August, 2012

Research Perspective and Comments & Analysis

Convenience Driving Increase In Processed Fruit & Vegetable Expenditures

By Brian Todd, President, The Food Institute

The average U.S. family spends $6,129 a year on food, accounting for 12.7 percent of average total expenditures of just over $48,000, according to Demographics of Food Spending from The Food Institute, a research and trade association. The publication looked at expenditure data from the Bureau of Labor Statistics as it has done for the past 15 years — the latest from surveys conducted in 2010. Those food expenditures are down from prior-year levels, however, as the so-called “Great Recession” was in full swing at that time and frugality started to become a common term in the consumer vocabulary, and continues to be today.

But that should be put into perspective as The Food Institute reminds its members, compared with other nations across the globe, U.S. families still enjoy the lowest cost food. In a ranking of food expenditures as a percent of disposable income by nation, the U.S. consistently leads the pack with the smallest share, lately followed by Singapore and the United Kingdom. And if you are wondering, in Cameroon, nearly one-half of families’ disposable income goes to food.

Unfortunately for the food industry — from farm to fork — it has felt the impact of the Great Recession even more than the total expenditure line. While the total dropped 2 percent from the prior year, food expenditures during 2010 dropped nearly 4 percent — a pretty big hit for everyone from farmers to retailers.

Looking at it another way, food expenditure cutbacks accounted for 25 percent of the overall decline in average annual expenditures in 2010, even though only one-eighth of the total is spent on food.

Fortunately, expenditures for fruits and vegetables bucked the downward overall trend for food spending in 2010, rising 3.5 percent from the prior year to $656, with fresh fruit and vegetable expenditures rising 3 percent to $442, while processed rose 4 percent to $237. And, while the average consumer spent $1 more on fresh vegetables compared to the prior year, $14 more was spent on processed vegetables — suggesting that the frugal consumer will purchase the product with the longer shelf-life and greater convenience.

The Food Institute notes that ease of use likely played a large role in that increase in processed fruits and vegetables, due specifically to the popularity of frozen steam microwave vegetable packs that have become a staple in the freezer case for both brands and private labels, and now account for a large portion of frozen vegetable sales.

Another factor that may be aiding the trend toward greater processed vegetable sales is an expanding number of freezer cases beyond the traditional supermarket into alternative retailers such as chain drug stores and dollar stores, making those products more readily available to consumers. Just consider that the number of U.S. dollar stores has now surpassed 22,000 — even more than the number of chain drug stores. And, The Food Institute projects that number will top 33,000 by the end of the current decade — many with freezer cases, and major players looking to expand the number of freezer cases in their stores.

Looking back five years from 2010, The Food Institute found that processed vegetable expenditures in that period rose an impressive 30 percent, far outpacing the 5 percent growth in processed fruits, the 9 percent growth in fresh vegetables and even the substantial 19 percent gain in fresh fruits.

And while the data in the Demographics report may confirm some assumptions that consumers in the Western region of the U.S. spent 2.3 percent more of their food budget on fresh fruit and 1.2 percent more on fresh vegetables than consumers in the Northeast, those Northeastern consumers aged 25 to 34 spent 0.5 percent more of their total budget on fruits and vegetables than their Western counterparts.

Looking at expenditures by household size, the convenience of processed fruits and vegetables is borne out by the data showing that single-parent households with at least one child under 18 years old spend 40 percent of their fruit and vegetable expenditures on processed fruits and vegetables — more than any other such demographic group. For “couples only” fully two-thirds of their expenditures for fruits and vegetables go to fresh fruits and vegetables, however.

Researchers at The Food Institute also point out the wide fluctuation in fresh fruit and vegetable pricing has contributed to the steady increase in consumer expenditures for processed foods. In the Institute’s Retail and Wholesale Food Price Review 2012, the association reported that processed fruit and vegetable prices increased 3.7 percent at the wholesale level in 2011, compared with a 2.3 percent increase in consumer prices. And on a month-to-month basis, processed vegetable prices change little. But that’s not the case for fresh fruit and vegetable prices, which fluctuate dramatically from month-to-month.


Can Fresh Overcome Frozen And Canned Advantages?

One way research can help us do business better is by focusing our efforts on inflexion points or areas in which our efforts can make a difference. This piece of research by The Food Institute points to three such points:

1) By emphasizing the percentage of income spent on food in general and food at home in particular, this research leads to questions about the utility of focusing on price-reduction as a key component of increasing demand.

2) By focusing on the question of relative growth of fresh versus processed fruits and vegetables, this research leads to a broader assessment of competition and raises the question of whether fresh product development and fresh marketing are really hitting the nail on the head. It even raises into question whether industry institutions, such as the Fruits & Veggies — More Matters initiative, which promotes fresh, frozen, dried and 100% juice, help or hurt the fresh industry by building overall demand or by sharing the fresh halo of healthfulness with canned and frozen product.

3) In analyzing expenditures for produce overall and fresh produce particularly by geography, income and family size, we are moved to question our product development and marketing to see if we are effectively targeting all the available market opportunities.

If we leave foodservice aside for a moment and just look at expenditures for food consumed at home, we see the latest figures indicating that just 7.5% of family expenditures goes for food consumed at home. We don’t have separate fresh produce numbers but, roughly speaking, about 10% of a supermarket’s sales go to the produce department. So we are talking about around 0.75% of family expenditures going for fresh produce — and that number includes salad dressings and other ancillary items sold in the produce department.

Now, of course, these are broad-based statistics. Individual families are in all kinds of circumstances based on income and psychographics. There are probably some impoverished vegans who only will eat organic produce but might spend more than half of their food budget on fresh produce, and there may be some carnivore-centric billionaires who spend heavily on lobster, filet mignon and fine wines — for whom produce is infinitesimal as a percentage of their food expenditures... let alone their total expenditures.

Still, on average, if something costs 0.75% of the family’s total expenditures, it raises into question whether price reductions are a particularly effective way of boosting demand.

Perhaps the real drivers of relative sales is competition with frozen and canned. The competitive advantages these products have are easy to identify, but less spoilage usually bubbles to the top of the list.

In today’s hectic world, few families are as predictable in their eating habits as in Ozzie and Harriett. That vision of life — where the man finishes work at 5:00 every day and comes home for dinner made by the wife who has been focused on making it, is no longer reality. Today families are torn in more ways; work schedules are less predictable, sports and activities pull children on unpredictable schedules, and working women have schedules of their own.

So perishable purchases increase in spoilage risk. Maybe that long-planned dinner gets postponed when Mom has to run off on a business trip, Junior’s game goes into overtime and the family hits fast food for dinner, or Dad has a pizza delivered to the office as he has to work late. All this means that the fresh produce purchased with the intent to make dinner that night may go to waste.

Of course, the lack of risk of spoilage makes it easy to keep reserves, which just might boost consumption. So if the teenager brings six friends over and you want to whip up smoothies for all — a freezer full of frozen fruit is going to make that unscheduled event into an occasion for more produce consumption. Otherwise, you might break out Coke and Chips.

How R&D and marketing can effectively address this competitive environment is unclear. But fresh is generally perceived as the optimum product, so this raises the question: Is it really a “win” for fresh produce to allow for joint promotions with more processed product as the Fruit & Veggies — More Matters program does by promoting fresh, frozen, canned, dried and 100% juice products?

The commodity heritage of the fresh produce industry has led to a focus on commodity concerns. Common critiques of this condition include an excessive focus on yields and shipping abilities as opposed to flavor. The industry, though, is increasingly aware of these concerns and the breeding focus has shifted. This research suggests that another shift — in breeding, packaging, fresh-cut R&D and industry marketing — may be called for.

Instead of just focusing on flavor as an abstract, perhaps there would be a substantial upside to focusing in on characteristics that would appeal to specific segments of the population. This might involve different flavor profiles, packaging or marketing to appeal to different ethnicities, income groups, family sizes, geographies, etc.

These are complicated questions and have complicated answers. Good research can help provide both an impetus to asking the right questions and clues to what the right answers might be. This piece from The Food Institute can’t help but provide fodder for such thoughts.