Sustainability Requires New Retail Pricing Model

Originally printed in the June 2023 issue of Produce Business.

In our previous column, we discussed the subject of sustainability in the produce industry. After our analysis and discussion, it seems the industry has been, and will continue to be, moving in the proper direction of maintaining ongoing sustainability and successful growth.

This time, we’re moving to another area of sustainability, and that is the overall sustainability of current produce retail pricing. This is an area that is rarely discussed, as it is something that upper management is uncomfortable talking about and is one of their favorite tactics to generate short-term profit. They have created a world of demand for more and more profit, and produce is squeezed nearly every accounting period to generate additional, and sometimes unreasonable, profit targets to bail out management and meet the expectations of the financial world.

Over the years, these demands have continued to increase. In their minds, they don’t care if we sell any more product, just bring in more dollars by raising retails at the drop of a hat. Because of this myopic focus, upper management can’t see the danger in this, and once again proves “that they just don’t get it!”

The current retail pricing model is inherently unsustainable. The practice of raising retails arbitrarily to generate profits and inflate sales has a substantial negative affect on the volume (pounds or units) of produce that is sold. This has been proven time and time again, to the chagrin of many a produce retailer.

It is only logical that by raising prices higher and higher to meet management profit goals inevitably results in less and less volume being sold, eventually reaching a point where you can’t raise prices enough to offset the lack of volume. This results in the whole process collapsing like a house of cards — the ultimate example of an unsustainable process resulting in failure.

Raising prices to meet management profit goals inevitably results in less volume being sold.

Despite this pending disaster, many produce retailers are still utilizing this process to satisfy demands from upper management for “instant” profit generation. It is obvious this destructive mindset must be addressed.

This cycle of spiraling prices has been around for years and has proven to be a complete failure by many produce retailers over time. It seems that only in the last 20 years or so has management become acutely aware of the ability of produce to generate rapid, short-term profits at a moment’s notice. It seems they finally recognized produce had the benefit of a perception by the customer of price inelasticity. It seems that the customer was not keenly aware of what proper pricing should look like on produce commodities, apart from a few items (ex: bananas).

Since this “revelation” by upper management, demands for this type of arbitrary price increase have continued to grow and show no signs of slowing down.

Another area affected by this process is the relationship between retail and the supplier community. In many cases, a request by management for more profit not only involves the artificial increase in retail prices above actual inflation (fake inflation), but also drives aggressive negotiation techniques by buyers to reduce the initial cost of the product.

In most cases, these techniques are high-handed and do not foster productive supplier relationships and mutually beneficial outcomes for both parties. Many suppliers resent this type of coercion, as they see no benefit to them from these negotiations and, in many cases, see an actual reduction in the amount of product sold. This outcome certainly doesn’t generate any tangible benefits and only creates hard feelings.

This negative process needs to be reversed immediately or the industry risks a complete collapse of the viability of relatable produce pricing strategies. There is a vital need to have a serious discussion involving all parties — upper management, transportation, distribution, produce merchandising and retail management — to determine what would be the best course to determine how to reverse this destructive spiral.

This will be no easy task, as the change in mindset by many of the parties will be challenging to achieve. Despite the difficulty, it is critical for the total operation to address this situation and come up with a solution that sets the total operation on the right course and avoids the continuation of an inherently unsustainable process that threatens the life and viability of fresh produce at retail.

Given the fact that this process is not new and has proven to be a detriment to the success of any fresh produce operation, it shouldn’t take a rocket scientist to see, not only the unsustainable nature of this process, but also the inherent danger to the welfare of the industry represented by this destructive process.

Don Harris is a 41-year veteran of the produce industry, with most of that time spent in retail. He worked in every aspect of the industry, from “field-to-fork” in both the conventional and organic arenas. Harris is presently consulting. Comments can be directed to [email protected].