September, 2014

Research Perspective and Comments & Analysis

High-Quality Produce Important In Giving Grocers Competitive Edge

By Cheryl Flink, Chief Strategy Officer For Market Force Information

Competition in the grocery industry has never been tougher. The emergence of more niche players, discount stores and upscale chains gives traditional grocery retailers a run for their money. As grocers look for growth opportunities, the fruit and vegetable aisles are evolving as areas where brands can differentiate and gain a competitive edge. A recent grocery industry study by Louisville, CO-based Market Force Information found that high-quality produce is one of the top 10 attributes that influence consumers’ choice of grocer — ranking higher than high-quality meat and organic food choices.

The survey was conducted online in March 2014 across the United States and Canada. The pool of 6,247 respondents reflected a broad spectrum of income levels, with nearly 60 percent reporting household incomes of more than $50,000 a year. Respondents’ ages ranged from 18 to over 65. Approximately 73 percent were women and 27 percent were men, and 50 percent have children at home.

Trader Joe’s Repeats As Overall Favorite Grocer

As a whole, which major grocery chains are delivering the highest levels of satisfaction and delighting their customers? According to our study, Trader Joe’s is North America’s favorite grocery chain, based on customer satisfaction and the likelihood that they would recommend the store to others. It topped the rankings for the second consecutive year with a score of 82 percent, followed closely by Publix in second place with 80 percent, ALDI and Costco in a tie for third with 76 percent each, Hy-Vee fourth with 69 percent, and H-E-B rounding out the top five with 67 percent.

Who Wins in Produce?

While price and convenience are important factors for grocery shoppers, being inexpensive or located on every corner is no longer enough to attract and retain customers in the fast-growth grocery sector. To better compete, certain grocery brands are focusing on their produce sections — some to the point of making them the main draw of their stores — and they just may be earning more frequent visitors and brand advocates as a result of this specialized strategy.

In addition to identifying consumers’ overall favorite grocers, our research revealed how the top chains fared in categories such as produce. Publix won on offering the highest-quality produce (58 percent), H-E-B was second (56 percent), Trader Joe’s was third (53 percent), Costco was fourth (48 percent) and Hy-Vee was fifth (43 percent).

Interestingly, the same grocery stores that appear in the Top 5 of the produce rankings are also the leaders on the overall “favorites” list. ALDI, which is notorious for offering low prices, was the only exception. This suggests that high-quality produce may have a strong bearing on overall satisfaction and lead some shoppers to bypass the stores closest to them in favor of a chain that offers better produce.

Buying Local And Farmers Markets Are Trending

Local food sourcing is of increased interest and importance to consumers. More than half of those studied said that local sourcing of produce, meat and dairy products is important or very important, and 65 percent are more likely to buy these products if they are locally sourced.

Shoppers are also heading to farmers markets in droves in search of fresh, local produce. Nearly three quarters of respondents reported that they buy at least some produce from farmers’ markets in their area during the months that they are open, and 19 percent buy at least half of their produce from these markets.

Organic And Non-GMO Insights

Organic foods continue to gain in traction among health-conscious consumers, and are now a regular feature in most supermarkets. Of the organic food options available, produce is by and large the most prevalently purchased. Eighty-two percent of those studied said they buy organic produce, trailed by meat with 50 percent. Dairy, snacks, cereal and personal hygiene products are also popular organic purchases. The main reasons given for purchasing organic food options were better nutritional value, better quality and absence of genetically modified organisms (GMOs).

What Types of Organic Products Do You Purchase?

Although GMOs have been prominent in the news, leading some consumers toward organic food choices, half of those surveyed have little-to-no familiarity with them — 38 percent indicated they’re unfamiliar with GMOs, compared with 13 percent who said they’re very familiar with them. Of those 13 percent who are very familiar with GMOs, 69 percent expressed a concern about their use.

Key Takeaway

Produce, particularly organic produce, continues to be a key factor in choice of grocery brand. Shoppers crave fresh and healthy foods for their families. Grocery retailers that showcase produce may be winning more loyal business and standing out from their competition by focusing on a food category that is highly important to their shoppers. However, competition isn’t just coming from other regional and national grocery chains — farmers markets are also emerging as a contender in the produce battle among consumers who want to locally source their produce.

Murky Attributes Impact Grocer Rankings

The thing about research is that getting the answers from consumers is just the start. Understanding what consumers actually mean is a whole separate challenge.

It is not surprising to learn that produce can be a big differentiator for stores. Obviously, branded grocery products are identical from store to store, so that whittles the big product differentiators down to private label grocery offerings with distinctive flavor, quality or value propositions and perishables.

This tends to go just below the big four — location, price, cleanliness and assortment — as reasons for consumers to select one store over another.

Once one gets past these fundamentals, things get murky, fast. So in this study, we learn that “high-quality produce” is one of the Top 10 attributes that impact a consumer’s ranking of a grocer. One can just imagine a vice president of produce, having been given this research and being anxious to utilize this information to conquer his marketing area.

The thing to understand about this research is it doesn’t actually compare store to store. So although Publix is ranked No. 1 for offering the highest quality produce with 58 percent and H-E-B is No. 2 with 56 percent, this does not mean that consumers judged Publix to have better produce than H-E-B. It means that of those who are familiar with Publix, 58 percent think it offers the highest quality produce compared to other options these consumers are familiar with. Most of these people never stepped into an H-E-B.

Equally, the “overall favorite grocer” is an odd measure. Three of the five top-rated chains are not traditional grocery stores at all: Trader Joe’s, Costco and Aldi. They are somewhat unique. Trader Joe’s really has no competition in its class of stores, and Aldi only has minimal concept competition in the U.S. Costco has just two competitors, and BJ’s is quite regional. One wonders if consumers don’t compare “like to like” and these chains win because they are dominant in their categories. It would be interesting to see if comparable people who rate, say, Costco as their “favorite grocer” actually shop less at supermarkets than other consumers. There is cause for doubt. It may reflect a nomenclature issue.

Similarly, the interest in local is not surprising. It has been stoked by countless articles and retailers’ own marketing. But the research doesn’t tell us the actual impact on sales of local. Other research indicates that consumers like local for specific reasons: They believe it will be fresher, because they think it will come to the market quicker; it will be riper, because they believe it will be picked later; it will be cheaper, because they believe that the transportation is less.

There has never been a study, however, indicating that if these expectations are frustrated, mass-market consumers will still choose local to solely support the local economy or maintain open space. In other words, “local” can be thought of as a brand with brand attributes. But if the local item is not fresher, has inferior taste and costs more than an alternative, the professed consumer interest in local may not translate to consumer purchase.

The fact that people sometimes purchase organic is not surprising. In a fair number of supermarkets today, lower volume SKUs are only available in organic versions. These items don’t merit two slots in a warehouse or double facing in expensive refrigerated cases. Retailers stock the organic version so they can satisfy organic stalwarts while having the product available for everyone. In other cases, the organic premium is small or non-existent, and organic may also function as a kind of brand for a healthier alternative.

We also have an indication that some parents are very sensitive regarding young children and seek organic products to feed them; sometimes the whole family rides along. But this research indicates the organic demand may not be built on a strong foundation. The study says that consumers buy organic for better nutritional value (although there is very thin evidence of this), better quality, (although it is unclear in what sense organic offers better quality) and absence of GMOs. Yet if current labeling initiatives pass, then non-GMO product that is not organic would be identified as less expensive than organic.

The research also shows that GMOs are very much a niche concern. Only 13 percent of consumers are familiar with the issue, and of those, almost a third have no concerns.

The research on farmers markets is interesting but raises many questions as well. Most notably this: If 19 percent of consumers were buying more than half their produce from farmers markets, with almost three quarters of consumers buying some produce from farmers markets, then sales through conventional channels would collapse. They have not. So, either the claim is aspirational — people say they are doing what they wish they would or think they should — or going to farmers markets drives up consumption or purchases at a farmer’s market are of a tourist nature and don’t really impact conventional channels.

In any case, the issue of quality is not determined by any of these things or by an objective standard. Publix and H-E-B have high-quality produce because they have the produce their customers want to buy. That is a marketing lesson that stands regardless of what any given research report may say. pb