March, 2013

Research Perspective and Comments & Analysis

 How Four Consumer Priorities Are Driving Produce Performance

By Kelli Beckel, Senior Marketing Manager, Nielsen Perishables Group

In an industry that used to be dictated — and to some extent still is — by crop availability and commodity price, it can be easy to lose sight of the end consumer. That consumer, however, is driving the produce department’s performance more than ever. The evolution of consumer priorities — an enduring focus on health, increasingly sophisticated palates and lifestyles that are seemingly always overbooked — has benefited fresh produce arguably more than any other area of the store.

When analyzing sales patterns across produce categories, it becomes apparent that successful products are those that fulfill one or more of four key consumer priority areas: health, convenience, premium and global.

Health

Americans’ push to live more healthful lifestyles is clearly not a fad, but a cultural shift. As fresh produce is a centerpiece of a nutritious diet, the department has benefited. Produce department volume sales at retail increased 3 percent in 2012. The New Year is a key time for renewed focus on healthy eating, which boosts categories such as carrots and packaged salads. Carrot’s two highest selling weeks of the year occurred in January, posting sales nearly 20 percent higher than the annual average weekly per-store sales. Packaged salads also benefit from New Year’s resolutions. In 2012, the category had its third highest sales week of the year in early January, selling, on average, $3,318 per store the week ending January 14, 2012, or 9 percent higher than packaged salads’ average weekly per-store sales for the year.

Convenience

Value-added fruits and vegetables continue to succeed as solutions that empower buyers to incorporate fresh produce into their diets with minimal preparation. Value-added vegetables have a wide variety of uses with snacking leading the sub-category growth. Snacking vegetables account for the smallest share of value-added vegetable sales, but their volume sales grew 20 percent in 2012. Value-added vegetable side dishes also posted notable volume growth of 15 percent, and this growth was fueled by innovation. Side dishes experienced the greatest increase in average impressions, or the number of unique items on store shelves in a given week.

Innovation also drove trends for value-added fruit. In the fresh-cut fruit sub-category, volume sales grew 17 percent in 2012 with an increase in impressions of 13 percent.

Premium

Across fresh foods, consumers are showing that price is not the top consideration in purchase decisions. Many premium products are growing despite their higher price points, and in many cases, minimal promotional support. In the produce department, this is playing out in categories such as cherries and specialty mushrooms.

Cherry retail prices were down nearly 10 percent due to a large Washington crop in 2012, but they remain one of the higher priced categories in produce at $2.92 per pound. The category’s volume sales increased 10 percent, but Rainiers — the highest priced variety at an average of $4.28 per pound — outpaced the category’s growth with a volume increase of 11 percent. Even with a price 47 percent higher than the Bing variety, consumers are increasingly snatching up Rainiers because of their sweeter flavor profile. 

Specialty mushrooms are gaining publicity in the food world, and shoppers are buying them more for at-home cooking. Inclusive of varieties such as Shiitake and Oyster mushrooms, specialty mushrooms increased volume sales 5 percent in 2012, even with a price point that was 63 percent higher than the mushroom category average.

Global 

Produce items such as mangos and avocados have broken into mainstream America, but many lesser-known products with ethnic roots are also gaining traction. Cilantro volume sales increased 8 percent last year, while edamame and jicama both posted growth of 7 percent.  Consumers are also gravitating toward bold flavors; 16 of 22 pepper varieties increased volume in 2012, with hot Habanero peppers posting the greatest increase of 104 percent.

Three-quarters of the 24 specialty fruit sub-categories increased volume sales in 2012, 12 of which were by double digits. Interestingly, among the top four specialty fruits, the more well-known varieties of mango and papaya declined, while kiwis and pomegranates increased by 17 percent and 18 percent, respectively.

Also part of the equation for the increase of global products are variety and distribution.  Distribution (generally global sourcing) has put more of the traditional products already popular with U.S. consumers in stores longer. Berries is a perfect example, as growers have built a supply chain that extends throughout North America to Mexico and Central America and down to Chile and Argentina to create a nearly uninterrupted supply of blueberries. Blackberries and strawberries have also benefited, though the sourcing tends to be from various regions of Mexico.

Growth results from consumers buying these products more because they are on the retail shelf longer throughout the year. Also, the unique item offerings have grown year over year across the produce department mainly due to new products coming out of the breeding programs at private companies and universities.

 

Increasing Overall Consumption Should Be The Goal

Analyzing consumer behavior via sales trends is wrought with complexity. For example, back in 1989 when 60 Minutes ran its famous report on Alar, apple sales plunged. It would be easy to draw a causal link: The TV show raised fears about apples and sales thus declined.

A thorough study of the situation, though, revealed that this was not the whole truth. After the publicity surrounding Alar, many retailers decided to put other items, rather than apples, on special. This meant that there was less space given to apples, the prices were not as promotional, and not as much marketing was done to push apples. Apple sales certainly did decline, but was this decline due to consumer concern over Alar, or due to retailers reducing the frequency of apple promotions? It is not easy to ferret out these differences.

So it is difficult to assess the dynamics at work when we look at issues such as health. There is no question that there is a lot of public health advisory and much marketing around this issue. It certainly seems logical that consumers, looking to enhance their health, will increase their purchases of fresh produce. Yet it is not clear that is happening. Transitory sales figures may go up and down, but there is little evidence that per-capita consumption is actually increasing.

Typically, it is impossible to do controlled experiments as to what influences sales. So if carrot sales and fresh-cut salad sales boom in January, is that due to New Year’s resolutions or Super Bowl parties? It is difficult to say.

Some categories certainly are growing in sales. Almost by definition, new innovations in fresh-cut vegetables and fruit will drive these categories. The hope, of course, is that such innovations will boost consumption overall, but it is not clear the extent to which this is happening. Maybe if one spends all day eating junk food in the car, one yearns for healthy fresh food at dinner. Maybe if one snacks all day on cut vegetables, one yearns for a steak at night. Our knowledge on all these things is just not particularly good.

Sometimes production itself is the driver of consumption — a sort of “supply-side” economics for the produce industry. If the volume of Rainier cherries sold is growing faster than that of Bing cherries, that tells us that suppliers are producing more Rainiers. If the growers are correct in their estimation that consumers will pay a premium for this variety, the decision to grow more of it will be profitable. If not, prices will decline but volume will usually still increase as production typically gets sold.

Sometimes, what we call premium products in the trade are, in fact, basic products for certain dishes. So if specialty mushrooms increase in sales, it is not always true that consumers are showing a willingness to trade up to a more expensive product. Maybe those who use Shiitake mushrooms are not simply replacing them for button mushrooms as a side dish for steak; maybe they are using them in an Asian dish that requires the item.

It is also difficult to assess consumer intent if the data we are drawing from is solely from retail. Maybe the growth in specialty mushrooms is a result of consumers economizing by trying to cook dishes they previously purchased in restaurants. Who knows?

Tastes change, cooking becomes more adventurous, and travel and media introduces people to new items and ways to use them. So it is not surprising to see that items such as cilantro, edamame and jicama are increasing in sales and, presumably, consumption. The challenge for the trade is to turn this into additional total consumption. Does an edamame appetizer add a produce dish to the menu or replace a side dish?

We also need to consider that rapid growth often comes on a very small base. It is terrific that Habanero peppers can increase sales by 104 percent, but it is worth noting that the entire chili pepper category — of which Habanero is a tiny part — constitutes less than a third of the bell pepper category.

Without a doubt, global sourcing increases sales of certain products as it puts popular items such as grapes and blueberries on the shelves virtually all year long. The unknown question, though, is to what extent consumers who buy grapes, because they are now available all year, buy fewer, say, apples because their favorite item is always available.

In the end, increased consumption has to come about by changes in eating patterns, notably the replacement of protein-centric plates with produce-centric dishes in which protein serves as a flavoring. In other words, people need to switch from a steak to a stir-fry flavored with beef. Without this kind of switch, consumers may drive sales of one item or another but aren’t likely to change overall consumption patterns.