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Succeeding in a global marketplace

The Canadian apple industry needs to develop appropriate


March 27, 2008
By Hugh McElhone

Topics

The Canadian apple
industry needs to develop appropriate coping strategies for the 21st
century, says Dr. Desmond O’Rourke, a Washington-based researcher with
Belrose Inc.

The Canadian apple industry needs to develop appropriate coping strategies for the 21st century, says Dr. Desmond O’Rourke, a Washington-based researcher with Belrose Inc.

“Global forces are trampling the traditional way of doing business,” he says, and while the mass market is dying a more differentiated one is emerging.

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Markets are becoming increasingly fractured along the lines of age, income, household makeup, work-leisure habits plus lifestyle choices. He adds that today’s consumers expect products to be tailored for them, whether they be fat-free, low in carbohydrates, organically grown or fairly traded.

orourke
Dr. Desmond O’Rourke 


With globalization, O’Rourke says anyone can know the actions or events in another part of the world instantly and these events will have an immediate impact on the situation at home. “Global sourcing and global knowledge reduce local advantages,” he notes.

The retail giants must be kept in mind when developing a coping strategy because they act as the gatekeepers to the consumer market. “Your job is to generate money for the retailers otherwise they won’t want you,” O’Rourke says. This will become more important as companies such as Walmart and Costco increase their take of the grocery market.

O’Rourke says growers, packers and marketers can generally be divided into three broad modes of operation. The first is the survival mode, in which they are hanging on in hopes of a market windfall. The second is the maintenance mode, where they are still solvent but do not have the resources to change or expand operations. The third are the expansionists, who caught new trends, made some money and are confident in facing new challenges.

For those who wish to stay in the apple business, O’Rourke suggests they focus on the “three Ps,” – products, productivity and pals/alliances.

“A product is not a simple cultivar but must have status, appeal, and be environmentally and labour friendly,” he advises. The size, colour and shape, plus the
sweetness and juiciness of the apple must become an experience for the consumer. A sophisticated marketing system is needed to sell these points and entice consumers into buying.

O’Rourke says warmer climate cultivars are gaining in popularity in Canada while the cooler climate ones are declining. “Grow what grows best, but keep trying new cultivars,” he advises, adding never be afraid to set aside a research plot on the farm.

Productivity improvements are crucial but absolute tonnage is not the only goal. The value of the output is more important.

O’Rourke says Washington growers need to increase their productivity average to four times the present level in order to compete with Chile.

“Many will not reach the new bar but the ones who do will see their cost of production be dramatically lowered. They will also be able to export more profitably and challenge competitors.” O’Rourke believes if Canadian producers do not do the same, their domestic market could become very vulnerable.

The quality and size of the pack out is also important. “It’s harder to sell smaller apples and break even,” he says. Size 88 and larger apples tend to make money but they represent only half of the pack out available on the market, and there is no broad promotion for smaller apples.

Pals are the alliances that growers,
packers and marketers need, and they can serve either high or low volume outlets, says O’Rourke.

With high volume, you are considered a “preferred supplier” to a large retailer, a smaller retail chain, or on the traditional wholesale market. Such alliances can also be forged with others outside the country and generally include a 12-month contract for delivery, with the supplier meeting strict specifications.

Low-volume pals are much more varied, says O’Rourke, and tend to be with smaller-scale operators specializing in customer service. These include roadside stands, ethnic markets or upscale restaurants. There may be room for innovations and possible niches in these markets, however, these small markets can be volatile and easily flooded, he cautions.

For apple growers to succeed in the global market, O’Rourke advises they supply apple products with the characteristics desired by their target market. Producers must be cost competitive while being able to meet higher standards for yields, value, traceability and quality assurances.

He recommends forming alliances with the packers and marketers best attuned to the needs of customers.

This trend is ever-present among retailers, and O’Rourke notes that U.S. grocer, Albertsons, which is about the size of Sobeys, did not think it would be large enough to compete with Wal-Mart in the near future. Albertsons then put itself up for sale, in hopes of forming an alliance with an equal-sized partner.

“Those who can’t compete will be gone in a few years, so don’t ally with them,” he adds.

Future success may rely on vertical alliances with packers, marketers, and nurseries within your own country, says O’Rourke. It may also require horizontal alliances with similar firms in other countries, which many successful operations currently have.

“The turmoil in the food distribution system is far from over,” warns O’Rourke. He predicts the successful operators of the future will have flexibility as their most critical attribute.


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