November, 2016

Research Perspective and Comments & Analysis

First to Market Owns the Market: Emerging Merchandising Trends in Produce

By Anne-Marie Roerink, Principal, 210Analytics

Megatrends, shopper demographics, e-commerce, mergers, acquisitions and more are driving profound changes in the food retailing landscape. Working closely together with food manufacturers, retailers continuously adapt strategies to ensure maximum relevance to their shoppers while optimizing traffic, sales and profits. According to FMI, retailers see product and merchandising innovation as the No. 1 way to drive top line growth and differentiation in a deflationary marketplace. This was ahead of pricing and promotional strategies, in second. 

“First to market owns the market” is a tried-and-true saying among category managers relative to the importance of new items and concepts in driving new sales. Many shoppers are creatures of habit — buying the same items again and again. The Power of Produce’s purchasing decision tree research underscores the importance of habit for both fruit and vegetables. Cutting through habitual purchases requires innovative and inspiring merchandising tactics aimed at driving impulse in the short term and loyalty in the longer term. After all, as mentioned, shoppers are creatures of habit and tend to keep purchasing items at the store where they first made their new item discovery.

Actual sales numbers by data insights firm IRI underscore the importance of frequent new item introductions to the financial health of food retailers. In 2015, IRI measured more than 65,000 new items in the marketplace that were responsible for generating more than $72.6 billion in sales. In a produce-related example, Nielsen Fresh found that retailers introduced more than 500 new organic produce items in 2015 with corresponding sales increases of 14.9 percent.

So, step one is the continual introduction of relevant new items based on your store audience. Step two is trying new programs or merchandising tactics addressing how items are brought to market. The Power of Produce 2016 looked into several programs, including grown locally or in the USA, non-GMO, organic, ugly fruit, fixed weight and “each” pricing that are in various states of development among U.S. retailers.

Programs that tell a story — Origin, organic or non-GMO, it is programs that tell a story about the product or production process that drive great interest among shoppers. For instance, 61 percent of shoppers want their store to add more locally sourced produce, and 56 percent want more U.S.-grown produce. Interest in GMO-free is much lower at 39 percent. 

“Ugly fruit” — A few U.S. retailers started experimenting with programs seen in Europe and Australia focusing on less-than-optimal-looking produce. As a largely unknown concept in the U.S., ugly fruit draws relatively low interest among total shoppers, at 31 percent, when positioned as a program to reduce food waste. With many shoppers focused on money-saving measures, angling ugly produce as a way to save will likely draw higher shopper interest although the environmental angle is resonating much more with Millennials, at 41 percent.

Fixed weight produce — Influenced by shoppers increasingly seeking convenience in every step of the path to purchase, fixed-weight merchandising is reaching critical mass in several categories, with the sales share exceeding 70 percent for 10 produce categories and 40 percent for 20 categories. It is important to balance shopping convenience with shoppers wanting control over selecting their items — which is different for each category, format and generation. For instance, fixed weight is three times more popular among club shoppers than specialty organic store shoppers, but overall only 19 percent of shoppers agree with adding more bagged/wrapped produce in a blanket statement, not specifying particular items.

“Each” pricing — 35 percent of shoppers agree with introducing more each (or per unit pricing) in the produce department, such as 99-cent green peppers versus $1.99 per pound. Segments of the population with a higher interest for “each” pricing include supercenter shoppers and lower-income households.

Importantly, no one item or program works for every store or company. Explore, execute, evaluate and adapt are still key in discovering how you can make “new” work for you.

Source: The Power of Produce 2016 — Shopper research by the Food Marketing Institute, made possible by Yerecic Label and Hill Phoenix and conducted by 210 Analytics.

Food Marketing Institute is a trade association that advocates on behalf of the food retail industry. FMIs 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.

 

Much More Than Meets The Eye

It is practically a truism that consumers often say one thing and do another. It is also true, though, that the actions of businesses are not in line with their own interests. This fascinating quote is a great example:

“According to FMI, retailers see product and merchandising innovation as the No. 1 way to drive top line growth and differentiation in a deflationary marketplace. This was ahead of pricing and promotional strategies, in second.”

Retailers are almost certainly correct in this assessment. So one would expect retailers’ procurement policies would focus heavily on supporting those producers that are highly regarded for product and merchandising innovation. In fact, however, the opposite is true; retailers are increasingly focusing on private label.

Now why is this?

There are certainly a few retailers — Trader Joe’s comes to my mind — whose focus on private label is a focus on developing unique flavor profiles. This ability to offer a differentiated sauce or cookie can be a tremendous competitive advantage.

But in most cases, retailers are not developing unique flavor profiles… as much as possible they are trying to ape current branded flavor profiles that consumers already love. In fact, what private label is all about is removing a tranche of cost from the system — the money that branded producers spend on marketing and research and development.

With this expenditure gone, retailers can split the funds and offer consumers lower prices while making higher margins. This is true in most grocery items, but rarely so in produce, where margins were never that thick to begin with.

In any case, whatever the margins are, when the retailers succeed in driving them out of the system, it leaves questions: Who is going to spend the money to develop new products for the category in the future? Who is going to market and fund merchandising efforts that will introduce these new products and expand consumer interest in the category?

In fact, the drive to private label means less product and merchandising innovation, and that means a tougher future for retailers.

It is also true that we must carefully review the research results. Here is an example:

“In a produce-related example, Nielsen Fresh found retailers introduced more than 500 new organic produce items in 2015 with corresponding sales increases of 14.9 percent.

Although it is a little unclear what this precisely means, the opportunities for confusion abound. One possibility is that these 500 new organic items helped increase organic sales by 14.9 percent -- great news! But, surely, these 500 items required space that had previously been devoted to non-organic produce – so how much did those items decline in sales when their space was reduced? Was there a net increase in sales – organic and conventional?

Another possibility is that retailers, anxious to reduce their SKU count, decided to handle only organic on low volume SKUs. So, previously they were handing, say, a conventional leek; some consumers were asking for an organic leek, but rather than take on the expense of procuring, warehousing and displaying a separate organic SKU, the retailer decided to eliminate the conventional leek and replace it with the organic one. Do this across a few items and a climb of organic sales of 14.9 percent is very easily obtainable – but the increase in total sales is much smaller because the conventional SKU sales in these categories are now zero.

Another thing to consider is the issue of price vs. volume. Most reports on sales are given in dollars, not pounds. Yet retailers are not only concerned with dollars; they want to know that the “share of stomach” in their service area is also going up. If 500 new organic items take the place of 500 conventional items, and if the organic items are priced 20 percent higher than conventional, and total sales of these 500 new organic items come in at 15 percent higher than the sales of the organic items they replaced, then although dollar sales are up, pounds of produce sold are down. And, most likely, this retailer’s “share of stomach” is down as well. That may not be a triumph after all.

Another issue is to distinguish between the substance of a program and its marketing. It may be true that, say, putting up signage with cut-outs of farmers and showing video and brochures highlighting local farmers may produce a sales bump. But from that story alone, we can’t divine the importance of “local” vs the importance of marketing. Perhaps cut-outs of a multi-generational Italian farmer, with videos and signage, would also be a story consumers would like. It is important in testing to try one variable at a time.

Innovation is crucial, and an enormous opportunity abounds for produce, where new varieties and new products are created by fresh-cut forms every day. But “tis many a slip ‘tween the cup and the lip,” so pay close attention to what the best information we have actually means.