Price Is Just One Variable

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

Perhaps the most counter-productive diktat in the entire produce industry is the dual requirement laid down by many supermarket chief executives: First, requiring the produce department to meet Wal-Mart’s banana price, as this is deemed a marquee item by which the consumers judge the price-competitiveness of the entire store; second, demanding the produce department compensate for reduced margin on bananas by increasing margin on the rest of the department. With these demands, chief executives succeed in draining the banana category of profitability while also making all other items overpriced.

It also puts the merchandising and marketing functions into a hypothetical box. After all, though the price is clearly important to shoppers, it is important in complex ways. Price actually is part of value perception. In other words, if organic product magically became consistently cheaper than conventional, consumers who want the “best” for their babies might suddenly have second thoughts about the desirability of organic simply because it is cheaper.

Branding is traditionally weak in the produce section. The reason is two-fold: First, branding generally consisted of parity products such as bananas, which are all the Cavendish variety. So, unlike the soup aisle, where one firm’s chicken noodle soup is different in flavor from another’s chicken noodle soup, stores generally carried only one brand of bananas at a time.

Second, what differences there are among brands tend to be outweighed by the physical appearance. So even if consumers generally prefer Brand X, the fact that they are staring at Brand Y and find it acceptable means they are unlikely to go shopping elsewhere for a favored brand. This is very different than a canned or packaged product, where consumers can’t judge product quality without X-ray vision.

This research, not surprisingly, shows if consumers see something they like, they are inclined to trust that first-hand evidence, and they find it worth paying for rather than relying on an abstract preference.

The role of price in produce marketing is unusual. In general, produce is highest priced when it is the lowest quality because it is early season, late season, or because bad weather hurt the whole crop. We don’t have very good data to see how this interacts with consumer preference, but it turns the concept on its head that the best quality brings the highest prices on most items.

In studying price, there are three different effects: One is internal to the department; for example, a mother wants to buy snack fruit for the children, and Clementines are bargain-priced, whereas bagged apples are dear. Price can alter purchase choice. Two is internal to the store: vegetable prices are high due to bad weather, and that leads to switching to canned or frozen vegetables, or sky-high snack fruit prices lead consumers to buy cookies, Jello or pudding snack packages. Three, there is a competitive impact on other stores. Consumers use ads or knowledge of prices acquired in other ways to select which store to shop.

Not surprisingly, though, with produce as with most things in life, the price is just one variable. Some variables, such as location, are not under the control of the produce department. Others, such as the store’s reputation for cleanliness and variety, are only partially impacted by produce. Other factors, such as produce quality or how merchandise is displayed and marketed, are heavily influenced by produce executives and the decisions they make.

Increasingly, value perception will be influenced not just by the appearance of produce but by the intrinsic nature of the fruit or vegetable. We see this already influencing consumer behavior. Being the cheapest on apples may not drive much purchasing if the consumer wants Honeycrisp.

Right now, many things are based on consumer perception without much data to back it up. The research shows that consumers value getting some shelf life back home when buying vegetables. But if consumers see a best-food-day ad for a vegetable, how can they know if that vegetable will last longer than the same vegetable bought at another supermarket?

The answer will increasingly lean toward proprietary varieties that offer unique attributes. This influencer may be flavor, nutrition, characteristics such as not browning, or extended shelf-life.

In fact, it is fair to say that the produce industry — both production and retail — will bifurcate with those producers and retailers having access to superior proprietary varieties likely to capture consumer preference, thus leading to higher sales and higher margins. Those left dependent on common, non-proprietary varieties will be the bargain basement, attracting consumers without the disposable income to be selective in their produce choice.

Don’t be surprised if retailers start securing the rights to proprietary produce genetics. There is no more certain way to position a retailer as irreplaceable to a consumer looking for produce with certain specific attributes.