October, 1990

Fruits of Thought

Defending Our Retail Turf

A new report, “Facts About Store Development,” recently released by the Food Marketing Institute, may indicate a great threat to continued growth in produce sales at retail: Supermarkets are no longer getting bigger.

This matters a lot, because produce sales have been increasing…in no small part because supermarkets have devoted more space to pushing the product. Many a store that forty years ago devoted but a single case to produce, and even then filled in with non-produce items during the winter, today offers thousands of square feet of produce variety, and does so year-round.

The study shows that the typical new supermarket opened in 1989 measured 40,000 square feet. This was down slightly from 40,800 square feet for a typical new store opened in 1988. And down significantly from the all-time high of 46,892 square feet that new stores took up in 1987.

This square foot drop may well come to symbolize the end of an era when rapidly growing stores could enable produce departments to expand without cutting into the space allocated for other departments. We may be entering an era when produce directors will be continually engaged in hand-to-hand combat with other department heads as they struggle to convince top management to take space away from other departments and devote it to produce.

As long as stores were getting bigger, produce departments could grow without cutting into anyone else’s turf. And the need to expand was substantial.

  • Imported produce and improved storage technology turned produce into a major year-round profit center. The days when departments overflowed with summer fruit, then sat barren all winter were history. There was a need, twelve months a year for space to accommodate these new sources of regular supply.
  • An explosion of specialty, exotic, tropical and gourmet items became available as transportation became safe and affordable and as the jet age turned Americans into world travelers and diversified the national origin of immigration into the U.S.

Top supermarket management was amenable for three reasons:

  1. Produce produced higher profits than most substantial supermarket departments.
  2. Produce could create a positive fresh atmosphere for the rest of the store and was a key area where the supermarket could differentiate itself from competitive stores.
  3. Resistance from other departments was minimized as growth in the produce department could come out of a growing pie, rather than taking another department’s piece.

But now, with the party ending, space is going to be tight. Combine this fact with pressures from new service departments, everything from in-store Chinese take-out to in-store sit down restaurants, and it is not going to be easy to expand space in produce. This is going to lead to several important changes in the coming years:

  1. Premium On Profitability. Many items have won places in produce over the years on the strength of the idea that having a large variety of produce is beneficial in attracting consumers, even if those items do not sell well. However, this concept is going to be undermined in the future. More and more produce directors will demand that every item carry its own weight and make a good profit, in addition to contributing to variety. This profit will be essential if produce is to compete successfully with deli, bakery, etc., for space in the stores of the 21st century.
  2. Denser Display Fixtures. As we already see in stores in urban centers, more departments will be looking for fixtures that are able to display more items in less space. More double and triple rack display cases will occupy room usually designated for bountiful island displays.
  3. Emphasis On Out-Of-Store Services. Telephone delivery services, computer grocery ordering services and any service that can sell produce (or other supermarket items) without taking up valuable space will receive great emphasis.
  4. Intensive Information System Usage. With space being a zero sum game, maximum attention will be paid to developing effective DPP systems for produce and for developing space planning computer software to produce departments.
  5. Fierce Inter-Store Rivalry. Expect intense competition from Deli particularly, but also frozen food and grocery for the right to offer various products and services.
  6. Cut-Throat Commodity Competition. Commodity boards and shippers will be under increasing pressure to make product profitability comparisons. Retailers will increasingly demand to know not merely that by displaying more of X they can sell more, but also what commodity or brand they should eliminate from stock to expand the space to a given commodity. Ironically, this type of competition will make it harder for industry members to work together to solve problems in the future.

The postwar era has been a time of tremendous growth and prosperity for the produce industry. Growing stores, expanding product lines, a healthful product in tune with the demands of a modern population have all been keys to our success. But as we approach the turn of the century, clouds loom on the horizon, and stagnant store size is among the most prominent challenges we face.

It is not an insurmountable problem, but it will require a change in the way we do business. An atmosphere of limited growth may lead to an even more competitive business environment in the years to come.  pb