Roberta Cook, an Extension marketing economist at the University of California, Davis, says although shippers have been slow to merge, the process is moving forward with new agreements practically on a weekly basis.

"These are not generally firms merging their production and postharvest cooling operations but those who are developing alliances in marketing," she told the Spring Outlook Forum of the California Chapter of the American Society of Farm Managers and Rural Appraisers in Sacramento.

Giant retail chains are giving intense scrutiny to adding value and reducing costs by streamlining distribution and to understanding consumer needs and drive the global marketplace.

As fresh produce sales take on multi-billion dollar scope around the world, the U.S. is but one example of growth. U.S. sales of fresh-cut produce sprang from $3.3 billion in 1994 to $11 billion in 2000 and are projected to reach $15 billion in 2005.

Traditional, daily sales-oriented operations are being replaced by supply-chain management focused on year-end, net results. Along the way, retail power and consumers are even calling the tune for production methods and other inputs.

Supermarkets

According to Cook, all around the world supermarket chains are capturing a growing share of the consumer food dollar and competing successfully with the traditional fresh produce marketing channels.

"Over the next decade, the rapid evolution of supermarkets should induce more direct linkages between suppliers and customers, gradually eroding the dominant role of traditional wholesalers and wet markets."

As fewer, larger firms handle international trade in fruit and vegetable products, both opportunities and challenges will emerge, she said.

"On the one hand, large foodservice and retail buying firms, and international traders, may offer easy access to consumer markets.

"On the other hand, if a supplier does not meet the increasing requirements of major buyers, distribution obstacles could become insurmountable."

Wal-Mart is not only the sole U.S. firm whose stores in 10 countries give it global presence, it is also the largest grocery retailer in the world.

"Wal-Mart’s approach," said Cook, "concentrates on driving non-value-adding costs out of the food system, imposing a new competitive benchmark and downward pressure on margins for players at all levels of the food system."

The practices of new mass-merchandisers, in particular Wal-Mart as it opens 200 new stores across the U.S. each year and holds a 72 percent share of U.S. supercenter sales, are contracting with preferred suppliers for managed automatic inventory replenishment.

State grows half

In sketching the U.S. fruit and vegetable industry structure, Cook said 16,500 growers in California make up about half the total production.

But, she reminded, it is not the farms that market (with the exception of those who are both growers and shippers) but the some 5,800 shippers who sell to the large buyers, 20 of whom account for 59 percent of retail sales in the U.S. Buyers of various sizes total about 1,100, including many not in the chain-store category.

Although shippers can sell to any of the retailers, Cook said, "If you are not a large shipper, you do need to be thinking about your strategy. Medium and small sized shippers, unless they have very special products, oftentimes have difficulty selling to the big chains, and must focus on regional and local operators."

She said the U.S. big-volume sales players in fresh fruit and vegetables are Dole ($3.5 billion), Chiquita ($2.2 billion), and Del Monte ($1.9 billion) who deal in the banana trade. Of those, she added, only Dole has diversified with many other produce categories.

Another example of a major outlet is Sunkist ($82 million), with its slightly more than half the citrus volume. Others include Fresh Express ($63 million), which offers value-added (pre-cut and packaged) products; Duda ($37 million), which sells various fresh and processed lines; and Tanamura & Antle ($35 million), which has both fresh-cut and commodity products. Another prominent and unique California grower-shipper is Pandol Brothers ($13 million), strong because of its imports during the off-season for California produce items.

"Why," Cook asked, "would these shippers want to get bigger? Because in California we still have a lot of shippers operating in the under $20 million sales category."

Loath to merge

Shippers, she continued, still may be loath to merge, even though economics suggest they should have done so already. They may not have merged with other nearby shippers because of nothing more than decades-old disputes between their grandfathers.

"I do notice more and more that firms are merging for the benefits of category management. They are being asked by retailers like Wal-Mart to analyze data and help them grow store-to-store sales on a year-to-year, double-digit basis. That’s a challenge, and other conventional chains are also beginning to get into it," Cook said.