May, 1994

Fruits of Thought

Fresh-Cut Branding May Alter Industry

The path to fresh-cut dominance is still to be hewn through the produce department jungle, and one big obstacle is still quality. Despite improvements in fresh-cut quality, particularly in the source-packed salad mixes, I consistently find poor quality product in the store.

Some of this is a source-packing problem, with ends of iceberg lettuce making it into packages, for example. But much of the quality problem is a problem caused by mishandling at retail. The breaking of the cold chain and, particularly, stacking fresh-cut too high are often leading to tired-looking salad mixes.

I’ve had the privilege of being involved in many research projects related to fresh-cuts, and I find that most source processors are diligent about developing high quality product. In fact, they often spend small fortunes researching consumer reaction to various products.

What they rarely do, however, is judge consumer response to their products as consumers would normally eat them. When conducting a focus group, for example, suppliers often fly in fresh-cut product right from the plant. What they should do is buy the product at local supermarkets, drive around in a hot car for half an hour with it in the trunk, put it in a refrigerator for a day or so and then give the consumer the bag to open and eat. They should judge consumer reaction at that point. The lesson learned might be different than the one producers are learning now.

I have to believe that, for the most part, quality problems will be worked out. Either the processors will improve enough to compensate for bag handling on the retail end or retailers will improve as they build new stores with better refrigeration and they train their employees as fresh-cuts become a bigger part of the business.

Certainly the appeal of fresh-cuts to consumers is substantial and if retailers don’t do the job, some processor will provide the right type of in-store refrigeration in exchange for exclusively filling that case with that supplier’s product.

It is on this question of handling one supplier’s product that may well turn the future of the produce department and the profitability of the whole fresh-cut industry.

It may well be that the processors are investing countless millions in a market that may never develop as they have hoped. Chopping lettuce is not that great a business. People have been doing it for decades, maybe longer, without raking in big bucks. So when shippers invest in these super high-tech plants, they do so with something else in mind — the birth of a branded product.

What the processors dream is that their fresh-cut product should be a proprietary, unique branded item, priced without regard to the cost of the underlying commodity. They look at other food items such as, say, mustard, where stores can sell dozens of brands of mustard, each priced independently of the cost of the raw materials to make mustard.

There are two possible obstacles on the road to this nirvana for processors: the first is the consumer. It is not clear to what extent the consumer relates the price of fresh-cut products to the underlying commodity. On some products the relationship is almost nothing. Cakes and cookies are not priced with regard to the cost of flour because consumers do not weigh making their own cakes from scratch versus purchasing a ready-make cake. But on produce that is not yet the case. Is it possible that for a younger generation the idea of making a salad will seem as exotic as my generation sees baking a cake from scratch?

The bigger obstacle to the supremacy of proprietary branding in the produce department is the supermarket itself. In order to have a true branded product with independent pricing power, you need to have product that supermarkets feel they must carry. And to date, for all the promotion of individual brands on fresh-cut produce, no supermarket is feeling the need to handle multiple brands of the same item.

You do have supermarkets preferring one company’s spinach salad and another company’s Caesar salad, sometimes because of customer feedback, often because of availability and pricing by each company.

But this still leaves the supermarket buyer in the crucial decision-maker’s chair. It is the chain buyer who decides which Caesar salad mix the store shall carry. This is different from the strong food brands in other categories. Supermarket buyers, for example, do not decide whether to carry Hellman’s mayonnaise or Kraft; they carry both, and the consumer decides which to buy. Most stores carry several brands of yogurt in the dairy department, once again allowing the consumer to decide.

The question is, can the marketers of fresh-cut branded product build up such demand for their brands that supermarkets feel compelled to carry multiple brands of each type of salad mix? If marketers can make that breakthrough, if they encourage multiple brands of the same item, they will gain enormous pricing power. They will be able to use consumer advertising efficiently, they will really have a branded product, and the produce department will be changed forever.

The irony here is that the only thing that will enable shippers to realize strong brands and to earn good returns on the investment in fresh-cuts is the last thing shippers are currently fighting for. They are so busy convincing supermarkets to carry their own brand exclusively that they ignore the fact that as long as a retailer carries only one brand of the same item, the consumer never gets to choose between brands. Will the industry do what it takes to put the consumer behind the wheel?  pb