Agricultural Retail in Transition

The agricultural retail industry is experiencing profound changes due to evolving customer needs, advancing technology, and shifting business models. A key trend shaping this industry is consolidation.

By Dr. Allan Gray

Significant consolidation within the U.S. agricultural input retail sector reflects broader economic pressures and the evolving demands of modern agriculture. This trend is driven by the need to achieve economies of scale, improve purchasing power, and enhance operational efficiencies. Consequently, large companies can better manage commodity price volatility and regulatory changes, offering comprehensive services that smaller entities cannot match. As of 2020, companies like Nutrien Ag Solutions alone controlled a 21 percent share of the U.S. agricultural retail market, demonstrating a high degree of market concentration. With the top seven companies controlling 69% of the market, agricultural retailers must strategically position themselves to remain relevant and competitive in this consolidating market. Here are the key trends as companies adapt to these dynamics.

Efficiency:  The industry is focusing on improving efficiency through operational synergies. Notably, there are high efficiency gains in spraying operations, and the era of automation is rapidly approaching.

Relevance: Agricultural retailers must continue to find new ways to maintain relevance with customers. This includes implementing systematized work models and tools, developing new products and services, playing a leading role in precision ag and digital ag, and positioning certified crop advisors as the true trusted advisors.

The transformation in agriculture will shift value pools in the industry towards digital services and tools, emphasizing smart farming, sustainability, data-driven decision making, and transparency.

Omnichannel: Omnichannel strategies are becoming increasingly important. Digital channels play a significant role in various stages of the customer journey. Pure online sales in the U.S. currently range between 7% and 10%, while online sales with human contact represent 20% to 25%. The focus is on creating seamless shopping experiences, integrating agronomic data, traditional consultants' support, logistics, and credit solutions into new sales models.

Sustainability: Sustainability is gaining momentum across the industry. Various companies and institutions are committing to reducing global emissions. For example, PepsiCo and Walmart have invested $120 million over seven years to support U.S. and Canadian farmers in improving soil health and water quality. McDonald's is developing financial support for farmers transitioning to regenerative farming practices.

Adoption of sustainable practices is challenging, but retailers are taking a strategic role in supporting farmers. Measurement, reporting, and verification of sustainability efforts are crucial but also problematic, highlighting the significant role retailers must play.

Innovation beyond company boundaries: Clay Christensen points out in his book The Innovator’s Dilemma that innovation within the company is difficult. The company is under continuous pressure to deliver on current business, improve efficiency, and deliver on business metrics. And, in fact, companies have gotten pretty good at this continuous improvement focus; some might call this innovation. However, companies are not well designed to truly innovate in ways that disrupt the marketplace and create new and different value propositions and business models that can have significant impact in reshaping markets. Thus, a company runs the risk of being disrupted as this marketplace evolves.

Strategically positioning the business to respond to these key trends is paramount. Over the next three weeks, I will address each of these trends in a series of blogs. I will delve into each trend and share new concepts that your company might consider as you develop your strategies for the future. By staying informed and open to new ideas, your organization can not only adapt but thrive in the evolving landscape of agribusiness.

By Dr. Allan Gray

Significant consolidation within the U.S. agricultural input retail sector reflects broader economic pressures and the evolving demands of modern agriculture. This trend is driven by the need to achieve economies of scale, improve purchasing power, and enhance operational efficiencies. Consequently, large companies can better manage commodity price volatility and regulatory changes, offering comprehensive services that smaller entities cannot match. As of 2020, companies like Nutrien Ag Solutions alone controlled a 21 percent share of the U.S. agricultural retail market, demonstrating a high degree of market concentration. With the top seven companies controlling 69% of the market, agricultural retailers must strategically position themselves to remain relevant and competitive in this consolidating market. Here are the key trends as companies adapt to these dynamics.

Efficiency:  The industry is focusing on improving efficiency through operational synergies. Notably, there are high efficiency gains in spraying operations, and the era of automation is rapidly approaching.

Relevance: Agricultural retailers must continue to find new ways to maintain relevance with customers. This includes implementing systematized work models and tools, developing new products and services, playing a leading role in precision ag and digital ag, and positioning certified crop advisors as the true trusted advisors.

The transformation in agriculture will shift value pools in the industry towards digital services and tools, emphasizing smart farming, sustainability, data-driven decision making, and transparency.

Omnichannel: Omnichannel strategies are becoming increasingly important. Digital channels play a significant role in various stages of the customer journey. Pure online sales in the U.S. currently range between 7% and 10%, while online sales with human contact represent 20% to 25%. The focus is on creating seamless shopping experiences, integrating agronomic data, traditional consultants' support, logistics, and credit solutions into new sales models.

Sustainability: Sustainability is gaining momentum across the industry. Various companies and institutions are committing to reducing global emissions. For example, PepsiCo and Walmart have invested $120 million over seven years to support U.S. and Canadian farmers in improving soil health and water quality. McDonald's is developing financial support for farmers transitioning to regenerative farming practices.

Adoption of sustainable practices is challenging, but retailers are taking a strategic role in supporting farmers. Measurement, reporting, and verification of sustainability efforts are crucial but also problematic, highlighting the significant role retailers must play.

Innovation beyond company boundaries: Clay Christensen points out in his book The Innovator’s Dilemma that innovation within the company is difficult. The company is under continuous pressure to deliver on current business, improve efficiency, and deliver on business metrics. And, in fact, companies have gotten pretty good at this continuous improvement focus; some might call this innovation. However, companies are not well designed to truly innovate in ways that disrupt the marketplace and create new and different value propositions and business models that can have significant impact in reshaping markets. Thus, a company runs the risk of being disrupted as this marketplace evolves.

Strategically positioning the business to respond to these key trends is paramount. Over the next three weeks, I will address each of these trends in a series of blogs. I will delve into each trend and share new concepts that your company might consider as you develop your strategies for the future. By staying informed and open to new ideas, your organization can not only adapt but thrive in the evolving landscape of agribusiness.