January, 1996

Fruits of Thought

Overcoming Fresh-Cut Obstacles

Keynes once said that great men of industry who think themselves in complete control of their views and actions are usually the slaves of some defunct economist. Equally, despite all the talent and effort that goes into designing and executing a top quality retail produce operation, retail executives are often the slaves of some laboratory scientist. So it is with the debate over store-produced versus regionally produced versus nationally shipped fresh-cut products.

The winner in this battle will likely be determined not by winning the hearts and minds of produce operators but by developing superior technology that will enable a class of producer to deliver better quality goods at better prices.

That is why most of today’s comments about fresh-cut fruit, for example, are irrelevant. They are based on an assessment of products that don’t exist commercially as of yet. If national shippers can produce high quality fresh-cut fruit at good prices with reasonable shelf life, they will be shipping fruit all over — including to many retailers who now swear they will never give up their in-store fruit-cutting efforts.

Now, all this is not to say that national brands will own this market. All over the country, at virtually every retailer I visit, I am now seeing private label fresh-cuts either in the store or in the planning stage. This tells me that fresh-cut branding has not had sufficient consumer impact to make retailers quake at reducing space devoted to national brands.

So far, national processors with consumer brands or, at least, branded aspirations, have been resisting the call to produce private label packaged goods. Spare capacity, though, concentrates the mind powerfully, and we can expect that at least some of these producers will relent and give retailers what they increasingly want: private labels that retailers can use to build consumer loyalty and differentiation from other retailers.

In this sense, the mighty debate about the virtues of regional versus national processors is probably beside the point. If technology allows for efficient and quality source production of fresh-cut fruit and meal packages including proteins, for example, that will happen. If these products can best be produced regionally, either by regional processors or large retail commissaries, then that will happen too.

In fact, even in vegetables, we’ve seen the development of regional processing facilities by national processors — witness Fresh Express’s string of plants around the country and Ready Pac’s New Jersey facility. So, if technology dictates regional production of fresh-cut fruit and meal packages, don’t be surprised to see national companies developing regional networks either through new construction, buying existing facilities, or more innovative affiliations such as franchising.

Still nothing happens automatically, and processors will face three big obstacles beyond technology in bringing fruit and meals to market:

1) Perhaps the biggest obstacle is a stealth one because no one likes to admit it exists, namely that managers across the country will fight the product because they currently use in-store precutting as a disposal method for damaged or spoiled fruit. It is true that virtually every chain has policies against this. Few, indeed, will admit it goes on. This is for good reason as the practice poses both safety problems and quality control concerns. None the less, the practice continues because it enables store produce managers to lower shrink and raise profits.

You can expect managers to fight fresh-cut fruit processed outside the store because the managers will resist showing the higher shrink numbers that losing this “in-store recycling” will bring about and because this product is perceived to be very profitable — whether or not it actually is, once labor and other costs are included.

Of course, personal things matter as well. Fresh-cuts produced out of store inevitably transform the produce department employees from “artists” into stock boys, just like the folks in grocery. Anyone who doesn’t realize that human nature will resist the transformation from craftsman to clerk doesn’t understand the obstacles laying in wait.

2) Produce managers, and often their bosses, will fight the product because it inevitably leads to loss of “uniqueness” in the produce function. On one level, this occurs in relation to other stores. Once individual stores searched auction blocks and terminal markets for that one lot of extraordinary apples. Today, chains are so big and their volume needs so great, all they can do is order a good brand of Extra Fancy apples.

The problem, of course, is that every other chain can do this. So, once the chain sets its basic philosophy — economy, mid-range, upper end — it is hard for a store to use product to differentiate itself. This trend will only be exacerbated by more fresh-cuts.

3) The branding issue must still be confronted. Brands were accepted easily among fresh-cut vegetables, though resistance is starting to spread. This occurred because branded producers introduced these products and had a wrap on the technology necessary to produce them with quality. But branded producers opened the door for store brands to grow because they attempted to build consumer brands on the cheap. No one saw sufficient future in branded fresh-cuts to raise and risk the kind of money necessary to do the national launches we routinely see with everything from detergents to soft drinks. Fresh-cut brands have not breached the sine qua non for true brand development and promotion: the universal availability of product to consumers. So, a lot of national consumer advertising goes to waste.

Of course, if manufacturers are depending on in-store exposure to build their brands, it doesn’t take a rocket scientist for retailers to start to ask, “Why should I build up their brand? So they can place it in my competitor’s store too?”

Where does this leave the next generation of fresh-cuts? Back at the buying office. Produce buyers and management will remain, for the foreseeable future, the gatekeepers deciding which products to buy and which to exclude.  pb