Major Dutch co-op reincarnates auction clock for produce sales
A leading Dutch cooperative has reinstalled the iconic auction clock to sell its members' produce, saying the mechanism can often provide far more benefits for its growers than more common methods.
The tool is used to begin the auction at a high asking price which is lowered until either a participant is willing to accept the price or the predetermined reserve is reached.
At last week's Global Trade Symposium held as part of the New York Produce Show and Conference, Cooperative Growers' Association (ZON) managing director Michiel F. Van Ginkel explained why the system was originally made redundant decades ago and why it is now being reincarnated.
Formed in 1915, ZON is one of Europe's largest cooperatives with 250 growers of varying sizes supplying vegetables and soft fruits.
Collectively they produce around 10-15% of the Netherlands' production for any given crop and have an annual turnover in excess of US$350 million.
Development of what is now an internet-based auction clock dates back to before the Second World War and has historically been the main mechanism to determine the price of its growers' produce.
"At the start it worked that there were different auctions in the Netherlands, and the buyer organizations would have different individuals sitting in different auctions with old-fashioned telephones," Van Ginkel said.
"Since the start of the century a web-based clock was introduced, and that has kind of changed the industry and the way we sold products. Our facility has around 150 buyers everyday, of which only 40 are located physically where we are in Venlo, and the others are at home or in their office."
He explained an important reason why the clock had worked out so well was that the industry had been very successful in standardizing product, limiting the need for the buyer to see the product before making a purchase.
However, Van Ginkel said the increase of 'relationship-selling' in the late 20th century, along with an industry move from being supply-driven to demand-driven, led the system to diminish and many growers' returns to fall.
"The retailers were unhappy with quality, price and quantity and started to find ways around the auctions and cooperatives to get products directly from the growers," he said.
"In the 1980s and 1990s most of us stopped with the auction clock and went over to things like category management and account management."
But while he said those methods worked well with larger growers who can supply directly to retail chains, it was often not the case for smaller growers.
"Our biggest grower has got scale. They have 80 hectares of greenhouse tomatoes and a turnover of US$35 million - with that size you can supply directly to the customers," he said.
"However, I do have other growers who are much smaller and they are not interested in big retail."
Over recent years many of these smaller growers had begun selling their produce in neighboring Belgium, where a similar auction clock system is commonly used, he explained.
'Lots of buyers were not happy'
When he joined ZON two years ago, having worked previously in a plethora of major produce companies, Van Ginkel set to work trying to discover why so many growers were looking to Belgium to sell their crops.
He started off by categorizing them depending on what type of supplier they were and how well they wanted to know their customers.
On one side were generally the smaller, more transaction-driven growers who sold commodity products, while the other side was composed of larger customer-driven companies who were often involved in promotional and marketing activities.
"We realized that for the day trade, it was far more efficient to go back to the auction clock. So we moved back and reinstalled it at the end of 2014. Lots of buyers were not happy, as they could no longer just call in the morning and buy over the phone," he said.
"Initially we had a lot of opposition, not just from buyers, but also from our colleagues. Because what we did was create an open, transparent market, where prices were published every day and everyone would see what they were."
While in the first year of operation only around 25% of the cooperative's volume was sold via the auction clock, by this year that figure risen to more than 50%.
"We regard it as a big success. Our growers can either go with auction clock if they decide that’s the right way they want to operate their own enterprise, or if not we offer all kind of other activities in kind with what we’re used to in fast-moving consumer goods," he said.
"It's been a great move, having this dual strategy, offering both sides to our growers - which are a very diversified group."
Since the reincarnation, Van Ginkel said a wealth of new buyers and growers have joined ZON, and many buyers who had initially been opposed to the idea have now changed their minds.
High prices, lower costs
In terms of benefits to growers, he claimed the prices realized over the last two years had been in the top three of about 17 competitors.
"They also like the price being transparent - there’s no human intervention. It’s not because the buyer or the trader like each other or come to some arrangement - the price is whatever it is," he said.
The system is also far more cost-effective.
"Commercial people are much more expensive than my auction masters. My auction masters don’t need a mobile phone, don’t need a company car, usually their salary is much lower, and they do by themselves in three hours what you would normally need 10 traders for. It's good for the growers because they pay less in costs."
"Overall, we are very happy but most importantly our growers are very happy with the installment of the auction clock and we will certainly further develop that and we are looking forward to welcoming new growers and new buyers."
ZON is currently working with research university partners to develop new tools for the mechanism in order to reach more customers.
Photo: Ana Iacob Photography