Survival Guide For Small Retailers: Size And Success
It's still the classic battle of speed vs. scale between large and small ag retailers, but technology could serve to level the playing field.
March 14, 2011
Following several years working in the ag retail environment, I am settling into my new role as a retail consultant, and business is booming. And it's largely because retailers are asking the very same question: how can I ensure the long term sustainability of my business? Is the size of my business a help or a hindrance to reaching my goal?
The truth is, all sizes of ag retailers have their own challenges, and not every business in the same size category has the same challenges and opportunities. But it's interesting and instructive to find some commonalities among small to medium retailers and large regional and national retailers to identify where these businesses are and where they need to go to be successful and sustainable.
Small, Medium Size Retailers
Closely held medium and small ag retailers excel in many areas. In general, they are able to react to market challenges quickly, and have fewer layers of management to work through. They are generally lean and efficient, and do a great job at operations.
On the other hand, economics of size are a constant challenge. Many times they are able to remain competitive on plant nutrients, if their purchases are timely. But when crop protection and seed technology enter the picture, things become more challenging. With the current trend in programs from crop protection, seed and distribution, it has become increasingly difficult to maximize competitiveness across the entire product line.
Some businesses tend to migrate to business software that provide a very general picture of the operation, and are sometimes limited on part of their business model, such as agronomy. These same limitations challenge the effectiveness of tracking agronomy or sales associate performance. Some software is so limited that it compromises their ability to calculate bottom-line performance.
Decisions on investments in manpower, equipment and facilities must be made judiciously to balance the "right stuff" and a bottom line. Outsourcing is a must for these retailers. Most simply do not have the economics of size to justify their own qualified precision ag staff, environmental and safety compliance staff or IT personnel.
For the larger mid-sized ag retailer, many of the same challenges exist but on a larger scale. There's a greater need for improved performance as they work to keep up with the large ag retailers.
They have become large enough to justify more investments in precision agriculture, environmental and safety, and IT personnel. That said, many tend to settle for part-time associates who fill double or even triple roles in their business, significantly diminishing the upside of a full-out investment in a labor intensive program such as seed sales.
The multi-tasking manager may have worked in the past, but fast and rapidly changing precision and seed technology will challenge past models. Unless they change, they will find themselves being further outpaced by retailers who already have made this investment.
Good To Be Big?
Large national and regional ag retailers appear to have the upper hand for success today, and in the future, but don't think the same factors that challenge you do not impact them as well.
Larger retailers do have their own safety and compliance departments that keep them abreast and in line with current and upcoming regulations. While everyone is struggling on how to handle the new mini-bulk rules, the large ag retailer's compliance department should already have a plan in place.
Economics of size should allow these retailers to bring on a fully staffed precision agriculture department. Today, for a large ag retailer many believe that one technical specialist should be enough. Perhaps it is meeting the business' needs today, but where this business is heading in the next three to five years may change that model.
Some very efficient large ag retailers have their own IT department. Here you will see two or more highly qualified individuals that just do IT. I am not talking about someone who can load new programs and set up new computers. These folks write their own computer code, make their own patches between different software manufactures, and implement conductivity solutions. They will help these large retailers lead the way as 4G cellular service comes to life, and with it the technology enhancements that will drive ag retail, and your customers.
Large retailers have seed and fertilizer specialists who constantly watch and track these markets.
Large ag retailers may also have an Achilles heel. The economics of size often makes them slower to react and slower to change with additional layers of administrative costs.
Excessive time analyzing a project or direction often slows them down on more than just that project. Layers of administrative personnel sometimes provide input into area that they have no technical expertise in, which can also slow progress. Sometimes the leaders themselves get so far removed from the trenches that they lose connection with what is really going on.
And at times large retailers start to act like a business that has a net profit of 20%, instead of a 2% to 7%.
There are a number of important issues that challenge all of ag retail. For example, I am concerned with marketing programs that product vendors and distributors are taking to ag retailers. Crop protection and seed vendors are two good examples of a segment of our industry whose programs themselves promote mergers and acquisitions in our industry.
Leveling The Field
Plant food manufacturers aren't keeping their field level, either. An ag retailer may wish to buy product at the lowest price of the year, and even have the funds available, but are unable to do so. Too often, the lowest price product of the year ends up in the distributor's hands for internal retail sales, or is marketed to a select few strategic wholesalers, brokers or retailers.
As you can see, opportunities and challenges exist for all sizes of ag retail operations. Some will be "mean and lean", some will "lead with technology", while "operational excellence" or a combination of these will build a successful business unit.
In my view, technology will be key. While I have been working with precision agriculture since the early '90s, I believe we are standing on the edge of where technology is just starting to lead us. 4-G networks, combined with GPS and software technology, will revolutionize the way we do business. It will improve our efficiencies, and change how we work as a team with our growers. Planning a course of action for success in technology today will help the success of all sized business units.
Shelton is a long-time ag retail professional. He currently works for Strategic Agricultural Consultants, based in Juda, WI.