Food for Thought
One Size Doesn't Fit All
In place of its cookie-cutter stores stocked largely with the same products, Wal-Mart is customizing its merchandise mix to reflect one of six demographic groups: African-Americans, affluent citizens, empty-nesters, Latino-Americans, suburbanites and rural residents. Breaking the more than 3,400 U.S. stores into six categories is a major shift for a company that became the world's largest retailer on the strength of standardization.
According to the Wall Street Journal, approximately 85 percent of the U.S. population shops at Wal-Mart at least once a year. By offering all customers the same product mix, the company ended up under-serving everyone because it didn't offer enough products specific to individual customer demographics. Implementing this new strategy has moved executives previously based in Arkansas to markets around the country and be more in touch with their customers. Local marketing teams also have been beefed up and given more authority to pick products.
Other big retailers are starting to adopt similar strategies. Almost all of the big chains have spread across the country with virtually identical-looking stores. Now to better reach prized customers, most retailers are targeting specific groups. In the future, not all Macy's stores will carry the same merchandise and seven regional offices will do the buying. Fearful of competition from Wal-Mart, Best Buy is revising its 800 stores to target women, technology-obsessed youths and affluent males.
Some Wal-Marts in affluent areas are adding organic food products along with 1,000-bottle wine areas with prices that range from $4 to $500. Removing gun departments and adding more home-fitness equipment also has boosted sales. A store near a hospital with a high number of premature births stocked higher levels of preemie clothes and products that resulted in increased sales.
Keep customization in mind when determining product offerings for your customers or individual stores. Are you aware of the demographics of your customer's customer? What about the makeup of each store location's clientele? Are there opportunities to increase your sales and those of your customer by "individualizing" product offerings by store location?
Learning From Retail Consolidation
While ornamental plant retailers are not experiencing the consolidation that is happening with apparel and general merchandise, some of the lessons being learned by vendors of those products have direct and immediate application to the plant business. A recent article in the Wall Street Journal reports some of the best-known clothing and accessory companies are dealing with fewer outlets to sell their products thanks to department store consolidation. Federated Department Stores has acquired a number of chains that are being converted to Macy's. Other buyouts have happened or are in the works.
One thing consolidation has done is make it more important for manufacturers to control as much of the product distribution as possible. Vendors have to ask themselves, "How are we going to get better so we can survive? How are we going to get more efficient and customer friendly to give better service and value?"
Most stores control how the merchandise is displayed, how often it is promoted and the price level. To increase sales and profit, more vendors are moving to influence how the stores handle their products. Vendors prefer to have their products grouped together rather than displayed alongside competitors' offerings. They want to help determine the display makeup and merchandising. The producer will generally take more pride in the product presentation than the retailer.
Smart manufacturers are forming partnerships with their strongest retailers and customizing their offerings by including private labels and exclusive merchandise. Apparel companies' relationships with retailers are important to both sides' bottom lines. Sounds like selling clothing at Saks, Macy's and Target isn't that different from selling plants at Lowes', Home Depot or Wal-Mart!
Conquering Supply and Demand
Producers of agricultural commodities (plants and flowers qualify) have long been at the mercy of supply and demand. Even the smallest percentage of production exceeding demand results in lower selling prices for producers. While individuals and industry groups representing these market segments have given much lip service to controlling production in an effort to increase demand and prices, the reality of the situation is no one wants to be the first to voluntarily cut back production.
Taking Charge
One agricultural market segment that is most affected by overproduction — potato farming — is taking bold steps in an attempt to control its own destiny. The 2005 formation of the United Potato Growers of America, now headquartered in Salt Lake City, Utah, aspires to be to potatoes what OPEC is to oil by carefully managing supply to keep demand high and constant, resulting in increased and stable returns for farmers, reported the Wall Street Journal.
In September 2004, the founding group of potato growers began developing a cooperative company that is owned and controlled by its members. Presently, the organization has recruited farmers and regional cooperatives from across the United States and some from Canada, and its membership now represents more than 60 percent of the potato acreage in the United States, stated the Wall Street Journal. All types of potato growers are encouraged to join.
In the past year, United Potato Growers of America helped erase 6.8 million 100-lb. potato sacks from the North American market — the equivalent of about 1.3 billion medium orders of McDonald's french fries. For the farmers, their open market returns surged 48.5 percent to $10.04 per 100 lbs., according to the Wall Street Journal.
How It Works
The Wall Street Journal also reported that the United Potato Growers of America's annual campaign to support farming begins a few months before the planting season. The 20-member board decides with the approval of the membership if farmers are on track to overproduce. The decision is based on field reports and input from analysts. If there appears to be overproduction, a target is set for acreage reduction. The regional co-ops are then consulted about how to execute cutbacks on the local level. This can include cutting back more acres of one variety instead of another or even paying a farmer to keep excess off the market.
In the past, most farmers accepted a loss if it meant increasing their market shares, resulting in an unprofitable industry. Controlling supply helps to create a sellers' market. Historically, growers have responded to thin margins by planting extra acres, which only further drove margins down.
A Green Industry Co-op?
The parallels in the issues affecting profitable potato production and profitable ornamental plant production are almost too numerous to list. Overproduction, low prices and margins, consolidation and independent entrepreneurs attempting to influence an entire marketplace are just a few. There might be some lessons to learn from a "sister" farming industry that has banded together to manage supply and influence demand for the betterment of everyone.
To learn more about United Potato Growers Of America, visit www.unitedpotatousa.com.
SIDEBAR
United Potato Growers of America
United Potato Growers Of America Mission Statement
We bring order and stability to the potato industry and increase our economic potential by the effective use of cooperative principles. We work with other segments of our industry to find opportunities to develop synergies and partnerships.
United Potato Growers Of America Vision Statement
We will reinstate order and rationally manage supply of raw product, and facilitate equitable and stable marketing of our member potato grower's crop production. We will work with the processing industry in a win-win manner. We will work to restore the leadership position as marketers of "premium" potatoes.
Wal-Mart Goes Green
In an effort to cut costs and portray itself as more environmentally friendly, Wal-Mart announced it has embarked on a multi-year plan to reduce overall packaging by 5 percent. The company will prod its 60,000 suppliers to find more efficient packaging alternatives to save $3.4 billion in transportation, storage and energy costs.
Are there opportunities here? Who has a better environmentally friendly product than the green goods industry? Offering Wal-Mart (and other big boxes) products that eliminate disposal of plastic pots, flats and tags for the consumer can help capitalize on this opportunity.
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