THE OMNI-CHANNEL FUTURE

Originally printed in the January 2019 issue of Produce Business.

A complete re-thinking and re-orientation of product development is in store.

When the phrase “Omni-Channel” is mentioned, most people immediately think of digital, and with the acquisition of Whole Foods by Amazon, the colossal issue of combining the “bricks” with the “clicks” has dominated retailing.

Indeed, there is a real reason for the production, distribution and marketing elements of the produce industry to pay careful attention.

Already, it is quite common for major marketing companies, which have spent fortunes to build their brand identities, to find out that their investments in building consumer allegiance may be used in vain. Retailers, sometimes intentionally, sometimes through negligence — or because services such as Instacart have difficulty keeping up with what is happening in the stores — will market branded product on their websites and in their apps, but then deliver totally different product to consumers.

Actually, the issue may be that branded players don’t see this at all. They have not set up mechanisms for monitoring websites and apps, identifying how their brand is used and, even if the branded players had this data, they would be uncertain what to do with it. Of course, the branded marketers could notify the webmaster or store’s marketing department of the error, but it might not be an error long as the retailer may move back to buying from the branded firm. Weighing in on this is the fact that these retailers are big customers. Are the produce companies really going to start suing their best customers if they don’t cooperate?

Part of the issue in digital selling is the technology and systems view produce as a commodity. Even if the online portals or apps are promoting a particular brand of produce, they allow for the delivery interchangeably with another brand.

This is not the case with grocery items that have defined SKUs by brand and size. So, if you order Snapple in 20 oz. bottles, retailers won’t deliver Arizona Iced Tea or even Snapple in a different size without notifying consumers of an out-of-stock and getting permission to substitute. In contrast, you can order Halos and receive Seald Sweet’s Mandarina’s without notice.

Raising The Quality Bar

There are lots of specifics that impact how produce will be sold online and packaged for home delivery. Indeed, one can expect that home delivery will create many new obligations for producers.

It is one thing for produce to be imperfect in a store. The retail clerks can see this and trim or sort to remove the poor-quality produce. Even if they don’t, the consumer can typically see this and either sort through and take the good stuff or not buy it at all.

Home delivery is more like the export business. When exporting, it is imperative to ship the produce in the best condition. Why? Because if you get a rejection, it is not on a relatively inexpensive box of produce; it is on that box, plus overseas freight, plus tariffs, etc.

Equally, if the produce that is delivered to a home is unacceptable, you have spent all the delivery costs and still have an irate customer to deal with who might need that particular item for dinner that evening.

Recently, we placed a dinner order with Delivery Dudes, a restaurant delivery app, for our team working late at the Produce Business office. The food was delivered fine – but they forgot the beverages. The Delivery Dudes folks immediately removed the drinks from our bill, but that didn’t satisfy us. We had all this food and wanted our drinks! We had to fight like crazy, and get the actual restaurant involved, to get drinks. And we still weren’t happy! By the time the drinks arrived, the food was cold!

One is reminded of the proverb that Benjamin Franklin famously printed in his Poor Richard’s Almanack in 1758, which he proceeded with the words: “A Little Neglect May Breed Great Mischief”:

For the want of a nail the shoe was lost,
For the want of a shoe the horse was lost,
For the want of a horse the rider was lost,
For the want of a rider the battle was lost,
For the want of a battle the kingdom was lost,
And all for the want of a horseshoe-nail.

Perhaps more directly relevant to our logistics-driven case, during World War II the verse was framed and hung on the wall of the Anglo-American supply headquarters in London. The point being, of course, things that seem unimportant can have enormous implications. As an example, dissatisfaction with the delivered oranges can mean a consumer is unhappy with the duck that was purchased to make a special Duck L’Orange for a date or to impress the prospective in-laws. The experience of dissatisfaction reflects on both the delivery service and its parent company.

The general issue is that producers in the produce industry are used to developing product they think wise to produce, packing it in some kind of standard packing, slapping a label on it and then offering it for sale.

In other words, they produce first, market second. Yet the home delivery market is an example in which better success will be had by developing product and packaging that allows for successful delivery each and every time. The start is for producers and marketers to engage with the retailers and delivery services. Only after the retailers/delivery services have become enthused about the product, even committed to it, then can the industry begin producing and marketing this built-to-purpose product.

Serving The Omni Lifestyle

This lesson actually goes beyond simply home delivery to Omni-Channel in the broadest sense.

The logic of Omni-Channel is to serve consumers where, when and how they wish to be served. The obvious channel to think of is that of delivery as an adjunct to pick-up, and pick-up as an adjunct to the physical shopping experience. But people are “omni” in more ways than just how they wish to receive product. They have an “omni” life.

The home delivery market is an example in which better success will be had by developing product and packaging that allows for successful delivery each and every time.

Sometimes consumers want convenience and to run into a convenience store – maybe that is a Wawa or a 7-Eleven or an Amazon Go. Sometimes the shopper wants to express certain values and buys from Whole Foods. Often they want special product … say they love the frozen meatballs at Trader Joe’s, so they go there. Maybe they want to be surprised by what is on sale so they go to Costco and buy something they hadn’t expected to buy.

At some moments in life, consumers are frugal and go to deep discounters such as Aldi or Lidl; sometimes they are indulgent and go to gourmet stores.

For the produce industry, what Omni-Channel retailing really means is a re-orientation of production and marketing — a move away from a commodity focus in which products are produced then sold, to a focus on product development, including packaging, that will align producers with the needs of a dollar store, a delivery service, a warehouse club, an epicurean chain and on and on.

In other words, Omni-Channel refers to a distribution method but also a product channel — all aligning with a specific type of customer or a customer at a specific moment in his or her life.

Much is made of demographics — is this an “A” store in an upscale community or a “D” store in a downscale community? Is this store serving a predominantly Latino community, or do we need to look for a Kosher butcher for an Orthodox Jewish community?

But life is actually more complex. The same person may behave differently the day he gets paid than the day before he gets paid and so is trying to hold things together until the next check arrives. The same person who splurges at Whole Foods to impress a date may economize at the dollar store when there are three kids to feed and they are saving for a Disney vacation.

Thinking Outside The Retail Box

In a sense, Omni-Channel calls on the production and marketing sectors to think less like traditional vendors to retail and more like vendors to foodservice. This is complex because most produce firms are not very good at marketing to foodservice.

For the produce industry, what Omni-Channel retailing really means is a re-orientation of production and marketing.

Retailers traditionally take what is offered for sale and try it out. The product either sells or it doesn’t and thus is either restocked or discontinued. But the initiative typically comes from the marketer, in which a new product is launched and must be sold.

In contrast, in foodservice, a producer/marketer can knock his head out calling McDonald’s to sell them peaches, but since peaches are not on the menu, the efforts are not likely to be very effective.

If you think about a product such as Chicken McNuggets, there were many points of interest in the development of that product. McDonald’s had a price point it wanted to retail at. McDonald’s wanted a product that could be produced with existing kitchen equipment. McDonald’s wanted a product that would allow people nervous about health messages regarding beef to have an alternative — and many other things.

In the foodservice segment at a retailer, this focus on the specific needs of the retailer is already strong. If you want to sell a meatball sub to Wawa, it can be frustrating as a vendor’s sub may be superior, but Wawa, knowing its customers, has a specific price point it needs to sell at and it has specific margin requirements. A vendor walking in and trying to persuade Wawa to sell a sub for a dollar more than the number in the RFP is unlikely to be successful.

What this leads to is the idea that produce sales teams need more engagement and expertise with specific vendors. So rather than selling the product, the sales teams require reorganization to sell the client.

In a sense, Omni-Channel calls on the production and marketing sectors to think less like traditional vendors to retail and more like vendors to foodservice.

Of course, many large vendors have sales executives in Bentonville or Cincinnati, dedicated solely to Walmart or Kroger. Sometimes these dedicated people actually have their own offices in the buildings of a big customer. Even then, though, we often find the sales teams are not fully integrated with product development teams able to create products that will please both the retailer and the ultimate consumer.

Partly this is because doing this requires expertise in consumer research, packaging, breeding and much more, and it is not easy to bring all this expertise together.

The commodity-driven nature of the produce industry also makes producers/marketers hesitant to make this investment. They fear that even if they develop a product right for a retailer or restaurant, the buyer will switch to procure it from someone able to sell it cheaper – perhaps because the cheaper vendor doesn’t invest resources in client engagement and product development!

Paradigm Shift

It is a reasonable concern but, ultimately an unsustainable position.

When this author’s family was in the supermarket business, the big concern was that a competitor would open a bigger, better supermarket right across the street. Today that concern is less. For a long time now, the retail industry has been moving to a more segmented focus, each concept being a channel to a different consumer at a different moment in time.

For the traditional supermarket, this is a big threat. You can be the best supermarket in town, but your customers will be tempted to shop elsewhere at certain times if a Trader Joe’s opens nearby to capture the epicurian market; if a Whole Foods opens to capture health-oriented folks; a Fresh Market to go upscale; a Walmart supercenter to offer everything in one place; a warehouse club to offer high volume at a discount; a dollar store to offer bargains; an Aldi and a Lidl to serve discounts; a delivery service such as Amazon Fresh or Fresh Direct to offer delivery convenience; and the local Walgreens adds produce for the lunch crowd, on and on.

None of these specialty concepts may, by themselves, drive the model supermarket out of business, but as long ago as 1993, this author wrote a column in this same magazine, titled Death by a Thousand Cuts, that pointed out the obvious. Retail is a high fixed-cost business, so if each of these concepts take a half a point or a point or two of business, that is 20 percent of the stores’ volume off the top. That translates not into a 20 percent reduction in profit; it translates into the supermarket going broke.

The best minds on marketing produce need to be thinking of this Omni-Channel future by thinking of how they can re-orient their sales teams to focus on discreet retail categories and specific companies.

So, the best minds on marketing produce need to be thinking of this Omni-Channel future by thinking of how they can re-orient their sales teams to focus on discreet retail categories and specific companies. They need to think about building their competencies in areas that will allow them to sit down with a dollar store and develop a product that can meet the price point. They need to sit down with a computer-ordering-and-delivery service and be able to offer products that will make it through the last mile and not lead to rejections or dissatisfied customers.

It is a big shift in mindset. For the produce industry to thrive in the brave new world of Omni-Channel retailing — to move from selling loads of a fruit or vegetables to selling 99 Cents Only Stores or Amazon Go — the industry must focus on the channels, not the product.

Failure to re-orient will be a substantial handicap as the future unfolds.7