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In the last few years, distributors of crop inputs have seen their role evolve from warehouse and transportation managers to providers of information and sales/marketing expertise. Ag retailers and basic manufacturers of crop inputs will increasingly call upon this expertise to help serve a smaller, yet demanding customer base. This is not to diminish the information management and sales/marketing skills that retailers and manufacturers already possess. But with significant changes in the crop protection market, distributors can and will serve as additional, complementary partners.
Customer support
Consolidation has certainly affected the industry from research and development all the way down to the farm. Mike Thomas, vice president of Northern Plains Business Unit, Wilbur-Ellis, Great Falls, MT, observes that basic manufacturers now have fewer salespeople and are looking to distributors to pick up part of the role of calling on retailers.
“Manufacturers are increasingly looking for marketing strategies that will work in certain regions, and we're developing marketing programs for them,” Thomas says. “We're also offering more education and support of retailer customers since they must address providing more value to growers.” Thomas believes that, in the future, distributors will work more closely with retailers to develop strategies to support a shrinking, yet increasingly sophisticated, customer base.
Together, the distributor and retailer will work harder to understand what farmers need and to develop plans for capturing more value at the distributor and retailer levels as well as at the farm level. To be successful, these partners will need to properly segment customers and do more relationship building with large producers.
Wilbur-Ellis is already helping retailers in this area by offering business training programs, and this will likely intensify, Thomas says. He adds that financing will continue to be an important area. For example, Wilbur-Ellis has financial training as well as finance programs for customers available through third-party lenders. “With fewer farmers in the future, credit risk will be greater,” Thomas says.
The environment will receive increasing attention, and this is another area where the distributor/retailer relationship will deepen, Thomas says. He predicts that distributors will work more closely with retailers on how better to comply with environmental regulations and how to manage risks (of fertilizer residues, for example). Successful distributors will offer continuing environmental training, Thomas says.
He believes communication and trust between the manufacturer and the distributor will increase. Both parties will need to share market intelligence and look for ways to develop and support expanded product portfolios. Distributors will need to work with manufacturers and retailers on how best to position these portfolios in the market, Thomas says.
Information technology
Like Thomas, Joe Prochaska, president of Prochaska & Company, Willmar, MN, says consolidation has affected the industry at all levels. He explains that consolidation has resulted in part from the shift in value from chemicals to genetic seed traits. “About 30% of the crop protection market's value has shifted from chemicals to genetics so distributors are aggressively drilling down into seed to capture value,” he says.
Distributors have done a good job of anticipating changes and restructuring themselves to their best advantage, Prochaska says, adding that some regional distributors have developed significant strength in the market in the last few years. One way they've done this is to capitalize on advances in information technology. “Distributors generally have done a very good job with information management systems that connect seamlessly from the distributor to the retailer to the customer,” he says. “They use business systems to manage inventories well.”
Because nearly all distributors have had experience in marketing some private-label products along with major name brands, they also were well positioned to anticipate the trend toward generic chemicals, Prochaska says. “Today about 75 to 80% of crop protection products are off patent, or what some would call generic.”
Various sources
Although distributors are aware of the situation with generic products, they will maintain close relationships with major manufacturers. “No distributor can ignore the global strengths of major manufacturers, especially now with their ownership of leading seed/genetics companies,” Prochaska says.
“Many distributors have relatively strong positions with their own brands,” Prochaska adds, but these brands primarily support complementary products, such as adjuvants, surfactants and additives. The trend is for distributors to extend this branding expertise to EPA-registered crop protection products.
Although major manufacturers will dominate the market over the next five years, more U.S. and offshore generic product suppliers and small research companies will introduce new products in the future, Prochaska says. Some of these smaller research firms could have an important “hit” from a new discovery (for example, a new class of fungicide). Therefore, Prochaska expects that distributors will develop working relationships with these smaller companies to be in a position to intercept any new products that are likely to be a good fit with the needs of their retailer customers.
Added value
Being open to major manufacturers and other suppliers will continue to be important so as to obtain products that will ultimately help producers get optimal yields out of their fields, stresses Steve Barwick, vice president of corporate marketing and operations at Growmark in Bloomington, IL. He notes that Growmark will continue to offer products that add value for its member companies and patrons, such as some of the newer seed treatments or preemergent corn herbicides.
“I think we will see more emphasis on fungicides, particularly to combat Asian soybean rust,” Barwick says. “We will continue to help retailers understand what they may be faced with and make sure that the right products are placed in the right areas.
“We've worked to hold value per acre. We haven't gone to the lowest common denominator,” Barwick adds, noting that his company has helped member retail locations to add value through custom application services and to position surfactants so they sell the full value of manufacturer programs.
“We've also put more emphasis on seed and are continuing to grow this part of the business,” Barwick says. The company's seed corn sales this year are up 24%. Growmark personnel are working with retailers to position biotech seed as well as crop protection products. “Seed replaces some of the loss in herbicides. But we must continue growing our seed market share to grow business,” Barwick stresses.
To help match the right products with the right environmental conditions, Growmark conducts tests on research farms (often using precision farming tools to gather and analyze information) and in cooperation with universities. “We lean on manufacturers to train us as well,” Barwick says.
Some regional cooperatives have gained significant strength in recent years. Growmark, which has had a long presence in the Midwest, expanded with the acquisition of Agway (and 40 Agway locations) in the Northeast in 2002. The acquisition included Agway's wholesale fertilizer business, and the company's Ohio River and Philadelphia locations added some wholesale crop protection distribution capability that Growmark previously did not have, Barwick says.
The trend toward bulk goods in the last few years has taken the warehousing and transportation function away from the distribution business, but Barwick points out that customers in the Northeast still use a fair amount of packaged goods. “Distributors can add more value with packaged goods,” he notes.
Future partnerships
Barwick agrees with his contemporaries that, in the future, relationships between distributors and manufacturers will deepen and distributors will provide increasing feedback to manufacturers on what products are best suited to particular regional markets.
“We're now doing a lot more electronic commerce with manufacturers,” he says. “We're taking orders and doing the billing. This saves a lot of re-keying. RAPID has been key in giving us standards to make it easier to work together.” (RAPID Inc. develops commonly supported standards, processes, databases and electronic connectivity between manufacturers and distributors.)
In the future, there will be fewer retailers and fewer retail locations, Prochaska says. Many distributors have company-owned retail locations and therefore serve in both wholesale and retail capacities.
However, about a third of distributors focus their marketing on independent retailers, and there will likely be more alignment of these groups in the future, Prochaska says. Buying groups, he adds, also are expected to be stronger through their aggregate buying power and increased emphasis on seed and their own product brands.
Some distributors with retail outlets may place more emphasis on fertilizer than crop protection as the value shifts toward information-related products and services, Prochaska says.
In the last few years, distributors have put together top-quality management teams and they will continue to offer more talent as their role of marketing and sales partner with basic manufacturers deepens, Prochaska says.
The distributor and retailer are already “one” in many cases, and this will only continue, he predicts. As both agronomic and information technologies become more complex, the trend will be for the retailer (and distributor partner) to sort out information for the producer. Retailers will employ more certified crop advisers and will focus more on service than on product, Prochaska says.
“Major distributors will increasingly be marketing their knowledge component, and they are in a good position because they already have brought in talent and sales and management know-how,” Prochaska says. They will help retailers enhance their inventory management, marketing and product positioning skills, he adds.
The future for distributors, retailers and manufacturers alike will be about partnerships and more exchange of information and expertise — expertise that a small, yet increasingly sophisticated market will demand.
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