therefore, done partly at the expense of innovation and sustainability budgets," says this Food sector banker.
"The logistical function of trading companies is becoming increasingly important. This is because more products are being bought from the source. Nonetheless, there will always be scope for the companies' trading function. Because there is a demand for year-round sourcing of products with the same quality."
"However, some trading companies will struggle. These are those that do not excel at retailers' buying criteria or are not developing new markets. The European population is at the cusp of shrinking and aging. The number of mouths to feed and the needed volumes are at a standstill. This means bringing products over greater distances to growing markets. It means adding value to existing markets. It also means exporting technology, knowledge, and expertise."
Sustainability war
"Currently, there is a lot of talk about a food choice logo on products. This discussion is happening in the Netherlands, as well as in Europe. These logos can be found on the front of product packagings, such as those in France and Belgium. I think the fruit and vegetable sector can play in really well on this."
"This sector, with its healthy products, can score high in this. The fruit and vegetable sector can bring across the health message even better. They can do so by objectively measuring which products are healthy. And the supermarket also has an interest in this. The fruit and vegetable department is, after all, an essential margin creator for the supermarket," Rob continues.
"This could lead to a sustainability war. And, surely, no-one can be against eco-friendly products. However, here it is important to choose the high road. The cost should be distributed over the entire chain."
"At the same time, there is an increasing focus on True Cost Pricing. Ten years ago, the World Economic Forum asked the top business people what their main concerns were. They all agreed it was the financial system. Since then, climate-related risks have become their biggest worry."
"This is the reason why the fruit and vegetable sector must take the lead in the area of sustainability. The businesses in this sector must take concrete action such as decreasing their CO2 footprint. As it is popularly put - this footprint is the new currency. There are immediate steps that can be taken at a management level. Frontrunners in this sector are already taking these steps."
Rob thinks online fruit and vegetable sales can also provide a boost for sellers. "All retailers are investing in online sales. And not always to make a direct profit. They know the customers who buy from them online are more loyal than those who go to their actual stores. This channel also offers opportunities outside of the supermarkets. Initiatives such as Stockton could be very interesting partners for traders. They could start a platform together."
"Robotization is another trend. This is becoming increasingly common with, for example, vegetable processors. Robotization has many advantages for these companies. They can decrease their offcuts, and so reduce their wastage. Quality can be better assured, while, at the same time, solving the labor problem. Who, nowadays, wants to stand in a cutting room, when it is 4 degrees Celsius? Robots will certainly provide part of the solution," Rob expects.
He also expects systems such as blockchain to make their way into the fruit and vegetable sector. "Blockchain is not a tool in itself. It is a way to set up the data chain to be quicker and safer. Large amounts of information about quality and safety are already being exchanged in the fruit and vegetable chain."
"Using a blockchain can lead to, for example, contracts and orders being filled quicker. Or, in the case of a recall, all the parties involved are kept directly in the loop regarding any available information. Together with the so-called Internet of Things and Artificial Intelligence, this will speed things up. However, much still has to be done before this becomes mainstream," Morren concludes.
For more information:
Rob Morren
ABN Amro
rob.morren@nl.abnamro.com