The Changing Nature And Role of Wholesalers

Executive Summary
This report is designed to give an overview of the changes affecting wholesaling in the fresh produce industry. Furthermore the paper discusses vertically coordinated supply chains and how wholesalers can utilize their supply chain relations. In the context of the Australasian fresh produce industry vertical integration and disintermediation are discussed as they are two areas in which wholesalers can seek to improve their performance and meet future customer demands. The wholesale industry has historically been the intermediary between the grower and the market place. However with a current market trend of mega retailing, vertically coordinated relationships in the supply chain can be seen as a key means by which supply chains can outperform each other. As seen with the fierce competition in Australian supermarkets there are significant pressures exerted upstream in the supply chain to continually provide better produce at lower costs. To achieve such demands wholesalers are becoming larger and integrating packaging and growing functions so that they can control the transaction costs through the supply chain. In addition to the demand for vertically coordinated supply chains there is a growing demand for online retail and even the future possibility for a grow to order market place. Taking into account the information provided and given the assignment constraints the report makes two brief recommendations. Firstly that wholesalers embrace vertical coordination and use it as a basis to compete with other supply chains rather than with each other. Secondly, at the very least wholesalers need to be prepared to change for future market conditions which is likely to have a larger online component. Ideally wholesalers could use their existing capabilities to meet the future customerdemands before their competition.

Introduction
Traditionally the role of a wholesaler in the supply chain has been to source produce from various suppliers and then distribute the product into the retail end of the supply chain. Wholesalers were autonomous entities that leveraged power in the market place by organizing produce in the market place. The wholesaler had buying power in the market place and could create economies of scale by controlling large amounts of product. However the demands of the consumer in the past decade have changed as the health benefits of fresh produce have been heavily marketed and product information has become more accessible to consumers with the onset of the information era. As the market demands of consumers change to convenience and fast paced product the traditional structure of supply chains faces challenges in adjusting. This paper addresses the changing role of the wholesaler in the supply chain and the possibilities for the future.

Discussion
The wholesale industry has historically been the intermediary between the grower and the market place. Growers who are too small to access the retail market place supply wholesalers who can then sell the produce onwards (Cook, 2009). Agents from the retail end on the supply chain would then buy from the wholesale market like the Sydney markets (M Bourlakis; P Weightman, 2004). However the wholesale market place has changed to the point whereby the number of wholesalers has decreased but their size has increased (M Bourlakis; P Weightman, 2004). Therefore the larger wholesalers can deal with larger retailers (supermarkets) directly. Cook (2009) observes the trend that there has been an emergence of mega retailers over the last decade who have subsequently required larger wholesalers to service their demands. Vertical integration is a traditional supply chain strategy whereby an entity in the supply chain buys the ownership of an up or down stream partner in able to gain control of their supply chain operations. Vertical integration allows the parent to control the subsidiary in a manner which utilizes the strengths of both parties to achieve a more efficient process than either party could do so individually (M Bourlakis; P Weightman, 2004). Efficiency in vertically integrated supply chains primarily comes from reduced transaction costs (Souza-Monteiro, 2004). However vertical integration also allows the synchronization of information systems between entities facilitating a clear information path which is becoming increasingly important for today's consumers.

Although vertical integration can be seen to increase supply chain performance it can cause for the abuse of the subsidiary company and sometimes a loss of their specialty function (Swinnen, 2007). Restructuring of businesses to handle the new functions of a vertically integrated business can cause major disruptions to supply in the short run. To avoid any such issues the concept of vertical coordination rather than integration can be seen to be more appropriate. Coordinated firms operate in a partnership relationship rather than a full ownership model (M Bourlakis; P Weightman, 2004).

Vertical coordination facilitates supply chain control without having to take on the risks of full ownership. Some wholesalers may use a mixed supply strategy whereby they own some subsidiaries i.e. Moraitis Fresh Pty Limited but still allow some growers to have their autonomy. In the Australian fresh produce market the two largest super market lines (Coles and Woolworths) both have close working relations with their wholesalers who intern have more control further back into the supply chain. The retailers themselves do not vertically integrate however their wholesalers are likely to have integrated or coordinated relations with packagers and growers down the supply chain. Due to the price competition between the retailers the wholesalers require a high level of control in their chains in order to meet the market demands for low cost products. Woolworths and Coles can use their large market share to exercise pressure on the wholesalers to reduce transactions costs and thus inevitably push wholesalers towards integrating their upstream supply. This type of market place is an example of Cook's (2009) mega retail environment. Disintermediation is a process whereby the intermediary organizations in the supply chain like wholesaling, warehousing, transportation and retailing can be reduced by removing the number of entities between the source supplier and end consumer. Disintermediation can cut down supply chain costs and lead times. The internet is an enabling technology of disintermediation as it allows consumers to directly interact with entities that could have traditionally viewed themselves as wholesalers. AmazonFresh (2013) has started an operation on the American west coast whereby they are selling fresh produce online and cutting out the retail link in the supply chain. Similarly Aussie Farmer Direct (2013) operate an online retail operation in Australia. Online sales in the Asia- Pacific region is forecast to increase by more than 30% according to eMarketer.com (2013). Even if a majority of this growth is seen outside of Oceania it still a strong indicator that the online market place is growing and provides an opportunity for businesses like Aussie Farmers Direct. Growing to order and online retailing are two opportunities for the fresh produce industry. Overcoming psychological barriers grown through the traditional markets approach is the first step to realizing these opportunities. Although costs and logistics for such initiatives may not be realizable at this stage it would seem apparent that the enabling technology for growing to order will only become cheaper over time. Wholesalers could take advantage of these opportunities as they have the supply base and knowledge to break into the online market place. On the other hand growing to order could be a threat to wholesalers as the growing to order could imply smaller scale operations in close vicinity to the customer base not to dissimilar to vertical farming. The future of the fresh produce industry can be speculated upon however it is clear that there is the possibility for abrupt change in the way wholesalers operate and interact with their market and that they should be either prepared to adapt or prepared to innovate in the future.