Three Predictions for 2018
An end-of-supply chain perspective
This year, 2018, will shape up to be another interesting and challenging year for the produce industry. And while there will no doubt be a few things no one saw coming, here are three that will have a significant impact.
Amazon and Walmart will continue to ‘trade punches’ – Both companies have made significant investments in areas that hit close to the core of the other’s historic competencies. Walmart buys Jet and continues its transformation to digital, while Amazon buys Whole Foods and establishes a presence in both the food and bricks-and-mortar space.
This year, significant attention will be given to produce being bought and sold online. Both companies are working through multiple means on how consumers will obtain these purchases (both in-store pickup and delivery). The key will be choice and both Amazon and Walmart will continue to slug it out and redefine what ‘grocery shopping’ means.
Aldi and Lidl will continue to create price pressure – These two companies will continue to expand. Lidl will get better at operating in the United States and expand while Aldi, which already enjoys a significant presence, will continue to execute its growth strategy.
What is significant here is not so much the market shares these companies will command, but their impact on retail grocery pricing, including produce. This will put a great deal of pressure on produce suppliers.
Retailers are already seeing margins erode as more food dollars move to digital at the top end and price pressure from the deep discounters at the bottom. Last year was tough on the stock prices of publicly-held supermarket chains, and margin pressures were one of the main reasons.
So it’s a safe bet buyers are going to hammer suppliers for cost concessions and other support in logistics and warehousing. Suppliers are already feeling the squeeze, and it will only get worse. Commodity items will feel the biggest pinch.
There are, however, two areas that will still get reasonable returns: processing and organics. With the ongoing shift in what constitutes ‘fresh’ to consumers, precut produce in single-serve packaging, meal solutions or prepared kits, and juices will all continue to grow. These items are not as price sensitive as their commodity counterparts, since consumers accept paying for convenience.
And as private labels continue to proliferate, the processing market should remain stable. In the case of organics, as long as demand exceeds supply, grower return will remain strong. The only caveat regards food safety—if such a disaster were to occur in organics, it would quickly erode the cachet the industry currently has with consumers.