When produce directors, category managers and store owners sit down on Tuesdays to write their upcoming ads, many often refer to what was advertised during the same week of the prior year.
In normal times, this formula generally works; if during the third week of May the previous year a retailer featured romaine hearts at 2 for $5, there’s a good chance that during the third week of May the following year a retailer could feature romaine hearts at $2 for $5 with similar margin expectations.
This is not a normal year.
The ramifications of COVID-19 on our business have manifested themselves in ways many of us who write ads did not anticipate. Those consequences include increases in the cost of doing business as a result for growers, packers, truckers and wholesale distributors.
The result has been an uptick in negative noise. We can hear – and feel – the tension and the disappointment in the conversations we have with many retailers as they plan out ads.
The friction is understandable and predictable.
There is always a little price tension between buyers and sellers. That being said, the pandemic has raised that tension to an uncomfortable level in recent weeks as the reality of doing business in the time of COVID-19 sets in.
However, my friends, this is where we can shine as an industry. Historically, when the clouds descend, the produce community rallies as one to pull together, stop the finger-pointing and discern the path forward for all of us. We will have to rely on each other for new perspectives and solutions, understanding that a rising tide raises all ships.
How we do this rests in our ability to work even harder to find value for our customers.
This means looking in every corner for items and time frames that are not historically apparent. We cannot afford to sacrifice value for the comfort of tradition.
Let’s start where the product starts – with the grower.
Growers
Two significant changes in the fields have impacted the supply of product at retail.
First, growers have pulled back significantly on how much product they are growing. The massive reduction in foodservice demand has not been made up at retail or export; therefore, since demand is way down, so are plantings.
Compounding this issue are the limitations at the border, restricting the passage of migrant farm workers to and from the fields of Arizona and California. Adding to the labor pressure are increased wages, which growers are paying to secure pickers and packers during the pandemic, and health and safety protocols, which have been put in place to safeguard both employees and product.
As an example, most packers and shippers have expanded their labor shifts to ensure adequate space between employees on the packing lines; more shifts mean more utility costs. All told, grower expenses are significantly higher this year than last.
Trucks
When it comes to getting the product from the growing regions to retail, refrigerated trucking has seen nearly an 80,000 reduction in the number of available drivers to move the product this year versus last year. The pandemic, along with the aging driver force, continues to drive this number higher.
This number will not improve much going forward; 2020 saw a decrease of 40% in CDL driver training due to the number of truck training schools that were forced to close. Equipment isn’t the problem – there are plenty of trucks. Just no one to slide in behind the wheel.
The impact of this driver shortage is immediately felt at retail.
Let’s take two examples. For strawberries from Watsonville to Boston last year, the market for trucks averaged $8,500, or about $2.53 per flat. This year, the market is closer to $11,000 or $3.30 per flat – a 23% increase – and some estimates push the truck cost to close to $15,000 for the Fourth of July.
Moving down south this year, watermelons could look very different. Trucks averaged $2,800 a year ago from Florida and Georgia to Boston; this year, they are already over $5,000. That moves the per-bin transportation cost up from $50 per bin to $90 per bin, a 44% increase. On a bin of 45 melons, that’s an increase from $1.11 per melon to $2.00 per melon, nearly double.
Although these are the two most significant drivers when it comes to produce cost increases this year, there are others as well. Wholesale companies and distributors have had to adopt pandemic-mitigating protocols as well, from extra shifts, extra pay and extra cleaning to new office/warehouse configurations.
All of these necessary changes have added a new layer of cost for every segment of the supply chain. While some of these costs can be absorbed as “a cost of doing business”, clearly not all of it can be – and the inevitable result is higher costs for produce this year versus last year.
Where we go from here
So where do we go from here? While some of the challenges to the industry are long-term, many are most likely temporary. The marketplace will bounce back. Driverless trucking will continue to march forward, and improvements to infrastructure will make rail transport financially viable.
There will eventually be a solution to the issues at the southern border. Many of the protocols put into place will fade over time, and a return to normal packing/shipping/warehousing will most likely be reflected in normalized costs. Growers will once again plant their normal seasonal acreage as demand increases, reflecting the re-emergence of the restaurant and hospitality segments.
But until then, we will have to steel ourselves for ad programs and weekly flyers that don’t resemble last year’s offerings. In all reality, we probably won’t be able to hit some of last year’s retails.
The good news is that there is no competitive advantage for any one group; every retailer is facing these challenges. At retail, we will need to look at our produce departments, and our ads, with fresh eyes.
We may have to adapt to what the season and the weather is giving us, rather than try and conform to historical ads or traditional holiday offerings. Strawberries are a given for Mother’s Day, for example, but if it is cold in California, and there are plenty of blueberries around … maybe we change it up.
This may also be the time to evaluate both what we sell and how we sell it. While variety is great, do all 500 items in the produce department earn their keep? How do we find value in each and every item we buy and place in our departments?
Produce departments are valuable supermarket real estate. Would our departments drive more sales and margin if there were 350 items, all with more impactful displays?
There is nothing good about a pandemic. That being said, perhaps the lessons of the last year can help us pull each of our industry segments together and work towards the same goal we’ve always reached for: delivering high-quality produce to the American consumer at a competitive retail.
We’ve learned to work a little smarter and certainly how to creatively address and hit industry curveballs. Those lessons, if applied to relationships with our industry partners, will serve us well as we emerge from COVID-19 and chart new and exciting courses in the year ahead.
Steve Patt is a part of the leadership team for Tourtellot and Co. He has worked for or with independent grocers for nearly 50 years.