February, 2017

Research Perspective and Comments & Analysis

Value-Added Answers Desire To Do Things Quicker, Without Compromising On Quality

By Anne-Marie Roerink, Principal, 210 Analytics

When visiting my native Netherlands I was reminded of the vast amount of value-added produce Europe offers its shoppers. Walking through produce departments where the range of precut and washed fruits and vegetables easily rivals that of unprepared produce, and meat departments with predominant presence of pre-marinated and precut meat, to refrigerated areas that offer complete fresh meals, I sighed that with a selection like this, I would be cooking all the time.

Supermarket chain Albert Heijn, for example, does an amazing job at offering a variety of vegetable mixes for signature Italian, Asian or Dutch dishes in produce, then carries through these meal themes in the meat department with pre-marinated and cut chicken, pork or beef. Solutions like that would be a big piece of the dinner puzzle to my time-challenged, dual-working, with-two-toddlers-household. For me, it puts convenience front and center.

And I’m certainly not alone in my quest for easier planning, shopping, preparation, on-the-go consumption options and packaging innovation. Consider these figures:

• According to the Lake Success, NY-based Retail Feedback Group, U.S. shoppers increasingly seek speed and convenience in pre-trip preparation. They found that more than one-quarter of shoppers have taken to digital shopping lists, either using apps or websites, citing speed, access to prior purchases and easier tracking of promotions as examples of convenience. Online ordering is also growing rapidly.

• Ease of shopping — in 10 produce categories, fixed weight exceeds 70 percent of sales, and in 20 categories it tops 40 percent of category sales. Fixed weight speeds up the decision at the point of sale, and is particularly enjoyed by Millennials and Generation X.

• Packaging innovation — solutions addressing on-the-go, kid-friendly, resealable, toppings or dressing included, etc., are all experiencing year-over-year growth. For example, cut fruit grew nearly 17 percent, according to IRI, and cut vegetables 13 percent. Snack pack vegetables gained 8 percent.

• Meal preparation — speed also matters in the kitchen. IRI found that microwave-ready vegetables grew 5 percent and ready-to-cook vegetables saw 12 percent growth.

This growth is driven by both increased household penetration and buying frequency. The 2016 Power of Produce study found that about two-thirds of survey respondents have bought some kind of value-added produce item in the past three months. For some (17 percent), this is their routine, go-to solution for fresh produce; but the majority of value-added buyers purchase select items only, or when in a hurry, when on sale or for special occasions. This translated into value-added fruit and vegetables, which includes all produce with some level of preparation, growing at a pace far ahead of the total market — at 10.1 percent versus 3.9 percent for total produce and 2.5 percent for unprepared produce.

Purchase predictions for 2017 show a status quo for 70 percent of current buyers, but 21 percent expecting to purchase more. Importantly, among those who say they purchase value-added produce “whenever possible,” 54 percent expect to further increase purchases, underscoring that growth is driven by a smaller, but loyal core to the segment. These include Generation X, affluent households and families with children. And this is an important recognition, because as much as I would like to see U.S. produce departments transform into European-style, value-added destinations, it isn’t for everyone. Demographics, lifestyle and life stage greatly impact purchasing habits; and items successful in one store may not work in another.

Barriers to growth include shoppers’ desire to cut/prepare fresh produce themselves versus having others handle the product (52 percent); the higher cost (49 percent); distrust of quality and freshness of the product (38 percent); and food safety concerns (26 percent). Additional concerns mentioned include the limited shelf-life of value-added produce, packaging waste and lack of availability such as organic or local.

While both dollars and volume show growth, there is a significant gap with dollars gaining at double the rate versus volume,  signaling some caution surrounding price premiums that need to be commensurate with the added benefits.

With control and cost being the two biggest obstacles to category engagement, retail tactics specifically addressing these concerns may help drive further growth. Sales promotions, whether item-specific or meal BOGOs, may allow current non-buyers to experience the convenience, de-emphasizing cost in the future. Explanations on sourcing and safe handling/processing may help overcome control or food safety issues, all the while driving messaging of health, freshness and convenience. 

Chances for continued, if not accelerated, growth of household penetration, basket size and buying frequency are bright. Retailers and manufacturers who are changing offers rapidly and broadening assortment will undoubtedly unlock future growth.

Source: The Power of Produce 2016 — Shopper research by the Food Marketing Institute. Commissioned by the FMI Fresh Foods Leadership Council and made possible by Yerecic Label and Hill Phoenix. Research conducted by 210 Analytics.



Revolution In Food Industry Requires Evolution

If you look at a graph of the percentage of retail sales prices of food going back to the farm, you will find this number has been shrinking for decades. There are many reasons and many implications.

Two of the reasons are clear and related: First, you have changes in the nature of consumers and, second, you have changes in the nature of the product being sold.

On the consumer side, you have had many stages that led to today’s consumer: most notably the growth of the percentage of working women ushered a need for more prepared and convenience items to save time. Then, as a consequence, the next generation grew up without knowing much about cooking from scratch. A more affluent population – two working adults – allowed the resources for a family to “outsource” much food preparation. This can be through more prepared food or eating out and takeout.

On the product side, new technologies, such as modified atmosphere packaging, allowed for the creation of convenient products and their national distribution – all at reasonable price points. No boom in convenience foods would be possible without more convenient foods to buy. After all, Fresh Express first introduced packaged salad in 1989.

Of course, how retailers and the whole supply chain react to these facts matters a great deal — although people value convenience, they value other things as well. For example, there is a dynamic known as the “Hamburger Helper Effect” that speaks to the needs of people — especially mothers  — to feel, well, needed. Many of what are called “convenient-involvement products” could be sold completely ready to pop in a microwave — but that doesn’t give the “cook” much satisfaction. Ten minutes of moving stuff around a pan on the stove — well that is cooking. Or to put it another way, this gives a mother the feeling that she is making a special contribution to her family and to the well being of her children.

So the issue is not just making things ever more convenient; it is doing so in a clever way and finding opportunities to market products in a way that buying and serving them is fulfilling for the consumer.

Now convenience shopping is being redefined. It wasn’t all that long ago that the supermarket itself was a convenience, saving people from separate trips to the butcher, the baker, the fish monger and the fruitier. And, more recently, what the Wal-Mart supercenter did was broaden the “one-stop” shopping offer even further, with food being purchased along with car batteries, for example.

Yet, pre-set orders on an online shopping service or a device that responds to verbal commands, such as the Amazon Echo, pose real challenges for the food industry. If shopping trips are increasingly based on a list established some time ago, or the frequency of trips depends on consumers knowing about things so they can ask for them, well, how then can the industry introduce new products without consumers going to the stores? In produce, where product quality varies, how can we let consumers know the peaches are particularly sweet this week?

It is not obvious that the produce industry does such a great job on these issues now. It is quite common for new items to languish because they are given so little shelf space and so little time. The online systems often do a better job of describing the condition of produce than supermarkets do.

Still, marketing to consumers who aren’t in the store is a challenge. Some of the challenge may be resolved as the technology gets better. Why can’t consumers ask Google, Siri or Alexa what fruit is particularly good today? Why can’t some artificial intelligence ask a question about new products, varieties, etc. — perhaps projecting holographic images or suggesting produce based on the latest health research.

Yet most likely, consumers will have to be influenced outside of the shopping experience. So consumers will learn through the media, including social media, word-of-mouth, advertisements and other marketing about a new variety or new product, and they will place online orders based on this outside information.

We are just beginning to understand how this might revolutionize the world of produce. This columnist’s older son, William, has a favorite delivery service. What is interesting is that he doesn’t just place an order at a restaurant and have them deliver. He will order soup from one favored place, an appetizer from another, main course from a third and dessert from a fourth.

If marketing is going to take place out of store, why can’t an artificial intelligence arrange for delivery of a preferred brand of bananas? If there is an interesting variety of grapes or apples, or a new fresh-cut item, or a new flavored beet, why can’t that be ordered even if a particular store doesn’t carry them?

Of course, there are complications, delivery costs, etc., to work out, but the revolution in the food industry will continue to roll out. The challenge is to not allow it to roll over your own company or sector in the industry.