Six factors have changed the face of the food supply industry in the past 20 years, says Jean Kinsey, University of Minnesota economist and director of the Retail Food
Industry Center:1) New consumer tastes and characteristics, including more women in the labor force that have increased household income. These women have less time to shop and cook and more money to buy
ready-to-eat food. Kinsey says, "This means we're seeing more calls for convenience, more purchases of food on the go and a decline in home cooking."
2) Widespread use of the Uniform Product Code (UPC). The UPC
was originally designed to scan food at the cash register, where a computerized cash register displayed the price and store managers were alerted when inventory was getting low. But today, UPC systems are also used to
order products automatically and report in great detail what types of products consumers are buying and at what time of the day, week or year.
3) The rise of Wal-Mart as a dominant marketing force. Since the
early 1980s, Wal-Mart has built its business on knowing exactly what its customers were purchasing on a daily basis and asking its vendors to replenish shelves in a timely manner. This way, Wal-Mart avoided tying up
cash inventory and could work with vendors to drive down the cost of goods sold and the cost of moving them from manufacturer to consumer. "Because Wal-Mart is large and efficient, it has forced the rest of the industry
to become more efficient and organized," Kinsey says.
4) Introduction of an Efficient Consumer Response system. "In 1992 the rest of the retail food industry woke up and realized it needed to copy the Wal-Mart
model," Kinsey says. The industry developed the ECR system, which shares information between retailers and vendors. It allows for deliveries to be based on sales, lowering storage costs.
5) Mega-mergers in the
food chain. In 1990, the four leading grocery chains accounted for only 16% of the nation's food sales. Today, the market leaders — Kroger, Albertsons, Wal-Mart, Safeway and Ahold — are responsible for 40% of all retail
food sales. Large corporations have greater bargaining power with manufacturers, more efficient transportation and ordering systems, and use information technology to manage inventory throughout the food distribution
system. Industry estimates show retail mergers can reduce the cost of goods by 0.5% and save another 2.5% in the cost of operating the food distribution chain.
6) The changing face of wholesaler/retailer
interactions. Self-distributing retailers own their own distribution centers (DCs). They buy directly from manufacturers and producers, who deliver food products to the DCs. In addition, there's direct store delivery.
Manufacturers deliver their products directly to stores and usually arrange them on shelves for retailers.
As a result of these and other changes, the food system has evolved from a product-driven system to one that's
more consumer-driven.
The "Wheaties" example
"Consumers can now motivate manufacturers to 'pull' the right product from the farm to meet a specific, clearly identified consumer preference," Kinsey says. To
illustrate, she uses a true story about Wheaties, "The Breakfast of Champions."
"Until a few years ago, some Wheaties flakes were curly and some were flat. When consumers were asked whether they preferred flat or
curly flakes, they told researchers they preferred the curly ones because they didn't crumble as much and tasted better," she says.
"When this information was related to people at General Mills, the manufacturer, they
discovered that curly flakes actually filled the box better, didn't settle in the package and were crunchier and tastier. Further investigation revealed that wheat flake curliness is a genetically determined feature of
the wheat kernel. And today, General Mills pays more for this type of wheat, and farmers and grain handlers take care to produce, store and ship curly kernels in separate containers."
Ron Olson, vice president of
grain operations for General Mills, is one major grain buyer who is looking forward to working with producer marketing alliances or co-ops such as FarmConnect, one such closed cooperative organizing in Minnesota that
aims to serve as a link between food processors and producer members.
"We're buying identity preserved grain in Idaho and Montana where we have grain elevators, but we need a way to connect with farmers in other areas
for other products we need," says Olson.
General Mills prefers to talk to one or two spokespersons for a large group of farmers who could deliver the quantity and quality of grain the company needs, he says. "We can't
efficiently talk to 1,000 farmers individually," says Olson, whose company pays a 10-15 cent per bushel premium for 13 million bushels of identify preserved soft winter wheat.
FarmConnect held a producer
membership drive from mid February to mid March, with signup scheduled to close April 1. Should the effort go forward, FarmConnect hopes to enlist a staff well-schooled on the mechanics of end-use markets to meet
one-on-one with grain and livestock buyers who are looking for a pool of producers.
For more information about Farm Connect, contact Brent Sorenson at (218) 281-8449 or visit the co-op's website at
