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Trends in the Marketing of Fresh Produce and Fresh-cut Products

Trends in the Marketing of Fresh Produce and Fresh-cut Products. DR. ROBERTA COOK University of California Davis September 2004. TOTAL 2003 U.S. FOOD * SYSTEM: $943.3 BILLION. $498.3 billion food retailing (excluding non-food grocery store sales) 53% of total

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Trends in the Marketing of Fresh Produce and Fresh-cut Products

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  1. Trends in the Marketing of Fresh Produce and Fresh-cut Products DR. ROBERTA COOK University of California DavisSeptember 2004

  2. TOTAL 2003 U.S. FOOD* SYSTEM: $943.3 BILLION • $498.3 billion food retailing (excluding non-food grocery store sales) • 53% of total • $445 billion food service (including $17.8B foodservice sales made by food retailers) • 47% of total • around 844,000 outlets *Excludes alcoholic beverages and other grocery Sources: ERS/USDA and The Food Institute

  3. U.S. FOOD EXPENDITURES as a SHARE of DISPOSABLE PERSONAL INCOME, 1970-2003 13.8 13.4 At-home Away-from-home 12.0 11.8 11.7 11.5 11.5 11.6 11.6 11.2 11.1 11.3 11.0 10.8 11.1 11.0 10.3 10.1 10.2 10.1 10.1 Source: ERS/USDA

  4. Trends in US Food Expenditures CAGR

  5. US Foodservice Segment Shares, 2003 1% Fast-Food Full-Service Restaurant Source: ERS/USDA 2004

  6. FOODSERVICE OPPORTUNITIES FOR FRESH PRODUCE • Since 1992 consumer spending at restaurants is up 56% • Consumers are trading up, contributing to higher sales in full service restaurants and fast casual (like Baja Fresh, Chipotle, Panera) • Consumers search for VALUE, 62% say they are “willing to spend more time and money for better quality food.” • 91% of consumers say “It’s worth it to wait a little for food customized to my liking.” • Foodservice fresh produce and fresh-cut demand rising.

  7. Sources of Takeout* Food in the US, Supermarkets Gaining! 1996 2004 Fast-food rest. Fast-food rest. Restaurant Restaurant Supermarket Super- market Source: FMI Trends in the Supermarket 2003, 2004 *Takeout only, not all foodservice

  8. U.S. Fresh Fruit and Vegetable Value Chain, 2002 Estimated Billions of Dollars $40.0 institutional wholesalers food service establishments produce and general-line wholesalers $5.9 imports $39.7 supermarkets and other retail outlets $81 farms shippers consumers integrated wholesale-retailers $19.2 $3.4 farm& public markets exports Source: Estimated by Dr. Roberta Cook, UCDavis $1.3

  9. Competing in a Value-Driven Market • Channel blurring has caused the retail landscape to be overstored. • Plus, foodservice channels compete with all forms of food retailing which tend to offer ingredients to prepare instead of meals to eat. • Retail Home Meal Replacement helping somewhat and fresh produce value-added products benefiting.

  10. Competing in a Value-Driven Market • Grocery retailers have been losing share to foodservice for decades, now to value retailers • Conventional grocery retailers must identify value propositions they can own if they are to remain competitive! (fresh produce can be a point of differentiation) • Bottom line: more structural change expected in the US grocery industry and more pressure on suppliers!

  11. U.S. Grocery Retail Concentration* 58 47 Percent of U.S. grocery store sales 33 *Includes grocery-equivalent supercenter sales ONLY. Excludes sales of c-stores with gas. Excludes the portion of any grocery chain’s sales corresponding to their drug store, jewelry store or other non-grocery store sales. Sources: ERS/USDA; US Retail Census and co. annual reports

  12. Conventional Retail Chains Reconsidering their Models • The experience from the merger trend of the late 1990’s has shown that getting bigger wasn’t enough to meet the new competitive benchmark imposed by Wal-Mart’s success in logistics, data management and cost reduction. • President of Safeway just announced a move to net, net pricing, moving away from allowances, following on the Wal-Mart model. But, as always, fresh produce lags grocery.

  13. Conventional Retail Chains Reconsidering their Models • The challenge for retailers is to effectively utilize scanner, customer loyalty card and other data in order to identify the right product mixes at the individual store level. • Food retailing is inherently local, and as retailers get larger and consumers more diverse, intensive data management is critical!

  14. The Future Wal-Mart will be the mainstream retailer for the foreseeable future but there will also be lots of new winners. New price driven retailers will increase competition for Wal-Mart and Wal-Mart’s growth may slow as it tackles issues faced with expansion in urban areas (high land costs, unions, local regulatory policies). Consumer research conducted by The Hartman Group indicates that consumers don’t express excitement or devotion about shopping at Wal-Mart. Many just view it as a way to save on staples without taking over their shopping lives. Lukewarm support creates opportunities for competitors.

  15. The Future The winners will compete on various dimensions of value: price, product, service, and selection. There are a number of formats successfully defining “white space” market opportunities. Examples include Trader Joe’s, Whole Foods, Dollar Stores, and conventional chains like Wegman’s and HEB, as well as independents. Retailers can deliver value to consumers at both the high and low ends of the price spectrum, depending on product selection and quality levels, and format design, by understanding the needs and wants of target segments for specific shopping occasions. The middle, unclearly defined ground – retailers with no clear value proposition – will be increasingly challenged.

  16. Products Distinguishing Themselves More Through Aesthetics, Adding Emotional Value to Practical Use – Food Especially! • “Quality is yesterday’s news. Today we focus on the emotional impact of the product.” (Dilbert comic strip) • Research from Cornell and U of Colo. show that income level is positively associated with experiential over material possessions. (Van Boven and Gilovich) • Ego – Starbuck’s – an affordable luxury for all income levels

  17. Products Distinguishing Themselves More Through Aesthetics, Adding Emotional Value to Practical Use – Food Especially! • Travel; eating out, increasingly in restaurants providing more memorable experiences; and differentiated foods purchased at retail are gaining. “Upscale” positioning may be bundled with several perceived emotional values - organics benefit. Fresh produce is a part of the trend. • But, to afford these “extras” people are often making a greater effort to economize in their routine grocery purchases, hence, growth in value retailers.

  18. US Estimated Fresh-cut Produce Sales, All Marketing Channels, $ Billion $ billion $4 at retail At least 60% estimated to be sold via foodservice channels Sources: IFPA and IRI Source: Dole

  19. U.S.SUPERMARKET FRESH-CUT SALAD SALES, Million $ *12 months ending July 11, 2004, AC Nielsen, includes coleslaw Sources: IRI; AC Nielsen

  20. US Fresh-Cut Vegetable Facts • Fresh-cut veggies represented 31% of all pre-packaged produce retail sales in 2003. • Carrots were about half the $1.3 billion fresh-cut veggie category, followed by spinach ($108 million), potatoes ($87 million), celery ($85 million) and mixed vegetables ($69 million) • 77% of consumers purchase fresh-cut veggies, but on average, only once every 9 weeks Source: IRI

  21. US Fresh-Cut Fruit Facts • Fresh-cut fruit is still a small share of total fresh-cut sales, retail sales were estimated by IRI at $238 million in 2002, with total fresh-cut sales (incl. foodservice) estimated at at least $600 million. Forecast by IRI to reach $1 billion by 2008. Household penetration of only 17% in 2003. • Great potential for fruit in both retail and foodservice channels • McDonald’s offering apple slices as alternative to French fries in Happy Meals • Quick-service restaurants and fast casual segment keep adding fresh produce, including fresh-cut

  22. Fresh-Cut Fruit Market Shares 52 Weeks 12 Weeks Brand Share Brand Share % change vs YAG % change vs YAG Ready Pac 23.0% +217% 28.3% +205% Private Label 31.0% -16% 27.0% -30% Del Monte 13.0% +24% 12.3% -1% Country Fresh 7.5% +33% 9.0% +84% Club Fresh 3.0% -43% 1.5% -70% Fresh Express 1.0% N/A 1.3% N/A Source: Information Resources, Inc. Latest 52 weeks ending July 6, 2003

  23. Share of US Produce Dept. Sales, Key Items, June 2002-June 2003 Source: The Perishables Group

  24. Share of US Produce Dept. Sales, Key Items, 2000/01 Source: The Perishables Group

  25. US Sales of Salads by Type for 2002/03 in million $ Fresh-cut Salads$ volumeSegment share % Total $2,357,987 100% Blends 1,039,86344% Garden (IBB) 702,95030% Kits 283,65312% Organic 144,9276% Romaine hearts 107,2785% Slaw 79,3163% Plus bagged spinach, $108 M, excluding baby spinach which is included in kits Source: IRI, 52 weeks ending July 6, 2003

  26. Fresh-Cut Salad Segments, 2002/03 • Salad Blends continue to be the largest segment in the category accounting for 44% of total dollar sales. +9.2% Number above bar represents $ sales change vs. prior yr +19% -3% +6% +18% +11% +7% $ Sales (in millions) Source: IRI 52 weeks ending July 6, 2003

  27. Fresh-Cut Salad Segments, 2002/03 Sales change vs. 1 yr ago Source: IRI, 52 weeks ending July 6, 2003

  28. Monterey County Head Lettuce Shipments 1990 vs 2003 Million Cartons* Percent Share Product Form 1990 2003 1990 2003 Bulk to Process 6.9 21.74 15% 38% Wrapped 14.2 24.17 30% 43% Naked 26.1 10.93 55% 19% TOTAL 47.2 56.84 100% 100% Source: Monterey County Ag Commissioner * 50 lb carton-equivalent units

  29. U.S. Per Capita Consumption of Lettuce, 1985-2004f 32.3 31.3 28.7 21.3 Lbs. Per Capita Fresh-cut doesn’t necessarily stimulate consumption, may just cannibalize bulk product volume. ‘04 f=forecast Source: USDA/ERS, July 2004 Vegetable Yearbook

  30. U.S. Per Capita Utilization of Fresh Bell Peppers and Tomatoes, 1985-2003 (with and without estimated US GH tomato production added to field grown as of 1998) Pounds per capita Source: USDA/ERS, July 2004 Vegetable Yearbook; Cook and Calvin estimated ’98-’03 tomato consumption to reflect unaccounted for US GH tomato production.

  31. Ave. Item Number in the Ave. US Fresh Produce Department 400 350 350 300 250 173 200 150 100 50 0 Pma study: 574 SKU’s in 2001 Number of items Source: Supermarket Business, Oct. 1999 and Progressive Grocer Oct. 2002 1987 2001

  32. USPER CAPITA VEGETABLE CONSUMPTION, POUNDS, 1976-2004F 438 359 126 (Excl. potatoes) 119 90 Pounds per capita 76 46 49 176 150 115 ‘04 Source: USDA/ERS, Vegetables and Specialties Outlook, July 2004

  33. USPER CAPITA FRUIT CONSUMPTION, POUNDS 1976-2002 283 264 87 102 96 Pounds per capita 78 24 29 76 55 Source: USDA/ERS, Oct. 2003

  34. SALAD CATEGORY UNIT SHARE (%) 2002 and % Change vs. 1998 Source: Dole

  35. U.S.Market Shares ofFresh Cut Salad Firms, Dollar Sales Other share 2.7% Private label share 9.7% Other share 6.4% Private label share 2.4% Top 5 firms91.2% Top 5 firms87.6% 1994 1999 *Private label share ranked third in 1999 vs. 6th in 1994. Source: IRI

  36. Types of Fees & Services Requested Slotting EDI Volume Rebates Displays Non-volume Rebates Private Labels Promotional Ads Returnable Containers E-commerce fees Special Packs Capital Improvements Food SafetyCertification

  37. Fees are increasing for all fresh produce but commodities are still different • Commodities • No slotting fees • Other fees well under 2 percent of sales • Volume incentives, promotional allowances and rebates • Fresh-Cut • All fees approximately 1 to 8 percent of sales • Slotting fees, promotional allowances, volume incentives, and rebates – firms offer options • Can cost up to $2 million to acquire the business of a national chain; $500,000/division

  38. Category Management Case Study From “Mystery” Fresh-cut Processor Source: Dole

  39. SHELF CAPTAINS • Leading, technologically savvy vendors—sometimes brokers • Take category interface responsibility for section • May work in retailers’ headquarters • Recommend shelf sets, product placement • Very influential to category management

  40. Key Drivers and Effects Changing Consumers Higher incomes, ability to pay for convenience, variety/choice, aging baby boomers, ethnic diversity, safety/traceability from farm to fork, healthfulness and growing interest in the environmental effects of ag, all join forces to stimulate new product development and branding, even in traditionally unbranded categories like fresh produce.

  41. SEGMENTATION/TARGET MARKETS • Variables commonly used to categorize consumer differences to focus marketing activities • geographic • demographic • psychographic--based on attitudes & activities • STATUS SEEKERS, CHASE & GRABITS, ENVIRONMENTALISTS • Mass individualization! • Problem solving is key! • Understanding needs and constraints in individual eating occasions essential!

  42. U.S.DEMOGRAPHIC INDICATORS, 2002 • 111.3 million households • 289 million inhabitants • 2.6 persons average household size • Average household income of $57,852 • Median household income of $42,409 • Average household food spending of $5,375 (including $3,099 at-home and $2,276 away-from-home) Sources: US Bureau of Census; Food Institute Demographics of Consumer Spending 2004 for food spending only

  43. COOKING: STILL aFEMALE DOMAIN Usually play a role in % males % females Meal planning 23 93 Food shopping 36 88 Meal preparation 27 90 Source: Journal of the American Dietetic Assn., Sept. 1998

  44. SALAD MIX PURCHASE FREQUENCY byINCOME LEVEL, among those purchasing in prior 12 months(% of each income group accounted for by frequency level, may not sum to 100 due to non-respondents) income in $1,000sfrequency$20 $20-29.9 $30-59.9 $60.0-84.9 $85.0 2x/wk 5 3 3 7 7 1x/wk 21 21 17 24 20 1X/2-3wk 32 15 30 21 23 1X/mo 11 18 33 28 17 1x/mo 29 42 33 21 33 Source: Fresh Trends 2004

  45. The Salad Mix Variety Purchased Most Often byINCOME LEVEL, among those purchasing salad mixes in prior 12 months(% of each income group accounted for by frequency level, may not sum to 100 due to non-respondents) income in $1,000sType$20 $20-29.9 $30-59.9 $60.0-84.9 $85.0 Produce 82 91 89 86 93 Only mix Kit 13 3 9 14 7 Other - - 3 - - Source: Fresh Trends 2004

  46. LETTUCE PURCHASE FREQUENCY byINCOME LEVEL, among those purchasing in prior 12 months(% of each income group accounted for by frequency level, may not sum to 100 due to non-respondents) income in $1,000sfrequency$20 $20-29.9 $30-59.9 $60.0-84.9 $85.0 2x/wk - - - 7 8 1x/wk 19 32 28 23 42 1X/2-3wk 33 20 28 52 28 1X/mo 30 24 22 3 14 1x/mo 19 20 22 16 8 Source: Fresh Trends 2004

  47. The Lettuce Variety Purchased Most Often byINCOME LEVEL, among those purchasing lettuce in prior 12 months(% of each income group accounted for by frequency level, may not sum to 100 due to non-respondents) income in $1,000sType$20 $20-29.9 $30-59.9 $60.0-84.9 $85.0 Iceberg 85 84 64 71 44 Leaf 11 4 17 19 19 Romaine - 12 8 7 31 Boston 4 - 4 - 3 Other - - 8 - - Source: Fresh Trends 2004

  48. SPINACH PURCHASE FREQUENCY byINCOME LEVEL, among those purchasing in prior 12 months(% of each income group accounted for by frequency level, may not sum to 100 due to non-respondents) income in $1,000sfrequency$20 $20-29.9 $30-59.9 $60.0-84.9 $85.0 2x/wk 6 6 6 - - 1x/wk 6 6 20 23 13 1X/2-3wk 25 31 25 20 33 1X/mo 25 13 22 30 10 1x/mo 38 44 30 27 41 Source: Fresh Trends 2004

  49. Purchase Frequency for Fresh-cut Produce, % Every Vegetables NeverFew Mos.1-3/mo. Once/wk+ Lettuce 13 8 43 36 Carrots 15 11 51 23 Broccoli 31 13 43 13 Onions 65 5 19 12 Potatoes 69 5 18 8 Slaws 56 18 20 3 Source: IFPA Fresh Focus 2000

  50. Purchase Frequency for Fresh-cut Fruit, % Every Fruit Never Few Mos. 1-3/mo. Once/wk+ Melons 39 17 31 12 Fruit salads 46 13 32 12 Apple slices 77 4 12 6 Pineapple 47 21 27 4 Source: IFPA Fresh Focus 2000

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