February, 2016

Research Perspective and Comments & Analysis

The Power Of Produce Part 2 - The Produce Purchasing Decision: Equity Drives Loyalty

By Anne-Marie Roerink, Principal, 210 Analytics

We all know it: you cannot compete on price alone. Yet, when the store down the street drops their prices on produce, it is hard to fight the urge to follow suit. After all, we don’t like our competition to beat us on ad features or key seasonal items. The good news is, both the Power of Produce research by the Food Marketing Institute (FMI) and the Nielsen Store Choice Drivers Report show that price is important, but neither the sole nor primary purchase driver.

The produce purchasing decision tree underscores that most customers seek value versus just low prices when buying fresh fruit and vegetables. In both instances, appearance (the in-store reflection of quality) beats out price in the buying decision.

Likewise, Nielsen found that “everyday low prices” is only a medium-level driver of loyalty in the perimeter versus quality, variety, ease of shopping and in-stock being much more important drivers. Yet, we cannot underestimate the importance of price either with six in 10 shoppers often comparing prices between different produce items in the store. This mixed emphasis on price on the one hand and appearance, ripeness and variety on the other underscores that having the best prices without execution may result in a lost basket in the immediate term and lost customers in the longer term.

The Power of Produce research found that strong execution consists of eye-catching displays and solution signage/merchandising. But conquering the fundamentals is imperative as well, which include having clearly-marked prices, avoiding out-of-stocks, providing extensive item variety and in-item variety — with close to six in 10 shoppers voting for increased availability of items “grown in the USA” and/or locally sourced.

While new item introductions have always been the oxygen that drives growth for retailers, shoppers themselves deemphasize their importance in the produce department — [new item introductions] were deemed “very” important by just 24 percent. However, in reality, The Nielsen Perishables Group found many segments are shape-shifting, leading to an explosion of new products — with unique items per store up 3.5 percent versus past year. New trends include smaller packages for portability and smaller households, healthy snacking, meal kits that include produce, kid-friendly options/packaging, as well as smoothies and juicing. In reality, many of these new items are driving substantial incremental growth, according to insights firm IRI. For instance, mini bell peppers exploded in sales as consumers view them as tasty snacks and easy salad toppers — resulting in double the category dollar sales growth value.

Another good example is that of fixed weight versus random weight produce — with the former becoming a rapid consumer favorite to simplify both shopping and preparation. IRI found that fixed-weight products reached critical mass in many categories in 2014. Sales shares were at more than 70 percent in eight categories (including spinach, carrots and peas) and more than 40 percent in 20 categories. These are just a few of many examples showing retailers that embrace new products (including packaging changes) are enjoying significant sales gains.

So how do we get shoppers to try new items? The Power of Produce found that recommendations of friends and family are the most effective, cited by 41 percent. But trial is also often prompted in-store, by sales promotions, displays, sampling, as a recipe ingredient or by recommendation from a produce department associate. Shoppers like the idea of recipes, serving ideas, and how-to instructions with 41 percent saying they would absolutely use them. These solutions, along with new items, are met with particular enthusiasm by parents, Millennials, organic shoppers and those working full time.

All these findings show that with quality beating price, and ample room for impulse purchases, the door is wide open for our industry to be creative and purposeful in the execution of cross-merchandising and effectively using recipes and information to help educate shoppers and drive sales, both now and in the future.

Food Marketing Institute is a trade association that advocates on behalf of the food retail industry. FMI’s U.S. members operate nearly 40,000 retail food stores and 25,000 pharmacies. Through programs in public affairs, food safety, research, education and industry relations, FMI offers resources and provides valuable benefits to more than 1,225 food retail and wholesale member companies in the United States and around the world.

Source: The Power of Produce 2015 — Shopper research by the Food Marketing Institute, made possible by Yerecic Label and implemented by 210 Analytics.

 

Price Is Just One Variable

Perhaps the most counter-productive diktat in the entire produce industry is the dual requirement laid down by many supermarket chief executives: First, requiring the produce department to meet Wal-Mart’s banana price, as this is deemed a marquee item by which the consumers judge the price-competiveness of the entire store; second, demanding the produce department compensate for reduced margin on bananas by increasing margin on the rest of the department. With these demands, chief executives succeed in draining the banana category of profitability while also making all other items overpriced.

It also puts the merchandising and marketing functions into a hypothetical box. After all, though price is clearly important to shoppers, it is important in complex ways. Price actually is part of value perception. In other words, if organic product magically became consistently cheaper than conventional, consumers who want the “best” for their babies might suddenly have second thoughts about the desirability of organic simply because it is cheaper.

Branding is traditionally weak in the produce section. The reason is two-fold: First, branding generally consisted of parity products such as bananas, which are all the Cavendish variety. So, unlike the soup aisle, where one firm’s chicken noodle soup is different in flavor from another’s chicken noodle soup, stores generally carried only one brand of bananas at a time.

Second, what differences there are among brands tend to be outweighed by the physical appearance. So even if consumers generally prefer Brand X, the fact that they are staring at Brand Y and find it acceptable means they are unlikely to go shopping elsewhere for a favored brand. This is very different than a canned or packaged product, where consumers can’t judge product quality without X-ray vision.

This research, not surprisingly, shows if consumers see something they like, they are inclined to trust that first-hand evidence, and they find it worth paying for rather than relying on an abstract preference.

The role of price in produce marketing is unusual. In general, produce is highest priced when it is lowest quality because it is early season, late season, or because bad weather hurt the whole crop. We don’t have very good data to see how this interacts with consumer preference, but it turns the concept on its head that the best quality brings the highest prices on most items.

In studying price, there are three different effects: One is internal to the department; for example, a mother wants to buy snack fruit for the children, and Clementines are bargain-priced, whereas bagged apples are dear. Price can alter purchase choice. Two is internal to the store: vegetable prices are high due to bad weather, and that leads to switching to canned or frozen vegetables, or sky high snack fruit prices lead consumers to buy cookies, Jello or pudding snack packages. Three, there is a competitive impact with other stores. Consumers use ads or knowledge of prices acquired in other ways to select which store to shop.

Not surprisingly, though, with produce as with most things in life, price is just one variable. Some variables, such as location, are not under the control of the produce department. Others, such as the store’s reputation for cleanliness and variety, are only partially impacted by produce. Other factors, such as produce quality or how merchandise is displayed and marketed, are heavily influenced by produce executives and the decisions they make.

Increasingly, value perception will be influenced not just by the appearance of produce but by the intrinsic nature of the fruit or vegetable. We see this already influencing consumer behavior. Being the cheapest on apples may not drive much purchasing if the consumer wants Honeycrisp.

Right now, many things are based on consumer perception without much data to back it up. The research shows that consumers value getting some shelf life back home when buying vegetables. But if consumers see a best-food-day ad for a vegetable, how can they know if that vegetable will last longer than the same vegetable bought at another supermarket?

The answer will increasingly lean toward proprietary varieties that offer unique attributes. This influencer may be flavor, nutrition, characteristics such as not browning, or extended shelf-life.

In fact, it is fair to say that the produce industry — both production and retail — will bifurcate with those producers and retailers having access to superior proprietary varieties likely to capture consumer preference, thus leading to higher sales and higher margins. Those left dependent on common, non-proprietary varieties will be the bargain basement, attracting consumers without the disposable income to be selective in their produce choice.

Don’t be surprised if retailers start securing the rights to proprietary produce genetics. There is no more certain way to position a retailer as irreplaceable to a consumer looking for produce with certain specific attributes.              pb