The Mergers & Acquisitions Puzzle

Consolidation has helped fruit and vegetable suppliers position themselves to serve the relatively few retail buyers left after so many mergers. “The decision to purchase is in the hands of fewer and fewer people,” says McLaughlin, who offers an example. If there’s one person at Kroger who buys strawberries, one who buys potatoes, and one who buys Meyer lemons—“if you want to sell Meyer lemons to Kroger, you better get along with that person. In the past, you could just say, ‘I’ll go across the street and sell to your competitor,’ but now Kroger owns that competitor.”

Riggan points out that consolidated supermarket operators want to use one primary vendor for each commodity category. “Retail only wants one to two picks on a full order,” so stores need to consolidate fruit purchases to one channel, he says. Retail consolidation also requires suppliers to improve customer service in all aspects of the business: such as offering fruit year-round by supporting an import program; funding quality assurance, food safety, and logistics processes that meet customer needs; and streamlining marketing, logistics, and even accounting.

“There are efficiencies on the retail side that we don’t even think about on the sales desk,” Riggan shares. “It’s about processing through the entire system; it’s not just the buyer, it’s the accounting department.” Retailers don’t want to process all the requisite information from several different vendors, they prefer one seller, one invoice, and year-round product availability.

Part of the impetus for consolidation on the supplier side comes from the need to diversify. The objective, in part, is to allow suppliers to market other brands. “They still grow their own product, but they’re also marketing the goods of other farmers,” he notes, and this has become a more substantial part of their business. More simply put, he says, “It’s bigger players selling to bigger players.”

Changing Relationships
In the weeks and months right after a merger, confusion can reign, as vendors learn new IT systems and figure out who their new contacts are during the changeover to a centralized procurement system. “How the merged companies deal with their suppliers can be very different,” mentions Peterson. “In M&A, it’s never an issue of two equals merging. The company that has the upper hand will impose its terms and conditions on the other, as a general rule.”

Not only are there different requirements, pricing strategies, and systems, but relationships that have been built up over the years suddenly disappear. “Interpersonal relationships with buyers are very important in the produce industry,” relates Peterson. “You’ve cultivated a buyer for years, and then he/she is gone.” A formerly stable relationship is now replaced with a new reality. “Now, it’s ‘what have you done for me lately?’”

Some vendors may be pushed out completely as new ownership opts to supply acquired stores through existing vendor relationships rather than using the acquired chain’s network.