Wal-Mart is the 800-pound retail grocery gorilla everyone it seems in agriculture loves to hate.

However, according to a widely respected University of California, Davis, marketing economist, there is not much bite behind the perceived universal growl, at least not from growers and shippers who stock Wal-Mart shelves with California-grown food.

Roberta Cook, one of the country's leading experts on the nation's almost $1 trillion food business, says food producers and wholesalers who supply Wal-Mart like supplying produce and other food items for the giant retailer's supermarket included Super Centers.

One reason is Wal-Mart pays better prices to packers and shippers that the traditional supermarkets which have cut prices and sacrificed quality and service in a battle with Wal-Mart for consumer food dollars. When they cut prices to consumers, they try to take it out on the produce supplier.

Cook told the national American Agri-Women's convention in Monterey, Calif., recently that supermarket merger mania and traditional grocery store price cutting have failed to dethrone Wal-Mart's supermarkets.

“Just getting bigger” has not worked in the war between giant supermarket chains and Wal-Mart whose stock market prices continue to rise while supermarket stock continues to decline. A sign of the failure, she said, is Albertson's, the nation's second biggest supermarket chain, is for sale.

Inventory system

Wal-Mart shook up the food supply business, especially the produce sector, with its vendor-managed inventory management system. Basically, Wal-Mart plugged its vendors into its corporate computers via satellites and holds vendors responsible for keeping shelves full based on current sales at pre-set prices to suppliers.

Cook said the idea was to cut Wal-Mart's costs and improve efficiency — “to drive costs out.” This does not necessarily drive down prices paid to suppliers, she added. “Streamlining the system is the name of the game.”

Traditional retailers did not follow suit and apparently have lost the war. Along with cutting prices, they also sacrificed quality and service.

This vendor inventory management system has been so successful Wal-Mart is asking some of its seasonal suppliers to be its buyers for year-round sourcing.

Although Wal-Mart may have won one battle, it still faces stiff competition from other segments of the food supply chain, according to Cook.

Warehouse clubs are doing well, particularly Costco, said Cook, even though this big box store is far different from Wal-Mart. Costco offers large consumer packages, working with “preferred suppliers” to fill those packages.

Food shoppers are getting more discerning while at the same time reducing trips to the supermarket. In 1995, the average supermarket shopper went to the store 92 times per year. Last year it was only 69 visits.

“The quality of the shopping experience” is becoming more important and that is drawing shoppers to limited assortment food retailers.

A growing demand for freshness, high quality is also driving shopper to upscale retailers like Whole Foods, Trader Joe's and HEB where the emphasis is on value and not necessarily low prices, said Cook.

She said these retailers are attempting to “differentiate” themselves from the Wal-Marts, big box stores and supermarkets. One way they are doing that is by seeking out “innovative” suppliers of agricultural food products.

Many retailers are looking to add value and service and are looking for agricultural suppliers who are willing to move away from “commodity marketing” to be more consumer-oriented wherever possible, said Cook.

Organic sales continue to grow, but only represent about $11 billion of the food market. “Oftentimes organic sales are overstated. Nevertheless, it is growing rapidly,” she said. Only about 14 percent of those who buy organic are identified as “hard core.” She added, the “fear factor” in selecting organics versus conventional products is dissipating. However, there continues to be a “lot of misinformation” about organics on the Internet from some of those hardliners.

America continues to want someone else to do the cooking. About $450 billion of the $951 billion U.S. food industry is food service. Although a small portion of that money is actually spent on food. Most it if is for service, and Americans are demanding more of that when they order food from restaurants to eat in or take home.

And when they eat out, they are also looking for more value and higher quality, she added.

“Fast casual” dining is growing with restaurants like Baja Fresh and Chiptole attracting former fast food eaters due to the added emphasis on nutritional quality and value. Long-time fast food outlets are reacting. McDonald's is now among the nation's top five apple buyers and Subway is the nation's No. 1 buyer of fresh tomatoes.

The supermarket chains are capitalizing on this with more take home prepared food sales.

Produce challenge

It is a challenge for California produce suppliers to keep up with the changing trends. Making it more complicated is the fact that this new era of food purchase selectivity is becoming highly individualized.

Cook calls it a “divided dietary house” driven by not only by individual food preferences, but food allergy and sensitivity issues.

Sharon McNerney, a registered dietitian and executive vice president of a Nuffer, Smith, Tucker, Inc., a Sacramento-based strategic planning group, said this individualization of food purchase is moving to what she called “personalized genomics.”

In five to 10 years, a person's DNA will dictate what specific foods he or she buys. This is related to a growing health concerns, particularly obesity and diabetes.

e-mail: hcline@primediabusiness.com