There is no place in the supermarket more competitive than the produce department’s fresh-cut display cooler. The sea of plastic that greets consumers is hotly contested and very valuable space because it is basically a fixed area. Due to refrigeration requirements, most stores are built or remodeled to install a certain size fresh-cut rack – and that is that.
No matter how persuasive an argument is made, it is simply impossible to expand that rack without either risking the quality of the product by using substandard racks or making major capital expenditures to install new fresh-cut racks. This fixed amount of space collides head-on with the fact that the fresh-cut section is also the area of more product introductions than virtually anywhere else in the store and one is reminded of that old song about an irresistible force facing an immovable object; something’s got to give – but what?
The very newness of the category and the products being developed for it add urgency to the matter. It simply does no good to put out some totally new product with one tiny facing on the bottom shelf of a rack, keep it there for two weeks and then pull the product, declaring that consumers don’t want it. Yet, the truth is that precious few retailers are prepared to place their valuable space at the disposal of products of unknown appeal. There are no six-foot displays of little-cut vegetables and dipping sauces put out for two years to condition the consumer.
Although all of this is understandable from the retail perspective, it is also clear that it poses grave challenges for the future of the produce business. For the defining journey that produce has been making since the advent of fresh-cuts is a merging into the mainstream of the food business.
NO LONGER EXCEPTIONAL?
The unchallenged assumption of the produce industry has been that of produce industry exceptionalism. That there is, in fact, immutable things about produce that make it different than selling other food items. Though this is doubtless true, since the advent of fresh-cuts, it is less true than before and becoming less true each day.
On the production end, today’s modern fresh-cut plants resemble a modern food processing facility more than they do a produce packing shed. On the marketing end, the packaging around fresh-cuts creates the same opportunities for branding that also have existed in packaged foods. Even the creator of produce exceptionalism – perishability – is being substantially moderated by packaging and atmosphere control technology.
The implications of these transformations for product development in the produce industry are profound. For most of its history, there was little new product development in the sense of the word used by food companies. There was horticultural development, mostly aimed at improved yield and shipping quality, sometimes aimed at capturing a market premium by harvesting first or last or growing in a place where the product didn’t grow before.
There was the occasional discovery of a broader appeal for an old item, as with the transformation of the Chinese Gooseberry into the kiwifruit. Some items of originally ethnic appeal, notably broccoli, were to find a larger, more mainstream audience than the initially constricted one. Some shippers or promotion boards might even have sponsored chef contests and so forth to find new uses for their products.
But there was little in the way of consistent new product research and development. This is significant because such research is at the heart of the food industry. If you want to sell ice creams, cereals or beverages, one simply must constantly be introducing new product lines. Many produce companies have introduced various juices and frozen treat products. Almost all either failed or had to be sold off and in many cases, the cause was an unwillingness to invest the resources required to sustain constant new product development.
The first instance of sustained new product development in the produce industry has been in fresh-cuts. Yet the industry is caught between a rock and a hard place when it comes to marketing these products. On one side, it is virtually impossible to bootstrap these products. The perishable nature of these items poses two challenges: First, it makes delivery difficult for small volume items. Second, low volume in these items tends to translate into a high shrink.
On the other side, industry margins in fresh-cuts or anything else rarely rise to the levels necessary to sustain the traditional new product introduction techniques used by traditional food companies, such as network television advertising, purchasing vast amounts of key shelf space at prime retailers, aggressive couponing, etc.
Is there an answer to this dilemma? A way to break out of the difficult place the produce industry finds itself in?
WHAT IS CO-BRANDING?
One intriguing possibility has been offered up by Mann Packing, in Salinas, CA. It is a highly specialized effort, encompassing at the moment only five highly specialized products grouped together as “Mann’s Ready To Make…” Yet there is a possibility of a great ocean one day growing from this small stream.
The products are simple: A Teriyaki Stir Fry and Lo Mein Stir Fry, each co-branded with Kikkoman, the well-known soy sauce brand; a Brocco Taco Salad, co-branded with Fritos brand corn chips; Broccoli Wokly With Cheese, co-branded with Kraft; and Oriental Broccoli Crunch, co-branded with La Choy Chinese noodles.
Co-branding is simply the featuring of two brands in one package. In each of these examples, Mann’s Sunny Shores brand is packaged with the specified non-produce brand as an integral part of the product.
Perhaps best understood as what it is not, first co-branding is not cross-merchandising, in which two entirely separate products, say strawberries and shortcake, are placed together by the retailer to boost sales of both products by suggesting a product usage. With co-branding, each of these products is sold as a whole, with one SKU and one price; there is no option to purchase either the produce or non-produce segment.
Second, it is not co-promotion, in which two separate products are promoted on one another’s packaging and/or tied together with couponing, etc. (i.e., buy a cereal and get a coupon for bananas, buy a bagged salad and get a coupon for croutons, etc.).
Though cross-merchandising has been a hallmark of successful produce merchandising programs for decades, and cross-promotion has taken off as a way to promote by adding value for produce consumers in the 1990’s, co-branding offers its own benefits and poses its own challenges for participating companies and for the industry as a whole.
THE OPPORTUNITY
Leading produce brands regularly report being approached by non-produce food companies looking for ways to co-brand. The reasons are no mystery. Though much is often made of the opportunity to associate these brands with the healthful and nutritious image of fresh produce, and certainly such motivation should not be ignored, a far more specific appeal to non-produce brands of getting into the produce department is the department’s high traffic counts and frequency of purchase.
The dilemma for a sauce manufacturer or a chip producer is that their expensively researched and beautifully designed packages often sit in aisles where few see them. It is commonplace today for busy shoppers to zoom in and out avoiding aisles without something specific the shopper needs to buy. In cases such as the snack food aisle, many consumers consciously set out to avoid temptation and steer clear of the aisle.
Today’s store designs virtually ensure that all shoppers will pass through the produce department. And most shoppers purchase something in the department far more frequently than in the rest of the store, such as condiments, Asian food, or snack food.
In addition, of course, these co-branded products serve as a kind of sampling program for large non-produce food marketers. Surely it is reasonable to think a consumer might try Kikkoman’s product first in a “Lo Meir Stir Fry”, enjoy the flavor and go on to be a regular customer for Kikkoman’s products.
For the produce company involved in a co-branding project, the dynamic is slightly different. First of all, most produce brands have weak brand equity. Get beyond Sunkist, Ocean Spray and the big banana giants and consumer recall drop dramatically. As such co-branding may be more complicated than it seems. In most of the likely ventures, one will be combining two totally different entities – a strong trade brand, with accepted quality and distribution as a produce company with a strong consumer brand with strong recall and acceptance among the vast buying public.
The goals for the produce company in co-branding then are thus often directed only indirectly toward increased consumer acceptance, but rather toward having a roster of arguments to increase trade acceptance. It is rather like those consumer ad programs that produce companies have run for years, but which are completely contingent on supermarket ordering. In effect, the supposedly consumer-oriented advertising is really a trade promotion.
In co-branding, the produce company, being that it has the actual responsibility for selling and distributing the product, will point out to the retailers’ many advantages of a strong co-brand, notably the notion that the presence of a recognized co-brand lowers the barrier to consumer trial.
This is crucial to make a case for a spot in that scarce shelf space in the fresh-cut case. It also reduces the opportunity for parity products to emerge. Those fresh-cut companies that were out early with lettuce mixes have been frustrated that others have been able to so easily copy their creations. But proprietary brands make copying problematic – the copy may be similar – but it can’t be the same.
This in turn substantially reduces the buyer’s leverage in selecting a product. As long as we are in the realm of bulk product, or virtually indistinguishable fresh-cuts by brands unable to generate consumer commitment, the retail buyer is king. But introduce branded products that have consumer resonance and the buyer’s leverage drops quickly. Supermarkets can’t just decide not to have Campbell’s Soup; equally, they can’t so easily decide to substitute a product with a generic chip for one with a recognized, and demanded, brand.
There can be other advantages to these alliances as well. PepsiCo, for example, which owns Frito-Lay, is doing a mailing to all its employees, with coupons, urging them to try the Brocco Taco Salad. Many of the branded non-produce food companies have substantially more resources for promotions, couponing, advertising, etc., than do even very large produce companies.
In addition, being product specific, the promotion of these co-branded products helps solve an important dilemma regarding the promotion of produce – the difficulty of capturing the return. Had Frito-Lay and Mann simply done demos in every store teaching consumers how to make a taco salad with broccoli and Fritos, Mann would have been at a terrible disadvantage.
The promotion could have actually served Frito-Lay by highlighting its branded product, which is universally available in every store, but Mann would have, in effect, been doing a generic broccoli promotion. Surely consumers could not be expected to recall the Mann name from these demos. They would just as likely make the salad with a competitor’s fresh broccoli or even frozen broccoli as with Mann’s product.
OBSTACLES
Doubtless putting together a good co-branding partnership is not easy. Many of the big non-produce food companies may seem interested but are simply not entrepreneurial enough to thrive in the produce venue. After all, this is still an industry where El Niño can hit the best players and all the sudden that big couponing program, budgeted 14 months ago, is sending out coupons all over the place for a product that has cut back on its distribution.
Getting retail commitment to new products is still going to be problematic. These specialized products still won’t justify the extensive advertising campaigns that introduce consumers to, say, a new hamburger from a fast food chain. That means that they will depend on retail visibility to induce consumer trial. Doubtless, the name brand will entice retailers to give it a shot and will flag consumers gazing over the sea of plastic in the fresh-cut section, but the long-term commitment new products require to become real successes still won’t come easily from retailers.
The companies producing these products run some risks as well. Perhaps a big branded product will switch alliances and work with another fresh-cut operator. If retailers have been sold a program based on the brand equity of big consumer labels, these retailers might well switch alliances when the brands do.
In the end, of course, there is always the risk that the brand equity will center so much on the non-produce brand that big non-produce consumer food companies will want to make such products themselves simply buying unbranded fresh produce as an ingredient. Of course, they would still require a fresh produce packing, shipping, and marketing network, which would have to be either built or acquired, doubtless at very high cost.
Perhaps the great dilemma of co-branding is whether it is an end or a means. Is it a transition to an age when, as grocery items get fresher (i.e., shelf stable, etc.), and produce develops longer shelf life (i.e., breathable films, controlled atmosphere packaging, etc.), there is a convergence between produce and grocery? At that time, the whole notion of a produce department or produce brands will become merely a memory.
Or is co-branding the herald of a new kind of business relationship in which modern technology allows two companies to work as one in building and promoting products? Can Mann’s efforts be a model for a new type of corporate entity, a kind of virtual corporation that exists in an alliance between two companies to produce a given product while, simultaneously, other virtual companies are extant, creating other products?
We’ll have to check the case studies at Harvard Business School in thirty years to find out, but, be assured, one way or another, the dynamics around co-branding will be not only a textbook entry decades hence, but a living quandary as we work our way through the produce industry on the cusp of the millennium.