How emerging countries can capitalise on growing demand for fresh produce

This summer I went to Costa Rica on holiday. What struck me there was the wide diversity in terms of sales channels for fresh fruit and vegetables. You still see lots of stalls at the side of the road, piled high with just one type of product. Then there is the rising number of so-called ‘mom-and-pop shops’ – small, independent, family-run stores. 

And at the same time numerous big, shiny shopping malls are being built, in a contemporary style and with a strong focus on the attractive presentation of fresh food. Costa Rica’s ‘modern’ grocery market is divided between the major international players and the so-called ‘local champions’ such as Auto Mercado, which recently hit the headlines for being the country’s most expensive supermarket chain. 

The situation in Costa Rica mirrors what is happening in many emerging economies: the launch of all kinds of initiatives to respond to the needs of the growing middle class. This group of consumers has more disposable income and is stimulating the development of a ‘shopping culture’. Fresh produce is one of the categories of which consumers have ever-higher expectations; people are not only demanding better quality and more diversity, but also want an ‘experience’.

In emerging economies, however, fresh produce plays a different role within retail than in more-developed countries. For example, retailers in Western Europe use fresh food categories to set themselves apart from their competitors. But for retailers in emerging countries fresh fruit and vegetables are a ‘traffic generator’, aimed at enticing customers away from the traditional sales channels: street vendors, specialist stores and wet markets.

Modern retail is catching on more quickly in some countries than in others, but one trend is universal: the growth of ‘one-stop shops’ is creating a more diverse retail landscape. For example, Costa Rica already has the Pali and the much cheaper MaxiPali (owned by Walmart). In Western retail, the discount segment has grown in stages. It started with Lidl in Germany then gradually spread to other countries, increasingly gathering pace and building on its success over recent years. In emerging countries, this format is present right from the start. 

So the retail sector in emerging countries is very dynamic and offers opportunities for the entire fresh chain, from breeders to growers to processors. But how can we leverage this to everyone’s advantage? After all, doing business in emerging economies can be difficult, due to factors such as a lack of resources (water, energy, skilled labour), cultural differences and – sometimes – political instability.

'It is far from easy to achieve a stable, year-round supply of residue-free, attractively packaged fresh produce.'

In addition, the very nature of fresh products presents extra challenges. In China, for example, only 3% of all trucks used to transport fresh food products are temperature-controlled, while in India the sheer size of the country and the transport limitations also present considerable difficulties.

The result is the emergence of ‘production pockets’ – regions in which fruit and vegetables are cultivated primarily for local consumption, with limited geographical reach. Furthermore, since the crops are grown in openfield, there is a higher risk of failed harvests and fluctuating prices. In other words, it is far from easy to achieve a stable, year-round supply of residue-free, attractively packaged fresh produce.

It’s no coincidence that ‘local heroes’ such as Seven & I and Vanguard (China) are often very successful; they have essential local knowledge. I can think of plenty of examples of leading international retailers who didn’t succeed using their traditional approach. Tesco withdrew from Japan and China, for instance, Carrefour ultimately lost interest in South Korea, Russia and Singapore, and speculation is currently rife about whether Walmart plans to retreat from Japan.

Although the figure below illustrates that hypermarkets and supermarkets still account for the lion’s share of global grocery sales, online and discount formats are the fastest-growing channels.

So it’s not really surprising that Walmart acquired Jet.com last year, plus it explains why Albert Heijn decided to purchase Bol.com several years ago, and why Amazon.com is investing in Wholefoods. Online holds potential and not only for Western markets, but also – in fact, especially – for emerging countries. Take Alibaba in China and Big Basket in India, for instance. There are also lessons to be learned from Lidl’s success; based on how mature markets have developed, discounters are expected to secure a leading position in emerging markets.

In view of all of this, retailers in emerging countries have no choice but to develop a multi-format and omni-channel strategy. For example, Aldi has launched a webshop in China, Metro introduced the My-Mart concept and Aeon in Japan is seeking to develop new formats. The key to success is to determine which combination of formats is most suitable at regional level and which strategy and product range will support that. Planet Retail has produced an interesting summary and overview of this:

At Rijk Zwaan, we are willing and able to play an active role in creating these strategies. As a vegetable breeding company we naturally take account of the grower’s requirements (yield, resistances, etc.), but we also focus on the needs of and opportunities for the whole fresh produce supply chain. How? Well, in concrete terms, we do that in several ways, including:

We intend to pursue the same approach in emerging countries. We develop specific varieties for local production regions, and monitor and respond to developments in local retail markets, even if they are still in their infancy. As a breeding company, one challenge we face is how to capitalise on the diversity of retail formats, in line with the relevant development stage of the market or region in question.

'To develop a dependable supply chain you need intensive collaboration between breeders and growers and retailers.' 

In my opinion, to develop a dependable supply chain you need intensive collaboration between breeders and growers and retailers. Some markets are ready for direct sourcing, in which case the challenge is to connect the right production companies or farmers’ cooperatives with the right customers. In other markets, there is still an important role for middlemen – often lone traders who serve several channels, adding a degree of complexity to the situation. In this case, developing a reliable supply chain calls for patience and a ‘lean’ approach. Small-scale pilot projects can be a very valuable way of gaining knowledge.

Although it will take considerable time and effort to develop the retail channel in emerging countries, I am convinced it will be worth it. After all, once a smooth-running supply chain is in place, brands will also gain in importance, as the figure below shows:

A market with a low level of maturity offers growers and distributors the biggest opportunities to invest in brand image and repeat purchases. The global brands are often not yet established in such markets, so retailers are usually very open to suppliers’ merchandising suggestions or attractive packaging concepts. 

At Rijk Zwaan, we’ve already seen numerous examples of this: the launch of Sweet Palermo in Indonesia, Snackpep in Brazil and Golden Emerald melon in Thailand, to name but a few. All of these projects created real win-win situations, enabling both the producer and the retailer to make great strides in terms of reaching the growing middle class in an emerging country by working together.

This year’s Asia Fruit Logistica is now just around the corner. For me it always feels a little like a homecoming because I lived and worked in Asia for several years. The event attracts an ever-broader audience each year. It’s no longer just about import to and export from Asia; the discussion is increasingly focused on local/regional cultivation and organising goods flows within Asia itself. 

Hence, Asia Fruit Logistica is also becoming an important meeting place where industry professionals from less-developed countries can forge new contacts and generate new ideas. Markets that are currently only small can offer huge potential – and the time is ripe to invest in them!

Will you join me in rising to this exciting challenge? I’m looking forward to discussing the opportunities with you, either online or at the Rijk Zwaan stand (hall 5, stand 5-U15).

Written by: Jan Doldersum, Manager Chain & Retail at Rijk Zwaan

For more information: www.rijkzwaan.com