Shaking hands on the best tomatoes
Big retailers are getting farmers directly involved in their supply chain, reports Radhika Pancholi.business Updated: Mar 28, 2008 01:46 IST
Ever wondered how your neighbourhood hypermarket sells its fruits and veggies at a cheaper rate than your trusted bhajiwalla? The secret could be a supply chain that ensures you get the freshest produce at the market price or in many cases, even cheaper. Here's how it works.
The retailer buying the produce from the farmer, shipping it to the store locations, ensuring that the customer gets the best produce… all this sounds easy but a closer look throws up the operational complexities. First, what price is the right price at which to buy the products? Second, how can one ship fruits and vegetables, which have a very short lifespan, in the minimum timeframe so that they are still fresh when they reach the customer? And finally, how does a retailer strike the right price balance between the customer and the farmer?
Reliance Retail has put in place an organised supply chain for its fresh produce, which helps it sell fresh fruits and vegetables at competitive rates. “While we ensure that we are able to handle logistics such that the produce reaches our customers in time, we buy the product from farmers at prices that are set by the mandi or in the APMC yards. The price structure here is quite transparent and ensures that the farmers get their due while we get a good bargain as we are buying in bulk,” says Raghu Pillai, president and chief executive, retail operations and strategy, Reliance Retail.
While Reliance trusts the mandi to fix prices for the farmer, Subhiksha, the discount retail chain has gone a step further. The retailer has a two-pronged approach to the supply chain and pricing mechanism. “We have tried to localise our buying as far as possible, so that the goods reach our stores in the shortest possible time,” says Subhiksha's MD, R. Subramanian. The retailer has also tied-up with local farmers to set up a cooperative-type approach. Subramanian explains the working of this scheme: “Since we have localised most of our fresh produce supply to areas that are close to the store, we have also been able to get farmers in that particular area to sell directly to us.”
He adds, “We try to partner with the farmers. Once they have grown the vegetables, the farmers and our representatives gather at their village, where we check the quality and quantity of produce that they have to offer. The farmers we have tied up with also ensure that the products are packed well, thus ensuring that once we have the product in hand, we don't waste time in repackaging it. On the basis of this, we fix a price that's acceptable to both the farmers and us.”
As a result of this, if a group of farmers from Raigad have, say, given the Subhiksha representatives a fair price on tomatoes between 2.00 pm and 5.00 pm, the goods are then shipped to Mumbai to reach the firm's central warehouse and are dispatched to the stores between 11.00 pm and 3.00 am. Just in time for the first customer who would possibly walk in for those fresh tomatoes as soon as the store opens the next morning.
But how has the store dealt with the problem of middlemen who have been around for a long time and do know the system well? “The model that we follow does not need middlemen. But that does not mean that they aren't needed at all,” says Subramanian, adding that if the outfit is a small one of just about two or three shops, then middlemen play an extremely important role as their service helps the company to cut costs and ensure that they get good produce at a relatively fair price. But, as an organisation gets bigger, the need for middlemen diminishes as the retailer can then approach the farmer directly as quantity of produce bought also increases.
This, however, is not the first time that a retailer has had a cooperative type approach to sourcing fresh produce. Companies such as ITC and Radhakrishna Foods have already forged partnerships with farmer cooperatives in Maharashtra and Punjab to enhance their supply chain through a project called Growth Oriented Micro Enterprise Development (GMED). With the food and groceries segment projected to comprise 48 per cent of the organised retail market by 2017, according to a Technopak survey, cooperation through cooperatives sure seems to make good business sense.