July, 2013

Fruits of Thought

Retailers Poised For Foodservice Growth

The relationship between the produce industry and the foodservice industry has long been tempest-tossed. Restaurants and other segments of the broader foodservice industry are, of course, enormous and important customers of the produce trade. Yet their procurement is somewhat problematic. Most substantial shippers would like to establish equity for their brands, yet foodservice buyers loathe paying a branded premium, as consumers will rarely know the branded source of the ingredients.

The relationship has also become strained because, unlike retailers that always have dedicated produce executives, foodservice operators typically do not — they have broader food and beverage responsibilities. The industry has endeavored to make foodservice operators part of the produce trade. Most notably, the Produce Marketing Association (PMA) exemplifies this by bringing foodservice operators to the very chairmanship of the association. Yet it has never really succeeded in getting the businesses to view the produce industry as anything other than an important vendor. 

Companies in the produce industry have always been challenged in knowing how to be the kind of partner foodservice operators need. The commodity-like nature of much of produce has made most companies hesitant to invest in the kind of collaborative product development necessary to get items placed on menus. After all, the company that makes such investments has little assurance that it will ultimately get or retain the order, when some other producer — freed of the cost of maintaining staff to deal with such complexities — is better positioned to undercut the price.

On a policy level, the restaurant trade has used the produce industry. Four years ago, PMA, the National Restaurant Association (NRA) and the International Foodservice Distributors Association  (IFDA) announced a grand initiative to double produce consumption in foodservice by the year 2020. It was a brilliant strategic move by the executives at the NRA. At a moment when the restaurant industry was under severe attack (as the restaurant industry was accused of being the proximate cause of the nation’s obesity crisis), the NRA announced to legislators, regulators, NGOs and the media that the restaurant industry is on the side of the angels and is working closely with the fruit and vegetable people to boost consumption and make meals healthy. Unfortunately, the NRA has done almost nothing to achieve the goal it committed to.

It is not hard to understand why. Its membership is in the business of selling food consumers want to eat, not re-educating the masses. Sure, some politically savvy chains, such as McDonald’s, realize they better keep some salads on the menu so they can stand behind the banner of consumer choice when they are attacked for being unhealthy. But, in the end, if consumers enjoy meat, restaurants will sell meat; if they like pasta, restaurants will sell pasta, and if they want produce, they will sell fruits and vegetables. Restaurants are not, however, partial to selling one over the other.

Despite these difficulties, the produce trade needs to get more, not less, engaged in foodservice. Part of the issue is, as Ed McLaughlin — director of the Food Industry Management Program at Cornell University — has pointed out, we have 100 years of good data showing a long arc of a continuous increase in the percentage of food dollars spent in foodservice rather than retail. Nothing new there.

What is much newer is that retailers themselves are increasingly becoming foodservice venues. At first, it was the large-scale stores such as Wegmans or the Whole Foods Market at Kensington in London. Today, however, it is just as true of the more upscale smaller stores.  Kings recently opened a new store in Gillette, NJ, and you see the future of retailing there, with a lot less square footage in traditional grocery, an expanded emphasis on perishables — especially a more important foodservice offering with specialized stations. 

The good news is in-store foodservice items often have very substantial produce content, and that means there is an opportunity to use these retail outlets to increase sales and boost consumption. But doing so is going to require a very different approach than the produce industry is accustomed to making when it talks to retailers.

Retailers themselves have a way to go. Some retailers have already advanced in offering restaurant-quality food, especially in the deli department. However, in share groups facilitated by this columnist, the deli group is divided between some stores still focused on old-style fried chicken, pizza and mac and cheese as the heart of their foodservice offering, and the others offer a truly delightful assortment of fresh foods, typically with a big produce component.

So the produce trade has two tasks: To catch up to the most progressive retailers and be the kind of partner these firms need to continue serving restaurant-quality food with innovative produce-centric dishes; while at the same time, the produce industry has to help nudge the more traditional retailers to progress and serve the substantial consumers’ interest in healthy and flavorful options that a more produce-focused offering can bring to the table.                     pb