As the major retail multiples in Western Europe saw their overall share of the fresh produce market increase rapidly in the late 1980s and throughout the 1990s, they enforced new standards of professionalism in the areas of production, procurement, post-harvest handling and distribution amongst all the major international suppliers.

These standards – often set at a level well above the statutory regulations set by the EU Commission with regard to produce quality/packing and labelling requirements – have now become regarded as the norm. It has produced a situation whereby internationally based growers and distributors are required to supply exceptionally high quality produce to the leading retail multiples on an all year round basis. This has also exacerbated the fall out at grower/exporter and specialist distributor level, with a continual move to drive out unnecessary costs from the supply chain.

Recent developments in the European retail market, especially with the introduction of new business techniques, such as category management, will continue to force the standards of technical and commercial performance required of suppliers even higher. Category management first emerged in the EU market in the early to mid 1990s amongst the leading suppliers of high value processed food products (for example, confectionery, soft drinks, snack foods, etc.) and as such is nothing new; but its application to the fresh produce sector in the last 12 months has caused shock waves throughout the supply chain.

The basic principle of Category Management is that major retailers are increasingly looking to pass back full responsibility to nominated suppliers (the category captain) for all procurement, marketing, logistics, technical support, promotion, market research, training and R&D work. Each of the leading retailers is developing its own particular “brand” of category management to suit its particular needs, but a common feature is that they are invariably looking to reduce further the number of suppliers that they deal with on a direct basis.

In some cases, this has seen the number of primary handlers reduced from around 20 to just 5/6. In effect, the distributor will become an integral part of the retailer’s operation. This will see a major change not only in the relationship between the distributor and the retailer, but also between individual suppliers; some companies that have been operating in direct competition to each other will find themselves working together (i.e. they will supply the category captain), others will be forced to look at new opportunities in areas such as foodservice and catering, and the possibilities brought about by e-commerce trading platforms. Some will have to – almost inevitably – fall by the wayside.

The motivation to introduce category management has been due to a number of key reasons:

  • an opportunity to reduce further supply chain costs
  • the need for retailers to concentrate on retailing rather than being distracted by getting over involved in other areas; this is particularly the case, when the mass middle market on which many UK and other EU retailers have built their business, is beginning to break down
  • the need to get close to understanding consumer behaviour which, due to demographic and socio-economic change, is becoming more unpredictable

Pressure on retail market…

 Category management does however offer the chance for highly professional and competent suppliers to align themselves closely to the major retailers in the UK market; but one of the realities is that rather than supplying maybe 7/8 retailers, the primary distributors will only be “allowed” to supply one (or at most two) significant retail operations. While the category captain will in effect control a large proportion of the retailer’s business and be totally focused on managing this for them – the downside will almost invariably be that they are excluded from supplying other major retail accounts.

Category management can, therefore, be seen as something of a double edged sword, but is fast becoming a market reality in the UK, and other continental European retailers look set to follow suit. Category management also allows for an opportunity to plan ahead for 2-3 year periods, rather than operate on a season-by-season basis, that has so often been a feature of the international fresh produce trade. Further consolidation may also see an opportunity to re-introduce profit to the sector, which has also been dogged by problems of oversupply and lack of genuine scale.

But the stakes are being pushed even higher and the margin for error being reduced. Fresh produce companies around the world will need to develop ultra close relationships with the appointed Category captains in the UK and other EU markets, and begin to work in real partnership with them.

One of the key challenges of category management is to get the correct messages about what is happening and why (and what the implications are) down to the grower base. Fresh produce growers will need to move rapidly away from a “production led” style of operation to a genuinely “market driven” position in the market, whereby the customer (and indeed the customer’s customer) is at the very heart of the business, and which is reinforced by the production, market research and marketing functions of the business.


Technical competence in growing, post-harvest technology and physical distribution and the ability to meet the 4 P’s (product, place, price and packaging) has in most of the major sources of supply largely been acquired. The future requirement will be for growers and suppliers to understand the 3 C’s – the overall competitive (food) environment in which they operate, the importance of customers/consumers and the development of new product and marketing concepts. There is no doubt that the international fresh produce industry faces significant challenges in the next few years as the use of Category Management techniques becomes very much the norm in the highly competitive UK and EU retail market.

Imperatives for the fruit & veg industry

Yet the industry’s reputation for technical competence stands it in good stead to meet these; as with any significant change in the international market, how the fresh produce industry responds will be critical – CM does pose threats, but also offers major opportunities for proactive and forward looking companies to develop the type of commercial partnerships that have been sought after for so long in the produce industry.

Change is being driven through rapidly. Growers/distributors around the world need to understand what is happening (and why) if they are to react coherently to this. Despite the changes in the way that retailers want to operate, they still very much hold the balance of power in the supply chain. Although this will be somewhat redressed by the use of CM techniques, risk still remains largely concentrated in the upstream sector. But the issue of CM will not go away in the near-medium future. The challenge for the international fresh produce sector is to build the relevant skills into the overall produce offer.

By John Giles, Promar International
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