The other day I saw a documentary on the pressure retail who is unleashing on the food industry in their strive for cheaper and cheaper foods. Claiming that the consumer is setting the prices nowadays, most retail chains have engaged in the price war. I couldn’t see the winner from this endless war, because the only thing I can see is loser(s).
The race to the bottom
In retail, marketing used to be very simple. Two variables determined the strategy: the price and the quality.
Either you went for low price/low quality or high price/high quality, and that worked quite well: you had the supermarkets with a great offer of (pricy) top products, and if you wanted to go for cheap, then there were the discount supermarkets.
What retail is pushing nowadays is low price, high-quality, and somebody had to reduce their profit margin to make this happen.
Obviously, it wasn’t the retailers but the producers that had to pay that price.
This means that the customer gets genetically modified produce, from vegetables, fruit, to meat. Basically the producers try to harvest more from nature: Genetically modifying plants is one thing but imagine how that goes for meat and fish?
Farmers are now, for example, trying to have more piglets from a pig. (while the number of nipples a pig has is quite limited) or how they are breeding salmons nowadays is way too small fish tanks.
How could it come to this?
We have foreseen the French and Belgian farmers’ strike. With European agriculture subsidies having the biggest of the budgets, one might say that already a lot is done to support the farmers, but the percentage that goes to the producers from what a customer pays is too small.
However, there are a few things you should take into consideration. To start with, it’s always dangerous for a company to rely on a limited number of customers doing most of their turnover.
Let’s face it, a large number of producers are delivering their products under the supermarket brand.
In the past, most producers had a lot of small clients like grocery stores. Supermarket chains, however, won this first retail war outsmarting them in both service and price, offering consumers a one-stop-shop for all their groceries. For producers, it was easy: service a smaller amount of customers that bought higher volumes.
Year after year, the retail chain renegotiated the prices, and they were always counting on lower ones.
Now supermarkets are competing almost only on price and, therefore, the producers are suffering and ending up with – if they are a bit competitive – being paid the cost price for their products.
Is there an easy way out?
The first question I ask myself is if consumers are willing to pay more for their vegetables, cheese, meat etc.
What if they know the ethics of the product are correct and the quality of the product is better?
Have you ever compared the taste of tomatoes from a supermarket with those from a traditional vegetable market? (Read “Tomatoland: How Modern Industrial Agriculture Destroyed Our Most Alluring Fruit” by Barry Estabrook if you want to know more about the why).
I believe producers should do 3 things to get out of this, and I don’t mean trying out strikes to get better prices.
Invest in quality
Please. Do it for you, me and all the consumers. Instead of endless investments in efficiency, trying to produce more, faster and cheaper, try to produce better instead of cheaper products. Let’s have the quality back in the products. Sometimes I really wonder if our grandparents would still like the bread we are eating nowadays…
Diversify your customers
Don’t be lazy, if you don’t like the customers for whom you produce, find other ones. If you only have a few customers, try expanding your number of customers so that you are not so dependent. It’s all about expanding your fan base and make them like your business for the high-quality products you provide.
Invest in other channels
Why not go straight to the consumers? There’s something like e-commerce that might help you do this! Or maybe you can start a win-win partnership with a company that is willing to do the marketing and management of the platform.
And yes, I agree consumers should pay more for good quality products.
Photo source: freepik.com
