LAS VEGAS — In the face of the recession, produce companies can still expand and reach new customers.
Growing demand for Western-style grocery stores and products in Asia means opportunities for growth among U.S. produce companies, said Ed McLaughlin, director of the Food Industry Management Program and professor at Cornell University, Ithaca, New York.
“There are a lot of changes going on that have affected your businesses,” McLaughlin said during a grower-shipper panel at the United Fresh Produce Association convention on April 23.
A growing middle class in India and China coupled with aggressive expansion of large retailers like Wal-Mart, Bentonville, Ark., and French retailer Carrefour means there are hundreds of millions of new consumers looking for high-quality produce around the world, McLaughlin said.
“The hectic frenzied nature of some of the shopping is remarkable,” McLaughlin said.
Though food prices remain somewhat volatile and there’s uncertainty surrounding how long oil prices will remain low, there are other risks involved in international business, he said.
The recession also means that larger retailers are scaling back expansion plans for large stories in Asia and are also readjusting strategies in the U.S. market, McLaughlin said.
Wal-Mart, which has seen its same store sales grow at less than 1% in the U.S, is opening smaller stores under the Marketside banner in Arizona, while it phases out discount stores in favor of larger supercenters. Tesco’s Fresh & Easy hasn’t performed like the company expected, McLaughlin said, and is holding back on the number of stores it plans to open in the U.S.
“(Wal-Mart) no longer has a monopoly on the lowest prices in town,” McLaughlin said.
What this means for growers and shippers, who continue to see their share of overall food sales decline compared to what is spent on marketing, is a focus on brand differentiation and going back the basics of their businesses, McLaughlin said.
“You can’t stop differentiation in brands,” he said.
The focus of business can’t simply be on cost but on looking for opportunities for international expansion and investing in “human capital,” McLaughlin said.
Other major changes the produce industry needs to focus on this year is pending congressional legislation for food safety and traceability, said United Fresh President Tom Stenzel.
“Food safety is front and center on a lot of agendas right now,” he said.
Stenzel said he expects changes to food safety rules to come in a broader bill reforming standards across the food industry, not just produce. Some major areas legislation is likely to focus on:
- modifications to 1998 guidelines for reducing microbiological contamination;
- granting the Food and Drug Administration more power to administer commodity specific guidelines;
- a traceability mandate; and
- requiring companies to pay for audits and food safety inspections.
Stenzel said he expects Congress to start debate on food safety bills pending in both the House and Senate by September with votes possible later in the year, though it could be delayed depending on what happens with the recession and health care reform.