Securing Supply in Fresh February 17 2015

Matt Beeson Founder of Beeson & Associates, Inc.

Dave Donnan Partner, A.T. Kearney

The Producer Perspective

• Economics of conventional crops

• Certainty of market going forward

• Term of ongoing agreements

• Case Studies

– Canned / Frozen vegetables

– Organic Milk

www.beesoninc.com

$1.75

$2.75

$3.75

$4.75

$5.75

$6.75

$7.75

$8.75

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Corn

10

12

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28Milk

$0.70

$0.90

$1.10

$1.30

$1.50

$1.70

$1.90Cattle

$2.50

$3.50

$4.50

$5.50

$6.50

$7.50

$8.50

$9.50

$10.50

$11.50Wheat

Recent Prices

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Producer’s Investment

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Is there enough pain to prompt change?

Education

Equipment

Transition Costs

A Time-tested Model

• Canned / frozen vegetables

• Assure a premium to alternative crops

• Supports the growers

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A large commitment is being made by the buyer

Key Assurances

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Pegged to commodity Producer times sale Buyer can hedge

Agronomy issues set by buyer Producer executes

Multi-year agreements Evergreen agreements Buyer takes all production

Pricing

Expertise

Producer Risk

Lack of Key Assurances

• Production varies with market variation

• New producers enter cautiously

• Existing producers exit when easier margins return

Result is supply excess and shortage

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Key Assurances

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Margin versus conventional varies Producer and buyer are price takers

Support provided by dairy partner Producer must still meet organic standards

Dairy takes all production

Pricing

Expertise

Producer Risk

Competing with Commodity Alternatives

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Allow prices to move with alternatives Allow producers to forward price

Provide technical resources

Provide a market

Summary: Key Assurances

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Pricing

Expertise

Producer Risk

Managing Supply

Source: Fresh produce supply chain UCD March 2009, A.T. Kearney analysis

Harvesting Crews / Growers

Affiliated Growers Outside Growers

(Imports)

Warehouse and Docks

Sales and Marketing

Brokers Terminal Markets

Foodservice Distribution Warehouse

Retail Distribution Warehouse

Freight / Shipping Agents

Independent Restaurants

Chain Restaurants Convenience Store Retail Store Export Market

Customers

Multiple Decision Makers

Sourcing / Buyers Relationships with Growers/ Bokers

Transportation Carriers and Shippers

Merchandising Pricing and promotions

Replenishment Forecasting, planning

Sources of Variations Seasonal Variations

Poor Crop Yield

Reduced Quality of Crop Yield

Commodity volatility

Retailers have always struggled to

pair buying and pricing strategies Typical Retailer dilemma

Promotion Pricing, Can’t

predict demand or

supply

Erratic Supply (droughts, fires,

perishability)

Stable Supply (predictable growing

activity, stable grower base, etc.)

Low Sales Lift Item High Sales Lift Item

Promotion Price

Strategy Used

Everyday Price, But Can’t predict

supply

Everyday Price

Strategy Used

Retailers are creating supply systems by partnering with growers

Source: Wholefoodsmarket.com, WSJ.com, ACCBeef.net.au

Five areas of advantage

Growth & Innovation

Sustainability

Risk Management

Product Quality & Safety

Long-Term Cost Advantage

Retailers select supplier relationships

Innovation Secure Supply Partnership

Innovate E.g. Grapes, Fresh Ready Meals

Partner (Innovate and Secure Supply)

E.g. Beef, Berries

Maintain E.g. Broccoli, Head Lettuce

Secure Supply E.g. Garlic, Lemons

A.T. Kearney Commodity & Supplier Relationship Framework

Commodity Risk of Supply

Co

mm

od

ity S

trate

gic

Im

po

rtan

ce

Pricing Strategies Adapt to Market Conditions

Advanced analytics enables

greater buying and pricing flexibility

Leaders Analyze Demand Trends

Supply Base is Secured Across Growing Regions

Case Study – Analytics in Produce Commodities

Competition is no longer between companies, but between supply

systems