August, 1994

Fruits of Thought

The Revenge Of Wade Whitefield

Fresh-cuts are indeed a miracle product for produce. In an age in which convenience is deemed a necessity, fresh-cuts provide an answer to how the produce industry can keep growing.

In the months and years ahead, the produce department will increasingly resemble the deli and the grocery aisle as other vegetables, and fruits as well, are gradually transformed from ingredients to be used in preparation of meals into foods that are ready to eat.

We are already witnessing the transformation of sales from some ingredient items to fresh-cuts. Iceberg lettuce is the first to take the hit, with some retailers showing as much as a 15 percent reduction in sales.

This drop may not be necessary, but it is probably inevitable. As reported in this month’s cover story, aggressive promotion of iceberg lettuce can maintain and sometimes increase sales as fresh-cut sales zoom.

Aggressive promotion is the key phrase. What the industry learned (the very hard way) in the Alar scare is that all that is necessary for produce sales to tank is for retailers to do nothing. When the Alar situation surfaced, one of the first reactions was that retailers pulled back on apple promotions, and sales plummeted accordingly. If fresh-cuts cause a 50 percent reduction in the number of iceberg lettuce ad features during the course of the year, lettuce sales will be significantly depressed.

And very likely, fresh-cuts will do more than that to the promotion of iceberg, particularly to the promotion of small- and mid-sized shipper’s iceberg. Why? Because the produce department is changing, and it is changing in a very specific way: money is corrupting merchandising.

When I say money is corrupting merchandising, I mean that decisions, which should really be made solely on the basis of what will maximize sales, come to be made solely on the basis of what will maximize sales, come to be made on the basis of who is willing to pay up front.

It’s probably not illegal, nor immoral, but it probably won’t help fatten up produce sales. Not too many years ago, while facings in grocery were being determined by who paid the slotting fee, produce was the true customer-driven department. Who got shelf space in produce was determined by who had the freshest product, the best quality, the best deal — all the things that mattered to consumers. Gradually more and more of grocery’s profits came from “renting” out shelf space, and actually selling things became somewhat secondary.

It was not solely coincidence that during this period, as the grocery department tended to the bank account and produce tended to the customer, the produce department became the big draw and the big profit generator at retail.

There is a lot of good that can come to produce from this. I was in an Omni store outside Chicago and saw a refrigerated case right across from the check-out stands. The case was an extension of the produce department. It was filled with fresh-cut salad mixes from national brands, refrigerated salad dressings and croutons.

Celebration was in order because that case was selling product, and, as an incursion by produce on turf that is normally grocery, there is not the slightest question that the case boosts produce sales. But real estate and supermarkets have something in common: what counts is location, location, location, and the particular location of this case is the Park Avenue of the supermarket.

Nobody puts their playing piece down on that spot without paying big bucks. On a promotion, a big soft drink manufacturer would probably pay thousands of dollars a week to get that spot. Multiply that each week by 1,000 stores in a big chain and see the kind of dollars that are starting to be necessary to play this game.

For retailers, the effect of fresh-cuts on the bottom line is still unclear. Sure fresh-cuts offer good margins, handling is less expensive than with bulk product, and they often come with heavy promotional backing. But new profit formulas have to be developed for the entire department.

Now retailers are learning that merely making more money on fresh-cuts isn’t enough. When people buy fresh-cuts, they’re forgetting to buy tomatoes to go with the salad. So the retailer needs to make more on fresh-cut as the whole department’s profitability gets realigned.

Back when the California Iceberg Lettuce Commission was promoting iceberg, they did it in a particularly clever way. The slogan used: “Nothing sells produce like California Iceberg Lettuce.” The point: Sell lettuce in big displays on special and make big bucks selling tomatoes, carrots, mushrooms, cucumbers, etc., all at full margin.

Wade Whitfield was the top staff person at the California Iceberg Lettuce Commission (and is now firmly ensconced at the relatively new Mushroom Council). But he must look at this whole situation and get a little wistful as he hears the laments of the smaller growers. He tried to tell them.

I don’t think a new commission could win a vote today. The real big guys control too much of the iceberg lettuce production, and they would rather just work on their own branded promotion. In many cases the big guys don’t mind the market shifting to fresh-cuts, where their access to capital gives them a big edge.

But, as always in life, the choices are two: Either something will be done or nothing will be done. Perhaps smaller iceberg shippers can band together to market under one label and promote that label. Perhaps tomato, mushroom, peppers and onion growers can form the “Salad Alliance” to push for promotion of salad items.

If nothing is done, fresh-cuts will get more and more promotion, perhaps interspersed with an occasional ad for the fresh-cut companies’ brand of iceberg, maybe just to keep the “halo effect” of marketing fresh product under the brand. Small growers will likely find less space as more of the shelf space and promotional space is committed to those who pay for it. And the independent grower / shipper will become a contract grower for big companies that have the processing capabilities and the marketing muscle.

And Wade Whitfield will be too polite to say “I told you so.”  pb