Apparently, Wal-Mart plans to buy apples directly from Washington State growers and open an office in Yakima, setting a precedent for changes coming in its procurement practices for other fresh produce.
One Washington apple industry source, speaking on condition of anonymity, said Wal-Mart is opening a buying office in Yakima to command all buying functions. The largest U.S. food retailer - the source said Wal-Mart will buy as many as 15 million cartons of Washington apples this year - has reportedly approved five additional apple suppliers to the five previous shippers.
A spokesman for Bentonville, Ark.-based Wal-Mart Stores Inc., did not return a call from The Packer on Aug. 13.
Maureen Royal, director of sales for CF Fresh, Sedro-Woolley, Wash., said there are rumors that Wal-Mart will locate its office at a Yakima packing shed.
"(Wal-Mart people) are coming in and going more direct with growers," she said. "They look to that so they can take the middle person out."
Wal-Mart is reportedly asking suppliers to fill out three-month bid sheets, detailing what grades, prices and varieties the packer can offer the retailer.
"They are taking individual sales companies out of committed business and turning it to a more price-focused process," the source said. "They probably felt people weren't as aggressive with prices as Wal-Mart thought they should be."
The source said the new procurement model is rolling out for apples now, with other produce likely to follow.
Industry consultant Bruce Peterson, who stepped down in 2007 as senior vice president and general merchandise manager of perishables at Bentonville, Ark.-based Wal-Mart, said Aug. 13 he had heard that Wal-Mart was changing its procurement model for apples several weeks ago.
"I got wind about a month or so ago that they were going to buy Washington apples direct and do it out of the global sourcing areas," he said Aug. 12. "This is something that clearly every domestic marketing company better take notice of."
Wal-Mart appears more focused on eliminating costs in its estimated annual fresh produce purchases of close to $8 billion, he said.
He said Wal-Mart is starting with a commodity that is fairly predictable and stable.
Peterson said Pam Kohn, who succeeded Peterson as senior vice president and general merchandise manager for perishables, now directs global procurement and is apparently directing the new apple strategy.
"What surprised me about that is that I have known for quite some time that Wal-Mart had intentions of buying direct on a global basis; in others words, if you are down in Central America or Chile, they had aspirations of doing that," Peterson said. "It surprised me a little bit that they decided to do that domestically, and I think it caught a lot of the Washington guys by surprise."
Peterson hadn't heard Wal-Mart had planned to open up a procurement office in Washington.
"If that's their thinking, it appears major commodities are an area they want to explore on a direct basis," he said.
Peterson speculated Wal-Mart may also be looking at buying direct for commodities such as potatoes, grapefruit, pears, stone fruit, onions, lettuce and citrus.
"I can't see they buy Washington apples direct but nothing else," he said. "This is something that bears watching."
Wal-Mart's procurement model could place it as a competitor to Washington apple marketing companies.
"The marketing companies won't sit by and let their business go to pot," Peterson said.
Some larger apple marketers in Washington might currently send as much as 20% or 25% of their fruit to Wal-Mart and might see those percentages decline with the new procurement model. In addition, some may need to reduce their staff dedicated to Wal-Mart business.
Representatives of Domex Superfresh Growers, Yakima, Wenatchee-based Stemilt Growers Inc. and Yakima-based Rainier Fruit Company were not available for comment on Aug. 13.
Desmond O'Rourke, president of Belrose Inc., Pullman, Wash., said that Wal-Mart will still be dealing with integrated marketers as it seeks to buy direct from growers. O'Rourke estimated perhaps 60% to 70% of the Washington tree fruit industry is integrated on a grower-packer-shipper basis.
"Rainier qualifies as a grower and Stemilt Growers is the name of the company," he said.
Competing for growers?
Peterson said Wal-Mart may be in a position of competing with other marketing companies for growers.
"What happens when your customer becomes your competitor? (Wal-Mart) is really competing for the same growers you are," he said. "How Wal-Mart competes with marketing companies — whether through avenues such as grower financing, faster pay or better returns remains to be seen."
Wal-Mart has been moving away in recent years from a procurement model that was more interactive and collaborative, where Wal-Mart chose a select number of vendors to help manage inventories at distribution centers.
Vendors were involved in selecting growers, getting growers paid replenishing the warehouse and drawing up models for display areas at retail, Peterson said.
Now the idea of vendors being involved in replenishment for a specific distribution center is going by the wayside.
However, Peterson said cutting out marketing companies is by no means a sure bet.
"If you cut out the margins that the marketing company is making, you save money in one part of the supply chain, but I'm not sure that it will reduce your total costs."
Peterson said the companies what Wal-Mart did business with when he was there were reasonable.
"I thought the margins they made were totally acceptable given the service and other things they did."