(March 30, 10:25 a.m.) SAN DIEGO — A workshop at the California Grape & Tree Fruit League’s 73rd annual meeting featured a verbal sparring match showcasing the sometimes contentious relationship between retailers and suppliers.

Harold McClarty, owner of HMC Farms and The HMC Group Marketing Inc., Kingsburg, Calif., and Bruce Peterson, former Naturipe Farms and Wal-Mart executive who is now president of his own consulting firm, Peterson Insights, spoke during a workshop.

“The returns to the grower have been negative for so long that the industry is now at a critical point,” McClarty said. “Retailers are placing more and more demands on our efficiencies every year, while asking us to be more competitive and aggressive with our pricing.”

But the negative cash flow many stone fruit grower-shippers have endured in recent years is not solely placed on the shoulders of retailers, he said.

“We overestimate demand, then oversupply our estimate,” McClarty said.

He pointed to the overproduction of white-flesh peaches and nectarines, which skyrocketed from about 1.5 million cartons in 1996 to nearly 13 million cartons in 2007.

The average cost of growing and packing nectarines in 2008 (56 cents a pound) was higher than the average f.o.b. (44 cents a pound), he said, while the average per-pound retail prices was $2.02. The difference between what the grower was paid and retail prices nearly tripled from 1980 through 2000, McClarty said.

What has changed in recent years is retail consolidation, which McClarty said made retailers more powerful and enabled them to increase leverage on purchasing from the grower.

“The grower has to accept the responsibility for changing the profit structure,” McClarty said. “The power is in the box. All profits upstream are derived from the box of fruit, and the box of fruit is controlled by the grower.”

When growers accept part of the blame for negative cash flow, he said, that acceptance will be part of the solution.

The frustrations felt by grower-shippers, Peterson said, are due in large part to ignorance of retail operations.

“The assumption there is a one to one correlation between f.o.b. cost and the retail price is a myth,” he said.

There is no common method used by retailers to price products, Peterson said. Many factors — some of them in other departments — determine the price of each commodity.

“As a rule of thumb, the produce department contributes about 10% of a store’s sales and 17% of its profit,” Peterson said.

He broke down a dollar generated by the average produce department:

  • 45% pays for the commodity;
  • 15% is for labor;
  • 30% goes to shrinkage and miscellaneous costs; and
  • 10% is retained as net profit.

By comparison, frozen foods contribute more than 30% of a store’s food sales profit, he said.

Pressure on wholesale prices will continue to be strong for the balance of the year, Peterson said.

“Margin will be — and in most cases already is — the No. 1 concern for retailers in 2009,” he said.

As for the relationship between suppliers and retailers, the gap remains and is not likely to narrow soon.

“Producers never make sense of retail pricing, because growers are from Venus and retailers are from Mars,” Peterson said.

Tree fruit suppliers discuss retail prices
Harold McClarty, owner of HMC Farms, Kingsburg, Calif., tells workshop participants at the March 23 7th annual meeting of the California Grape & Tree Fruit League that growers must accept some of the blame for their losses by stone fruit suppliers.

Don Schrack