The ag retail market saw record setting profits in 2022. While we’d like to say that will hold the industry in a strong position, the ag market is ever in flux, and not just from an economic perspective. According to Aimpoint research, by 2040, just 40 percent of today’s farmers will control more than 70 percent of the acres and in effect, your purse strings. That’s just 17 years from now.
Two of the main components in any business are the customer value proposition and profit formula. Spending time evaluating these and making changes to meet current or future market demands can help you discover your real value. Are you unknowingly giving away your most important assets?
Is your ag retail business ready to meet and exceed the needs of the “farmer of the future”? What does that customer value proposition look like and how will you rise to the challenge and succeed? Spoiler alert: it will likely mean increased diversification.
We see diversification everywhere we go: Think large truck stops with fast-food partnerships. This shop-in-shop concept has been gaining steam as merchants search for ways to diversify and capture the larger customer bases needed for long-term growth that will weather economic downturns and the customers’ changing appetites.
DIVERSIFY TO BUILD CUSTOMER BASE
Perhaps a better example in the consumer market with similar application for ag retail is Kohl’s Corp. The department store is in 48 states. Their customers are generally middle-income and feel pinched by rising prices for everyday items.
In a bid to increase its percentage of the still strong beauty market, Kohls partnered with Sephora, a French multinational beauty retailer, to open Sephora shops in all of its stores. They’re seeing a sales lift in locations that have already initiated the change. That’s cause for optimism.
Kohl’s is no stranger to such “industry mash-ups.” It entered into a partnership with Amazon in 2019 that allows customers to return Amazon products at Kohl’s, which has also proven profitable.
Both actions have been in direct response to the need to expand the customer base and grow long-term revenue. They’ve done so in a way that appeals to their existing customers and brings in new and different (and in this case, younger) customer audience segments.
What is the issue you need to overcome to build or diversify your business? Do you need more and different types of customers to whom you can sell your products? Or do you need your existing customers to invest more in your services than they are currently? Perhaps you need a greater share of acre on their farms in terms of types of products being bought. Maybe what you need for your business is completely different. At R+K one of the ways we can help you discover the right path to growth is through strategic workshops where we use our deep understanding of your business and your needs to uncover the unmet needs of your customers. Unlocking and developing ideas into actions is what we do best.
SHIFT IN VALUE PROPOSITION
Heading back to dynamic shifts in value proposition and profitability models, there are many other examples in the business world. One case study that stands out is Kodak and Fugifilm.
Way before we housed all our pictures on our cell phones and in the cloud, we would anxiously wait for our pictures to be developed. Kodak ruled the world of film. This was a relatively secure and profitable business due to the complexity of film production and low number of entrants to the field. In 2000, just ahead of the transition to digital, Kodak film sales accounted for 72 percent of their revenue. Fugifilm was also heavily invested in film to the tune of 60 percent of its revenue. However, as film sales peaked worldwide for the last time in 2001, Fugifilm embarked on a path to dramatically diversify its business model and grow revenue while Kodak stayed the course and watched their sales plummet.
Fugifilm correctly identified that their expertise in film technologies could be adapted and applied to different emerging markets including pharmaceuticals and LCD screens used in televisions, computers and phones, as well as unexpected markets like cosmetics (an important ingredient in photo film comes from collagen). They brilliantly shifted their value proposition and profitability for long-term growth and success. If you’d like to dig deeper, there’s a fascinating case study.
THE FUTURE OF AG RETAIL
Food security and national security go hand-in-hand. Ag retail must continue to evolve to meet the ever-changing needs of the food chain. According to Aimpoint, next generation farmers have different needs and preferences than today.
Farmers who surround themselves with people who can help them embrace change, grow, compete and expand will succeed. Ag retailers who embrace this change, partner with farmers and help them make the necessary investments in technology as well as help give them a business advantage in the market while hedging their financial risk will also succeed.
Opportunities abound for both the farmer and the ag retailer of the future. The changes on the horizon will require courage and ambition. Embrace them and the opportunities to evolve your current value proposition. Discover the strategic services you can offer to provide value and ultimately growth opportunities for your farmers.
A “rising tide lifts all boats;” and so it is with ag markets. When market prices are high, it’s often easier to show a positive return. The industry will move into a downturn as ag’s cyclical nature is well documented. Farmers and retailers will be put to the test. Farmers who surround themselves with people who can help them embrace change, grow, compete and expand will succeed. Ag retailers who embrace this change, partner with farmers and help them make the necessary investments in technology as well as help give them a business advantage in the market while hedging their financial risk will also succeed.
Opportunities abound for both the farmer and the retailer of the future. The changes on the horizon will require courage and ambition. Embrace them and the opportunities to evolve your current value proposition. Discover the strategic services you can offer to provide value and ultimately growth opportunities for your farmers.
To continue the conversation to learn more about your business and share some relevant work that R+K is doing in this category, drop us a note.
See how we have help other companies meet their business goals.