January, 2016

Research Perspective and Comments & Analysis

The Produce Channel Choice — Defending Our Turf

By Anne-Marie Roerink, Principal, 210 Analytics

There is no doubt about it: Supermarkets remain the produce powerhouses of the industry. For many, produce is the prime way in which supermarkets differentiate from the competition and an important tool in driving foot traffic. Supermarkets boast high shopper conversion, with 88 percent of shoppers who purchase the majority of groceries at supermarkets also purchasing fruit and vegetables there. Additionally, they attract many shoppers of other channels for the produce purchase, in particular supercenter shoppers, of whom 37 percent switch channels to purchase produce elsewhere. The chief reasons for switching stores in general include better quality (55 percent), freshness (52 percent) and variety (36 percent).

While supermarkets’ superiority in produce remains unchallenged, there are several alternative formats nibbling away at the produce dollar. These include channels such as online, farmers markets, farm direct and even dollar stores. These may not be huge baskets, or even regular purchases, but there are consequences nonetheless. Little by little the produce purchase is becoming more scattered, and supermarkets will have to work harder to maintain their reputation/draw, baskets and conversion rates. A subsequent effect of the rising presence of these alternative formats in produce is the potential to lose out on any additional (non-produce) items — making the possible impact much greater than just a few produce items. Let’s look at some of the new competition.

Online Produce Shopping: Six percent of shoppers occasionally purchase produce online along with other groceries, and another 4 percent have ordered online from produce-specific vendors. Using sales-based information from MyWebGrocer, it turns out that the online purchase is as much about stocking up as it is about fresh. In fact, 87 percent of baskets include produce, which is second behind dairy and far ahead of beverages, frozen items, candy/snacks and canned/packaged goods. For instance, bananas appear in no less than 44 percent of baskets; and onions, garlic, celery, tomatoes and apples appear in at least two in 10 baskets. Produce is also a Top 5 driver of sales, with a growth rate of 13 percent year-over-year. As such, the myth that shoppers won’t buy fresh online is thoroughly shattered, and e-commerce presents a tremendous opportunity for brick-and-mortar retailers to prevent some of the fresh dollar leakage to other online perishable players.

Dollar Stores: More than one in 10 shoppers occasionally purchase fresh produce at dollar stores, such as Dollar General. In particular, they are a growing destination among lower-income households — with 19 percent of shoppers earning less than $35,000 annually — occasionally purchasing fresh produce at dollar outlets.

Farmers Markets: Aside from the primary store, shoppers will pick up produce items here, there and everywhere. Farmers markets lead the list of outlets for the occasional purchase. In fact, no less than 50 percent will occasionally purchase produce at farmers markets. Importantly, produce is a key trip driver for farmers markets with 66 percent going there specifically to purchase produce. Chief purchase drivers are freshness and quality, just like for produce in general. But there are two key differences: farmers-market shoppers care more about supporting the local farm community, and they are more curious about where the produce comes from. And let’s not forget that 40 percent reference the fun atmosphere, and 80 percent are “very satisfied” with their purchases. These are impressive percentages, and along with the rapidly rising number of farmers markets around the country, brick-and-mortar retailers should take note and more effectively communicate in-store produce is every bit as fresh and high quality, along with a strong emphasis on food safety in the supply chain.

Think about telling the backstory to keep shoppers in the retail produce department instead of diverting to farmers markets.

Explain fresh and the major industry efforts to keep the produce supply safe, fresh and varied.

Integrate local and the “feel good” that goes along with that. And don’t forget in the shoppers’ mind, local can vary from the hyper metro-area to grown in the USA.

Bring the fun by integrating new and different items, handwritten signs and fun merchandising.

Tell the item’s story about the farm, the farmer and why the product specifications provide consumers with the eating experience they are seeking.

Share the facts and provide ideation on how to use the produce items.

 

Alternative Shopping Venues May Be Good For Supermarkets

As with all good research, The Power of Produce study by the Food Marketing Institute, made possible by a grant from Yerecic Label and implemented by 210 Analytics, raises at least as many questions as it answers.

This piece, by Anne-Marie Roerink, a principal at 210 Analytics, suggests this question: To what degree is there a fixed “fresh produce dollar”? Put another way, it is one thing to show that alternative venues are starting to take a higher share of produce purchases, but it is quite another to prove that this business would have gone to supermarkets had these venues not sold produce. After all, the produce industry has worked hard to get produce in alternative venues precisely because the trade believes that more opportunities to purchase mean more consumption.

Think about convenience stores: for many years there was virtually no produce sold in convenience stores, and even now it is a small deal with many stores just offering bananas, oranges, apples, as well as some fresh-cut fruits and vegetables in the cooler. Though small, sales are many times greater than they were a generation ago. Yet isn’t it reasonable to see these sales in some significant part coming not from supermarket produce departments but from the candy, cookie, cupcake and chip offerings at these convenience outlets?

Farmers markets have grown, but there is no research demonstrating that purchases at farmers markets lead to lower purchases at grocery stores. As Ms. Roerink points out, farmers markets are fun — a kind of tourist attraction. But does buying funky heirloom tomatoes mean the consumer will buy less produce at supermarkets? There is no data to prove one way or another.

And here is another thought: Supermarkets have been paring down staff. It is not always easy for consumers to find knowledgeable produce experts to talk to in a conventional supermarket. At a farmers market, the stands are often manned by farmers or members of the farmer’s family. These people are often passionate and knowledgeable. If they convert consumers to using a particular melon or pepper, isn’t it likely that once turned onto an item, many consumers will buy it from their supermarket? So even if there is a short-term trade-off in the form of lower produce purchases at supermarkets, in the long term, the interaction with “produce ambassadors” in the farmers market could be a big win for supermarkets.

Internet shopping? Of course, many brick-and-mortar operations have their own online options. Shippers won’t care if the sale goes through a store or an online portal, but, once again, it is easy to imagine that online shopping could help boost produce consumption. How often do consumers not eat produce because they run out of an item and haven’t had a chance to run to the store.

Automatic ordering could easily reduce these times of shortage in a way that could move the needle on consumption. In addition, as more consumers shop at discounters (such as ALDI or the soon-to-open Lidl), they may be shopping in venues where produce variety is constrained. The “long tail” of the Internet allows for the offer of a more extensive assortment, which could boost sales.

We have long known that there is a correlation between increased income and increased produce consumption. It is not 100 percent clear why this correlation exists. Fresh produce can cost more than other foods, and shrink is a real risk in a way it is not with canned and frozen alternatives. It is also possible that higher levels of education and/or IQ levels allow for the easier absorption of public-health messaging for produce consumption and that higher income correlates with IQ and education. In any case, if lower income people are shopping in dollar stores, then getting them access to fresh produce in these locations seems likely to lead to increased purchase and consumption.

Of course, supermarkets would rather see consumers buy everything from them, but a different philosophy may be in order. Many years ago, Max Brunk, who was a professor of marketing at Cornell University and specialist in produce and food industry issues — as well as founding columnist of PRODUCE BUSINESS magazine at its launch — was commissioned by Roses Inc. to do a study related to street floral vendors in San Francisco.

Professor Brunk carefully reviewed sales figures and determined that vendors selling only roses ought to be encouraged to diversify and sell multiple types of flowers. It turned out that vendors offering a variety of flowers attracted more customers and sold more roses than vendors that offered only roses. The results horrified the association, and the study was buried — never to see the light of day.

It may well be that a diversity of places that sell produce may change consumer habits and encourage eating more produce, and supermarkets might just wind up profiting from these changes of habit. We don’t know this to be true, but it is certainly possible and a great subject for future research.     pb