March, 2009

Research Perspective and Comments & Analysis

Economic Challenges And Opportunities

The incredible see-sawing of this winter’s weather in Delaware brings to mind the rollercoaster ride our industry has faced the past year, with cost inputs soaring up and then plunging down along with the global financial crisis. Where inflationary pressures consumed our attention last summer, we now read daily about deflation as the current threat to watch. Are we in the produce industry better protected than most businesses to adjust to this rollercoaster ride?

The results from Produce Marketing Association’s (PMA) latest consumer survey signal relief sprouting from under the cold economic downturn that took root last fall. Consumer responses show that, in general, fresh fruits and vegetables have been insulated from the harshest blows of the horrible economic conditions. In fact, the vast majority of the 500 shoppers surveyed by Opinion Dynamics for PMA say they have maintained their produce consumption at around the same level as six months prior to the survey, which was conducted Dec. 29-30, a time when holiday spending can add insult to injury for already recession-stretched shoppers.

One of the most interesting insights into shopper behavior uncovered by this latest research is that part of their steady consumption may be due to the fact that an overwhelming 95 percent of the primary shopper sample expects prices of fresh fruits and vegetables to naturally fluctuate during any given year. In other words, it is precisely because most fresh produce is viewed as a seasonal product whose price is impacted by shifts in weather and other factors that consumers give us some leeway in this poor economy. That fresh fruits and vegetables afford good economic and nutritional value because they pack many essential nutrients at a low cost per serving should only add to consumer loyalty these days.

At the same time, I need to draw your attention to continuing signs that I previously mentioned in my State of the Industry speech last October, which is that more consumers are looking at frozen foods as a cost-driven alternative to fresh produce. We have to remain very watchful of the competitive challenges posed by some frozen products, whose sensory quality, price points and convenience have improved markedly.

Retailers are being pressed to adjust to consumer demands for greater value throughout the store. Our research shows that promoting customer loyalty and purchases by re-exploring coupon solutions could go a long way in this economic downturn. Forty-three percent of the sample says they would be extremely likely to use coupons for produce, contrasted with only 33 percent who say they are not likely at all to use coupons.

Among the coupon clippers, circulars are their most likely source, followed next by mail and then in-store distribution. New technology offerings are still a small factor here — even in this age of constant connectivity, respondents cited e-mail and mobile devices as far less popular coupon-delivery vehicles. It will be very interesting to watch how this number changes over time once shoppers become more comfortable with their portable devices.

The fundamental demand for our fresh products is undeniable, and we have so many social trends on our side to drive demand. But we must also keep vigilant and focused through the current market turbulence long enough to plan for our future. In January, I was struck by the outstanding turnout and energetic dialogue at the Leadership Symposium hosted by PMA’s Foundation for Industry Talent and co-sponsored by PRODUCE BUSINESS and Cornell University.

In the depths of winter, and with the economy at its darkest, 100 industry leaders came together to discuss the skills needed to build a stronger produce industry. This was yet another sign of the enduring optimism of our industry, of businesses that are built by people looking ahead, rather than dwelling on the past. Whether at the Symposium, the upcoming Produce Solutions Conference in Nashville, TN, or the Foodservice Conference & Exposition to be held July 24-26 in Monterey, CA, industry leaders continue to look for valuable education and relationship-building opportunities to spark ingenuity.

I am always thrilled to see member companies capitalizing on PMA’s free resources, such as the crisis management and product recall guides and the complete consumer research reports highlighted monthly in this column. In the past two months alone, I have presented research to chronicle consumers’ produce purchase behavior before and during an escalating recession, a chronicle that will build in the coming months. This research can be routinely and proactively mined by members seeking to understand consumer behavior.

Spring weather brings rain as much as it does warm, refreshing breezes, and the recession’s unrest will undoubtedly stir more threatening days ahead. But like spying the season’s first robin, this recent news of consumer’s produce loyalty during the toughest financial times is a welcome sign.

Engage The Opportunities

That consumers report produce consumption remaining steady is not particularly surprising. People change eating habits slowly, if at all, and produce is not the kind of big-expense, high profile item — such as, say, lobster — that consumers are likely to focus on giving up for economic reasons.

Despite the trade’s always-present interest in consumption, however, asking about consumption may be the wrong question for the industry in recessionary times.

After all, it is possible to maintain one’s consumption by buying at less expensive venues, purchasing items on sale, switching from fresh-cut to do-it-yourself bulk produce and buying items that are less likely to be thrown out. So consumption, which is a measurement in pounds, can be flat or even increasing, while dollars spent can decrease.

The issue is not just “share of stomach,” it’s also “share of wallet” — and that’s a subject for PMA another day.

The challenge posed by frozen foods is substantial and growing. Quality has improved, and the ability exists to buy product when and where it’s cheap and then pass on economies to the consumer. Add in the virtual elimination of the waste factor and one sees a formidable competitor.

On the other hand, frozen food has sustainability, carbon footprint and food security issues, along with the inherent limitations in frozen food merchandising. So fresh produce has its weapons, but one wonders if irradiation — spoken of mostly in the context of food safety or insect disinfestations — will not one day save fresh produce by extending shelf-life adequately to make fresh less likely to be wasted.

Although we have little doubt that many would use coupons if offered, we see only limited application in fresh produce. In packaged goods, a marketer can plan a retail price by building in a margin for marketing efforts, including coupons. In fresh produce, items are typically sold at a market price, so there is no opportunity to build in excess margin.

The few successful couponing schemes tied to fresh produce have usually been cross-merchandising programs, such as bananas and cereal, or salad dressing and salad vegetables, in which the cost of the coupon is paid for by the packaged product.

New technology, particularly store-based coupons, helps solve the other couponing problem: the lack of availability of specific brands in all outlets. For example, as big as the Chiquita brand may be, at any given time most supermarkets don’t stock Chiquita bananas. So giving out coupons in mailers and newspapers is a recipe for consumer frustration. What’s more, since stores typically only carry one brand at a time of most produce items, it would be nearly impossible for every chain to carry Chiquita bananas due to the simple fact that the brand itself doesn’t have enough bananas. So couponing in produce will have to evolve as some kind of store-based promotion using new technology.

Couponing is designed to get price-sensitive consumers to buy one’s product, without lowering the price for everyone. It has a place, but adds costs and complexity, and seems unlikely to dramatically transform the produce industry anytime soon.

As a partner in the Leadership Symposium, we were actively involved in getting industry leaders to Dallas (see our photo montage on page 16). Does the high attendance reflect optimism? Yes, but it may actually teach a more important lesson on how to approach marketing and business during challenging economic times.

When we were urging people to attend the Symposium, we knew that many would decline to attend, pointing to the recession. So what? The program is limited to 100 industry executives. That is such a small percentage of the industry that macroeconomic conditions are only trivially important, compared to the actual efforts made to attract attendees.

This is true for most produce companies. The vast majority of companies in the industry have sales that are insignificant compared to the entire scope of the trade. So whether consumers buy more or less is typically not the determinant of success for individual players. That’s a question of attitude, intelligence and hard work.

So we enthusiastically join with Bryan in saying that retreating into one’s shell is extremely counter-productive. Read. Go to conferences. Visit customers. Think.

Focus not on the tiny dip in demand you might have experienced. Concentrate instead on the percentage of the industry volume that you are not selling. In such a highly fragmented trade, that is almost always over 99% of the industry volume.

All of a sudden, you will find your attitude changing. Instead of feeling a loss, you will realize how vast the opportunity is before you. Engage that opportunity and your road to success suddenly becomes clear.