Rantings of a Produce Guy

While visiting a local supermarket yesterday I took note of the everyday retail on White and Red Seedless grapes; an astounding $2.99 lb.! You just have to scratch your head. Based on current FOB costs, freight, and D.C. up-charges, I estimate that their store level cost to be no more than $.95 lb. Which means that this retailer is generating a whopping 68% gross on their number one seasonal sales generator, or what should be their number one sales generator. With a $2.99 lb retail, no wonder the grapes on display looked tired in their gigantic two row spread on each.

When you see retails like these in the height of the summer sales opportunity, you sense retailer dysfunction. A state where merchandising and operations are in C.Y.A. mode. A situation more than likely brought on by a sales decline from a new competitor. It goes something like this. New competition opens, sales falter, operations cut labor in an effort to maintain budget, shrink increases, merchandising raises retails to offset shrink. And so it goes.

Meetings are called to discuss shrink and retailer reduces displays to reduce inventory. Sales fall off once again, labor is reduced, and retails are raised in an effort to maintain margin budget by offsetting increased shrink. Before you know it you have grapes retailing at $2.99 lb in the third week of July. This is a classic case of operations and merchandising not working together to develop plans to increase sales through investing labor from the operations side and margin from the merchandising side. Instead you have operations doing what it can do: control labor, and merchandising doing what it can do: raise retails. This way each division can say that they are doing what they can do.

If this retailer had a reasonable retail on grapes; say $1.69 lb with a July vs. February spread, they wold probably move roughly four times as many pounds and cut shrink by half. That is of course if they have enough help to maintain the displays. Because if grapes are at these ridiculous retails, everything else in the department reflects the same retail strategy. And you can count on the fact the balance of the departments int he store reflect same.

All of this while suppliers of summer fruits are in a panic. They see the lowest FOB costs in years and then look at retails in supermarkets and can not understand what the heck is going on.

The sad thing is that all retailers are not in the same boat as the one described above, but enough are to the point that they allow other retailers to maintain inflated retails. That and the fact that produce operations by and large must return a FORTY PLUS gross margin. For some this is easy, other it is difficult. There must be a BETTER WAY.