From the pages of Jim Prevor's Perishable Pundit

The success of the produce industry — whether judged in financial terms, or the ability to increase consumption, or the sustaining of the agricultural economy with the environmental and social benefits that flow from all this — hinges on individual crops being successful.

This is especially true of the largest and most important crops, such as table grapes, which are always a Top Five fruit in terms of sales to consumers and a crop experiencing an explosion of innovation — both in varieties and business models.

Yet, as is always the case, the same innovation that offers hope and optimism for the future of the category threatens the established order of things and thus the supremacy of established interests.

We wrote recently about the decision of Sun World International to divest its growing operation and refocus on its Sun World Innovations unit — a sure sign that at least one savvy player sees the value-add in the industry as coming from genetics, licensing, branding, etc.

Now, long term, of course, it is unlikely that this business can succeed if the growing community does not prosper. In the same article, we pointed out some deep concerns of the California grape growing community:

1) California’s minimum wage law raising the cost of production.

2) Worldwide over-production of grapes.

3) Mexico on the front end and Peru on the back end, eliminating the once profitable shoulder seasons.

4) Many new varieties not delivering on a promise of better taste, but still costing in royalties and licensing fees.

5) Consolidation on the buying end of the business, allowing for great pricing pressure to be put on producers.

6) Spain and other producers competing for Asian business that once was exclusively a market for California grapes.

Of course, many of these concerns are global. In Spain, they worry about Morocco; in Chile they worry about massive plantings in Peru, etc., etc.

Clearly the advent of proprietary genetics has been a game-changer. Indeed, when one looks closely at regions or countries that have bad seasons, you often see a bifurcation in the market — that those with superior varieties did much better with direct retail sales, while older non-proprietary varieties struggled to find a place in the market, sometimes winding up being cuffed to terminal markets with concomitant pricing pressure.

Yet the role that proprietary varieties will play is still uncertain. Phil Macy, Category Buyer for Grapes and Stone Fruit at Sam’s Club, has positioned himself as an advocate for the new varieties. Pat Burlinguette, Fresh Foods Buyer at Costco Wholesale Canada, has been slower to the party. Not so many years ago, speaking on grape varieties, she explained, “If I could get a good Thompson Seedless and Crimson 52 weeks a year…that’s all I would need.”

Today, Pat and much of the industry have come to embrace many new varieties.

It is, however, hard to know the actual importance of varieties in this decision-making process.

There is a kind of selection bias leading to new varieties. After all, the newer plantings and better growers are both heavier to newer varieties. If buyers aren’t ‘variety-specific’, they will tend to get product from older vineyards and the varieties that are out of favor. It happens when you get a buyer who ‘will take anything’. Then shippers have a tendency to push the limit, fool themselves that ‘this is what the customer wants’ and kill the goose that lays the golden eggs.

So, some shipper winds up slamming too many vintage reds down some buyer’s throat, and the buyers start to change their way of thinking.

So today, many buyers have their lists of preferred varieties — not all new — a list of varieties they will take if they have to do so from companies that have the varieties these buyers really want, and varieties — old and new — that these buyers do not want at all.

In this continuum of acceptance — required, preferred, indifferent, discouraged, prohibited — many buyers are evolving into identifying an acceptable group of varieties, among which they are indifferent — price, quality, service, loyalty become the factors. They are also evolving into identifying a prohibited group of varieties.

This is all very problematic for the grape industry. In theory, proprietary varieties could be the answer to change the power structure between consolidating retailers and, in this case, grape growers.

If everyone has a Thompson seedless, buyers can play one vendor off another and drive the price down. If the buyers must have a particular variety and that variety has been restricted, the grower has much more power.

Occasionally a really unique variety comes up and, indeed, retailers complain about the producers and marketers in control of such varieties, demanding potentially illegal tying arrangements in which the power of the seller is so great he can demand that the buyer purchase other products in order to secure the desired product.

Mostly though, the grape industry has not been successful at getting the consumer loyalty that would compel retail loyalty. This is not to say that many retailers don’t have strong preferences. They may do their own taste tests or just prefer to work with certain producers. The licensing model that is prevalent in the grape industry has led to massive and global investment in new varieties. But it is weaker on the branding side than, say, the Driscoll’s model on berries — so retailers tell us they feel compelled to stock Driscoll’s — but are much more flexible on grapes.

Breeders are torn. On the one hand, most want their growers to succeed and recognize that allowing too much production or production in competitive regions is problematic. Yet, most make their money by allowing additional plantings.

It is more than the volume of planting that is at stake; it is the very role of proprietary genetics and branding that is under discussion. A producer in a country with a license for a desirable variety and the right to use a brand name may learn that a nearby country, with identical or overlapping seasons, is getting into grapes. This producer is not worried though. He has the desired variety and brand.

What this shipper wants is to use the variety and the brand as a kind of moat protecting his market share. He wants to be able to say to a retailer who is threatening to move to the new producing area, ”Well, you can buy grapes there, but you can’t buy the variety and brand that your customers love because they do not have a license.”

The breeder, though, is very likely to think that its variety has an X% market share and it wants to maintain that market share. So, if a new producing area is being planted, the breeder will want to plant there too.

Retailers have a similar issue. They not only want to carry tasty produce, but they also want to carry items that will give the retailer an advantage in attracting and retaining customers over other retailers. In the past, this has typically taken the form of short-term exclusives when a variety is just coming into mass production or a geographic exclusive or class of trade exclusive.

But, perhaps, retailers might want to own desirable varieties and use them to anchor private label programs. Indeed, Costco, with chicken, and Walmart, with beef, have recently decided to experiment with setting up their own supply chains. Is it so crazy to think that produce could follow this model in the future?

These are just a few of the issues confronting the modern table grape industry. There are other issues, of course, such as bringing robots into harvesting and packing, and there are many trade issues too. My family used to export quite a few grapes to the UK from California. Now Mexico and Egypt have replaced California in the early season in the UK. Peru has replaced California in the late season market. Peru has duty-free status and California pays significant duties. An issue with Brexit: during the EU season, the duty is 17%, so if the UK is out of the EU, what will happen? Will the UK continue to treat Spain and Italy more favorably than California? Why would they do that?

In North America, Sun World recently announced that it was broadening its roster of licensed importers and, in fact, it was doing so at the request of its southern hemisphere licensees. So, now, Camposol Fresh U.S.A., Inc., The Oppenheimer Group, Dayka & Hackett LLC, Divine Flavor International LLC, Dole Fresh Fruit Co., Fresh Flavor International, Inc.; North American Produce Buyers Limited CCPC, Summit Produce, Inc., Vanguard Direct LLC, and, William H. Kopke Jr., Inc./Southern Fruit Import Co. are all licensed to import and market the Sun World varieties such as AUTUMNCRISP, MIDNIGHT BEAUTY and SCARLOTTA SEEDLESS.

It is not surprising that producers would like more choice. After all, these producers already have importers they work with; they have varieties from several sources and would like to work with one importer. Plus, some of these importers have loyal customers difficult to access if you don’t work with them.

Choice is considered a good thing. But there is a question to be answered here: Will having multiple importers raise or lower prices? We don’t know the answer to that. Perhaps having a roster of powerful importers can push through volume and that will lead to higher prices. Some would argue, though, that having multiple importers means they will undercut each other to get the business and that having just one importer would maximize pricing.

One of the “Big Four” breeders recently sent a notice to its licensees explaining that, although in the past it was “very flexible and accommodating” when it came to the use of trademarks and the interpretation of quality standards. But now, the breeder is going to “provide more guidance and structure.” How, exactly, will this be carried out?

If product is sub-standard, no breeder wants it under its branding. So the breeder may recommend it be sold as a generic seedless grape. But some varieties have distinctive taste profiles, and consumers will object if they buy some generic black grape and find out it is licorice-flavored.

The issues are many, and the stress is palpable. When we launched PRODUCE BUSINESS magazine back in 1985, we committed to an identity — that our role would be to “Initiate Industry Improvement.” To help the industry wrestle with issues such as these, we are launching a new event, the Global Grape Summit and co-locating it with The London Produce Show and Conference. The idea, as with our Global Cherry Summit, is to gather the best and the brightest thought- and practice-leaders of the global grape trade to share information, ideas and build a brighter future for the industry.

It is our great pleasure to unveil the agenda for the first annual Global Grape Summit.

It is an assemblage of speakers never seen before, and the attendees are thought- and practice-leaders from across the global grape community.

In attendance — and contributing a crystal ball to the event — will be four major grape breeders: Sun World Innovations, SNFL Group, IFG and ARRA Varieties. Each breeder will bring cutting-edge knowledge of what the future holds for grapes.

Attendees are coming from all corners of the globe to learn, reinforce old relationships and establish new ones. All will participate in defining the future of the global grape industry. If you participate in this industry on the buy, sell or supply chain side of things, you will want to be in the room where it happens. Plus, after the Global Grape Summit, the delegates will be #CelebratingFresh along with the entire industry during the Opening Reception for The London Produce Show and Conference.

This will surely be a fantastic marketing event, which includes displays from more than 25 grape marketers from around the world.