April, 2016

Research Perspective and Comments & Analysis

Mega Trends Drive Sales, But Striking Balance Remains Important

Anne-Marie Roerink, Principal At 210 Analytics

Grown in the USA, locally grown and organic are powerful trends in produce, and six in 10 shoppers would like to see their stores add more items in each of these categories. Those are not small numbers, but we also know that what shoppers say versus how they actually behave is not always the same thing. As such, the cited high levels of consumer interest in locally sourced and organic produce is certainly subject to real market conditions in which these items often come at a price premium versus their conventional counterparts. So what is the real story?

A little of both, it seems. Let’s take organic produce: Where conventional fruit and vegetables grew a respectable 3.4 percent and 3 percent, organic fruit advanced 20.7 percent and organic vegetables increased dollar sales 19.1 percent, according to IRI. Importantly, growth in organic produce captured 27 percent of total produce dollar growth in 2014.

But the other side of the story is that organic produce makes up a mere 7.4 percent of total produce sales. As such, the high growth numbers are at least in part due to the size of the segments: a small base mathematically allows for much easier growth than the massive and mature category of conventional produce.

Secondly, the bulk of purchases continue to be made by a fairly narrow, hard-core following of shoppers. While 52 percent of shoppers purchased organic in the past three months, for many, this is only an occasional choice versus the routine option. Organic continues to see much higher participation among higher-income households and families with children. Particularly the presence of young children (up to age 6) is an accelerator for produce purchases in general and organic produce sales, specifically. Programs focused on engaging families with young children, or educating children on produce can help create a lifelong engagement with the category. Some examples are the Publix Baby Club and H-E-Buddy.

As to locally sourced, eight in 10 shoppers purchased fruits or vegetables labeled as local but their own opinions on what exactly constitutes “local” vary widely, ranging from hyper-local, a radius or state to national at roughly equal shares — leaving ample opportunity for the retailer to build the definition and program that best matches their philosophy. Reasons for buying local are freshness first and foremost, followed by supporting the local economy/farmers and knowing where the produce is grown.

On the other hand, top organic purchase drivers are the “free from ...” (substances they wish to avoid) and perceived better nutritional value. In a direct comparison, local wins out in a scenario where conventional, local and organic are all equally priced, and, if organic and local are sold at a price premium. As such, the growing demand for local may somewhat cloud the organic market and decelerate its rapid growth, as observed this past year.

Freshness is an important reason for purchasing either product, and local and organic appear to be increasingly linked in shoppers’ minds. However, this may also mean that organic foods could piggyback on locally grown claims among non-users with their added advantage of greater recognition and the appeal of supporting local economies.

Regardless of the impact of local, organic produce gained converts in the past few years, and 95 percent of organic produce buyers believe they will either buy the same or more organic produce in the next year. But those who remain unconverted are finding price to be a big obstacle. And although affluent shoppers are almost twice as likely as the lowest income shoppers to buy organic produce, those who don’t are just as likely to cite price as the reason. Others do not believe there are added benefits or do not see enough information about the added benefits for them to make the organic purchase.

While supermarkets are the clear winner in total fresh with a 60 percent share in produce, the organic purchase is scattered across multiple channels. At 50 percent, supermarkets do take the majority share but several others including specialty stores, farmers markets and even supercenters are named the primary outlet for organic produce by double-digits.

 

More Than Meets The Eye

It is one thing to see increases in the sales of organic produce; it is another thing entirely to understand why those numbers are moving up. One big trend is for supermarkets to reduce the number of SKUs carried. One way of doing so is to carry only organic versions of low-volume items. This reduces the number of warehouse slots, vendors and, in general, simplifies the entire operation. Since the organic-preference consumers are getting organic product, they are satisfied, and the conventional shoppers mostly don’t care if the item is organic. So organic sales get boosted without increasing intent for consumers to buy organic.

Merchandising practices also impact organic sales. The trend has been to integrate sets where organic produce is sold alongside its conventional equivalent. Most stores that switch from a segregated set to integrated report an increase in organic sales. This scenario might mean consumers, when confronted with both organic and conventional, opt for organic. It also could mean consumers don’t pay much attention; they see beets or carrots, know they want them, and grab the first they see — accidently picking up organic.

The spread of organic produce, often to farmers markets, CSA boxes, or similar outlets, may or may not be true. How many consumers check for the USDA Certified Organic signage at the farmers market? How many assume everything at a farmers market is organic? Even if a farm has such a certificate, what are the controls that guarantee a consumer the product purchased in a farmers market is actually grown by that farmer and covered by that certificate?

PRODUCE BUSINESS conducted quite a bit of research on local, and we found it to be a sticky wicket. In the first place, consumer responses are not uniformly in favor of geographically local produce. They like local when the local region is traditionally an appropriate place to grow an item. But if “locally grown” translates into inauthentic growing regions, it is not so hot.

Often local has a political tinge to it. No matter how narrow the English Channel, people in Britain do not mean French when they are thinking local produce — they mean British.

It is also to be noted that local is trendy and perceived as a good thing, so supermarkets may find ways to show they are selling lots of local stuff. But if the stores happen to be in California, and the chain defines local as grown within the state, they will be selling lots of local — but they were doing that 10 years ago, too.

In any case, there is little evidence that the mass of consumers want to give up year-round availability of almost everything. It is easy to eat local; but to be truly local year-round, you have to be willing to give up tropical, only eat seasonally, and store the root cellar potatoes and turnips for winter. Despite all the publicity, the trend is toward more international trade of produce — not less.

One of the big problems in life is people believe things that may not be true. So people may assume a farmers market sells produce that is “fresher.” When in reality, supermarkets have elaborate programs to maintain the cold chain and thus product quality. Many a vendor at local farmers markets participates on Monday, then loads everything in the pickup and heads to another town for another market on Tuesday. If by fresh, one means of high quality, this broken cold chain is unlikely to deliver the desired result.

Even things that seem obvious may not really be so. It is widely accepted that the premium for organic produce is a big obstacle to increasing organic sales. Yet price is part of the elaborate signaling system that helps signal quality to consumers. If magically, organics suddenly became cheaper than conventional, perhaps consumers would not be so quick to assume that organic is better — they might only want the expensive stuff for their babies.

Every store is promoting organic, locally grown, regional, Product of the USA … and every survey reports consumer interest in these topics. Perhaps, however, it is all the marketing attention that creates consumer interest not vice versa.