Razor-Sharp Industry Focus Needed To Move Forward

By Jim Prevor, Editor-in-Chief, Produce Business

How consumers handle a recession — and the impact of those decisions on consumer purchasing — is a perfect example of why many assumptions regarding consumer behavior are so often wrong. It seems like a no-brainer, for example, to think that consumers, pressed for cash, would cut down on the purchase of convenience items and more expensive foods. Yet, as Beth Padera points out, that is not always the case.

Beth focuses on the trade-down effect, where consumers who might be tightening budgets trade down from eating out to eating at home. This can certainly explain higher retail sales of any food item. In addition, people who used to eat out may not have the competency to prepare all types of items and so buy fresh-cut or otherwise prepared items to make meals in the only way they know how.

One issue is what income statistics to analyze. Overall numbers can easily hide the effect of a recession on large cohorts of the population. For example, even in very serious recessions, most people do not lose their jobs and do not get pay cuts. They may, however, be cautious and uncertain regarding the future. In addition, social pressures may lead them to not want to show off how well they are doing.

These families typically defer big-ticket expenditures. So they don’t rent a beach house for the summer, don’t buy a vacation home, postpone an addition to their house, defer buying a new car, cancel the ski trip and go visit grandma instead. The impact of all this is that the actual discretionary income of these families is likely to increase, not decrease, during a recession.

This often leads to increased expenditures on “small indulgences,” so if the family canceled the summerhouse and can’t go skiing, they indulge with some raspberries or by allowing someone else to chop their vegetables. It is difficult to say with certainty, but the data used by the Perishables Group, which excludes Wal-Mart, may even exaggerate this effect. If those who lose their jobs trade down from conventional supermarkets to Wal-Mart, the remaining retail customers would be disproportionately likely to be job-holders whose incomes have not declined and thus disproportionately likely to have found their actual discretionary income increasing as they cut back on big-ticket items.

We also have to be cautious in interpreting consumer expressions about their purchase habits. Although consumers may say they value things such as healthfulness and the environment over price, we have some reason to think we ought to carefully assess what this claim means and what impact it has on purchases. One possibility is that consumers just “guild the lily” a bit. They feel that healthfulness and love for the environment are the “correct” answers and don’t want to be perceived as a miser only focused on price.

Even taking these polling reports at face value, it is still unclear how this would be expressed in purchasing. In the case of those consumers who say they value the environment over price, a very tiny minority of consumers may elect to go shop in specialized stores such as Whole Foods. Of those who shop in conventional supermarkets, some may buy specialized products such as organics. But for most, how precisely will they judge if this particular head of lettuce is helping the environment?

Very often, issues such as price, cleanliness, and assortment get devalued as a shopper-motivator because all the players are very competitive on these factors. So with the major retailers all offering well-priced stores that are very clean and stock a wide assortment, the differentiating factor that draws consumers to prefer one store over another may be the extent of its fresh-cut section, organic section, etc.

Fresh-cut items offer the opportunity for produce to move into new convenience categories. Wider distribution in more outlets is almost certain to increase sales. No question that this increased consumption will be good for public health and a sales boost for companies that make these convenience products. One question is how significant this increased consumption will be for the whole industry. Although sales of fresh-cut fruit and vegetables are growing robustly, their volume is dwarfed by the fresh-cut salad category, and sales in this much larger category have suffered ever since the spinach crisis of 2006.

There is little question that innovative packaging can make a big difference. Marginal sales growth is very likely to come from innovations that make it easier to eat such products in the car and for them to be sold in vending machines and convenience outlets.

Financial viability of centralized fresh-cut fruit operations is another issue. Sales can increase with in-store processing, but if we are to see giant boosts, we will need to have centralized processing facilities.

Only a razor-sharp focus on the consumer can help us, as an industry, to realize the potential of convenience produce. This task is formidable, however, because the future doubtless holds many ways of making life easier that we can’t easily visualize. We need research and data such as that done by the Perishables Group to help us move forward. If we are to move forward briskly, we also need to interpret such research shrewdly.