fresh produce marketing challenges and opportunities … · fresh produce marketing challenges and...

Fresh Produce Marketing Challenges and Opportunities in Evermore Competitive

Markets DR. ROBERTA COOK

Dept. of Ag and Resource Economics

Cooperative Extension Specialist University of California, Davis

February 25, 2016 for

Southwest Ag Summit [email protected]

Agenda

•  Some important food marketing trends •  Consumer trends •  Overview of value-added/fresh-cut produce market (VAP)

•  Leafy greens and bag salads •  Value-added vegetables (VAV) •  Local •  Conclusions- differentiation and targeted marketing strategies essential to success!

The economic downturn accelerated the pace of change in the food marketing system

•  Channel blurring still unfolding; retail competition! •  Retailers must have clear value propositions. •  Shift to “shopper-centrism.” •  Foodservice faces more competition, from retail

too. •  Growing food safety, PTI, sustainability, social

welfare expectations all increase costs. •  Margin pressure at all levels of the food system! •  Need for major investments in IT systems. •  Mergers and consolidation continue, scale is key.

US Food Retailer Mergers & Acquisitions 2007-2015P: Even Fewer, Larger Buyers!

Sources: The Food Institute Report, 1-6-14 and 12-28-15; Food Industry Review 2014 and 2015, The Food Institute; and The Food Institute Webinar Who's Buying Whom and What to Expect in the Future, March 3, 2015. Preliminary for 2015.

91 78

43 52

68

48 41

70 75

2007

2008

2009

2010

2011

2012

2013

2014

2015

Shifting Grocery Formats: Growth in nontraditional channels has transformed the US grocery industry

Sources: Willard Bishop, various The Future of Food Retailing reports

Supercenter 46%

Wholesale Club 23%

Drug 13%

Mass 11% $Store

7% Military 1%

90% 50% 48% 46%

8%

16% 15% 15%

2%

34% 37% 39%

1988 2006 2009 2014

Traditional Convenience Nontrad. Dollar Share by Channel

Dollar Share of Food Sales in Nontraditional Formats

Traditional=conventional supermarket, fresh format, ltd assortment, super warehouse, other

Most Important Factors in Store Selection for US Consumers, 2015: Produce is a Star!

97% 96% 95% 95% 93% 93% 92% 92% 92% 90% 89% 88%

69% 66%

62% 39%

Low prices High-quality fruit/veg

Great product selection Clean, neat store

Convenient location Sales, specials Fast checkout

Accurate shelf tags High-quality meat

Courteous employees Store layout

Use-before/sell-by dates Private Label Locally grown

Nutrition/health info Organics

Source: FMI U.S. Grocery Shopper Trends 2015, p. 110. Note: list excludes some items.

Alternative Outlets Shopped in the Past Three Months for Fresh Produce, As Reported by US Consumers, 2015

2% 3% 6% 6%

10% 10% 10% 12% 14%

22% 50%

In meal delivery service Online from produce vendor Farm-direct (online, deliv., Online from grocery store

Convenience store Ethnic market/store

Grow my own Dollar store

Specialty/organic store Produce stand

Farmers' market

Source: Food Marketing Institute, The Power of Produce 2015.

106 130 149 153

0 50

100 150 200

Millenial Gen X Baby Boomer

Greatest Generat'n

Dollar C-store Drug Grocery Mass Superctr Club Total

US Shoppers’ Average Number of Trips/Year by Store Format and Age Group, 2015

Source: Nielsen in The Food Institute Report, January 11, 2016.

Forecast of Compound Annual Sales Growth Rate vs. Inflation for US Grocery Formats, 2014-2019

Source: The Future of Food Retailing, Willard Bishop, June 2015 -3.0%

0.4% 1.6% 1.7% 1.8% 1.9% 2.1%

2.9% 3.3% 3.5% 3.8%

7.0% 11.7% 12.1%

Mass Tradl Drug

Military Conv. w/gas

Conv. wo/gas Other Sm

Supercenter Club

Super Whse Dollar

Ltd Assortm. Fresh Format E-Commerce

Food Inflation Compound Annual Rate: 2.5%

Away-From-Home Sources of Fruit and Vegetables of US Consumers, 2014

64%

49%

21%

13%

12%

9%

22%

27%

14%

3%

9%

1%

Fast Food

Family/Coffee Shop

Higher Priced Restaurant

Supermarket

School

Convenience Store

Percent of Individuals Who Visit in Two Weeks

Percent of Individuals Who Consume Away-from-home Fruit and Veg in Two Weeks

Source: Produce for Better Health Foundation, State of the Plate – 2015 Study on America’s Consumption of Fruits and Vegetables.

Consumer Trends

•  How can fresh produce capture a bigger share of “better for you” food products?

Produce items are 5 of the Top 10 Fastest Dollar Velocity ($ per MM ACV) Growth Categories across the Store, USA, 2014 968

606 545 398 342 324 296 278 278 266

Source: Combined Nielsen Perishables Group FreshFacts® and Nielsen ScanTrack point-of-sale data sets – ranked by dollars per MM ACV for 52 weeks ending August 2014.

Average Retail Basket Size Per US Household, 2014

vs. With

Produce $56

However, 57% of trips to the grocery store do not include produce.

With Any Item $35

Shoppers spend more money in the store when produce is included in the transaction!

Source: FreshFacts® on Retail, Whole and Fresh Cut Produce Trends: 2014, United Fresh Produce Association and Nielsen, March 2015.

3.2

12.0 7.8

10.9

17.3 17.2

0.5

9.7

5.0

10.7 12.5

17.2

Weekly $ sales/store

Weekly quantity sold/store Organic Fruit

Organic Veg

Freshcut, Organic and Total Fresh Fruit/Veg Sales in Key US Food Retailers, % Change 2014 vs 2013

All FruitVeg*

Freshcut Fruit**

Salads

Fresh Cut Veg

*Excludes other produce (such as salad dressings, toppings, etc.), which is 10% of produce dept sales dollars and 5% of quantity. ** Excludes overwrap.

Source: FreshFacts® on Retail, Whole and Fresh Cut Produce Trends: 2014, United Fresh Produce Association and Nielsen, March 2015. Fresh Coverage Area (FCA) including key retailers from food, mass/supercenter and club chains, or more than 18,000 stores. It includes UPC, random weight and retailer assigned codes.

How o%en have you used organic foods or beverages in the past three months? at least occasional usage* 73%

daily usage

9% TOTAL USERS

86% 12% MILLENNIALS (18-‐35)

72% 8% GEN X (36-‐49)

63% 7% BOOMERS (50+)

Source: Organic and Natural 2014 Report, The Hartman Group, Inc.

*Includes occasional, monthly, weekly and daily Source: Organic & Natural 2014 report, The Hartman Group

US Consumer Purchases of Organics: Frequency and Age Distribuaon, 2014

Abtudes/Opinions of US Bag Salad Consumers, 2013

% of Total US

Households

Salad Consumers

Percent Index I like to try out new food products 51 61 119

I enjoy ea:ng foreign foods 43 49 114

Friends o?en ask my advice about health / nutri:on

19 24 126

I try to eat gourmet food whenever I can 18 24 127

I try to eat healthier foods these days 62 70 112

Source: Packaged Facts / Experian Marke8ng Services 2013.

Shopping Habits of Most and Least Affluent US Supermarket Shoppers: Fresh Produce

Annual Trip

Frequency

Annual Household

Spending on Fresh Produce

Average Shopper 47 $338

Most Affluent 51 $454

Least Affluent 40 $221

Source: “The Impact of Consumer Trends on the Produce Industry,” Nielsen Perishables Group Presentation at United Fresh Produce Association, June 2015.

In-Home Consumption of Fresh Fruits/Veg Purchased in Stores, Annual Eatings per Capita, 2004-2014

Source: Produce for Better Health Foundation, State of the Plate – 2015 Study on America’s Consumption of Fruits and Vegetables.

175 171 173 177 181 183 182 184 181 181 183

130 126 127 134 139 144 146 148 148 149 150

‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14

Vegetables* Fruit * Excludes commercially prepared items such as vegetable

soup, Asian dishes, chili, etc.

Important factors when shopping for fruit/veg, 2014

Source: Primary Shoppers’ Attitudes and Beliefs Related to Fruit and Vegetable Consumption, 2012 vs 2014, Produce for Better Health Foundation (PBH).

68 64

55 31

21 17 17

13 8

4 2

Freshness

Cost

Taste

Healthy

Family Preferences

Convenient to use

Locally grown

Seasonality

Country of origin

A specific brand

Other

Percent of primary shoppers

Factors That Influence US Consumers’ Selection and Purchase of Fresh Vegetables, 2015

71% 58%

43% 40% 39% 37% 24% 23% 20%


27% 34%

64% 55%

9% 11%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

2010 2014

Branded Unbranded Private Label

Share of Branded vs Unbranded Fresh Produce Sales in US Retailers, 2010 vs. 2014

Source: Fresh Facts on Retail Q3 2015, United Fresh and Nielsen

Importance of Produce Brands to US Consumers, (both value-added and bulk produce)

Important 27%

Neutral 36%

Not Important

37%

Source: Identifying Consumer Trends in the Produce Category, PMA/Hartman, 2011.

Value-added/Fresh-cut Produce (VAP)

Overview

•  More consumers seeking not only convenience but bolder flavors, unusual ingredients, often international flavors, plus health/wellness, and high protein foods.

•  VAP industry is responding with more meal solutions, including RTE and RTH.

•  Microwavable cooking veg category growing rapidly, as well as salad kits.

Note: VAV=Value-added veg; VAF=Value-added fruit

$1.5 $2.0

$3.4

65% 49% 12% 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Value-added Produce: $Sales and Annual Growth Rates in Key US Food Retailers, 2010-2014

$Billions

Source: “The Impact of Consumer Trends on the Produce Industry,” presented by Jonna Parker of Nielsen Perishables Group at the United Fresh Produce Association meeting, June 10, 2015, pp. 10 and 12.

Penetration Rates: % of US Households Buying Fresh Vegetables at Retail, by Category, 2014 (Scanner data so actual sales)

87% 83% 83% 81%

78% 75%

68% 61%

56% 56%

51%

Potato Bag Salad

Onion Tomato Carrot

Lettuce Cooking Veg

Peppers Cucumber

Value-add veg Organic Veg Purchase frequency 4 trips/yr

Frequency 4 trips/yr


Leafy Greens and Bag Salads

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

1960

19

62

1964

19

66

1968

19

70

1972

19

74

1976

19

78

1980

19

82

1984

19

86

1988

19

90

1992

19

94

1996

19

98

2000

20

02

2004

20

06

2008

20

10

2012

20

14P

US Iceberg Lettuce Market, 1960-2014

Million pounds

Production Total Consumption/ Utilization

Exports Imports

Sources: USDA/ERS, Vegetables and Pulses Yearbook Data March 2015 as of 1990, and USDA/ERS, U.S. Lettuce Statistics, 2011 for prior years.

0

1,000

2,000

3,000

4,000

5,000 19

89

1990

19

91

1992

19

93

1994

19

95

1996

19

97

1998

19

99

2000

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11

2012

20

13

2014

Million pounds

Production Total Consumption/ Utilization

Exports Imports

Source: USDA/ERS, Vegetables and Pulses Yearbook Data March 2015

US Fresh Romaine & Leaf Lettuce Market, 1989-2014P

Head Lettuce

Romaine

Leaf

0 5

10 15 20 25 30 35

1985

19

86

1987

19

88

1989

19

90

1991

19

92

1993

19

94

1995

19

96

1997

19

98

1999

20

00

2001

20

02

2003

20

04

2005

20

06

2007

20

08

2009

20

10

2011

20

12

2013

20

14P

7.0 3.7

Lbs.

Per

Cap

ita

US Per Capita Utilization/Consumption of Lettuce, by Type, 1985-2014P (includes fresh-cut and bulk, foodservice and retail)

All-24.7

14.0

Source: USDA/ERS, Vegetables and Pulses Yearbook March 20, 2015 and unpublished ERS data for leaf and romaine.

Pounds per capita

P=Preliminary

0

1

2

3

US Per Capita Utilization/Consumption of Fresh Spinach, 1985-2014,P (all channels, foodservice and retail, includes fresh-cut) Note: E.coli incident 9-11-2006

Source: USDA/ERS, Vegetables and Pulses Yearbook Tables, posted online March 20, 2015, http://www.ers.usda.gov/data-products/vegetables-and-pulses-data/yearbook-tables.aspx.

US Household Cooking Green Retail Trends, 2015

•  42% of US households purchase cooking greens with an average of 4 trips/yr.

•  Despite the rise of interest in superfoods like kale and consumer interest in cooking, Q1 2015 sales of cooking greens was flat.

•  There are still lots of opportunities to educate consumers on health benefits and usage in order to stimulate sales.

Source: FreshFacts® on Retail, Q3 2015, United Fresh Produce Association and Nielsen

Cooking Greens Sales in Key US Food Retailers, Q1 2015 vs Q1 2014

Product

Weekly $ Sales

per Store

Percent Change

vs. 2014

Weekly Vol. per Store

Percent Change

vs. 2014

Cooking greens $448 3.7 213 -.2

Spinach $225 4.7 89 2.1

Kale $135 5.8 75 1.1 Collard greens $32 -4.3 22 -7.1

Source: FreshFacts® on Retail, Q3 2015, United Fresh Produce Association and Nielsen

Top 10 Fresh Vegetable Sales in Key US Food Retailers, 2014 vs. 2013 Product

Weekly $ Sales/ Store

% Change

vs. 2013

Weekly Vol./ Store

Packaged Salad $3,553 7.8 1,301 Tomatoes $2,590 1.8 1,165 Potatoes $2,561 1.9 3,712 Cooking Veg $1,806 3.5 1,097 Onions $1,564 0.1 1,578 Peppers $1,412 4.5 640 Lettuce $1,279 -3.6 714 Carrots $906 -0.8 536 Mushrooms $842 1.6 345 Cucumbers $744 4.3 750


US Bag Salad Sales, 2010-14

•  Bag salad $sales grew by an average annual rate of 3% 2010-14, reaching $3.4 billion.

•  Category was relatively mature but successfully evolved to become more consumer relevant.

•  Despite the higher price tags, salad kits have revolutionized the bag salad category and doubled $share since 2010.

•  Average annual growth rate for kits was 29%, with 2014 retail sales of $700 million (in Nielsen data set).

Source: “The Impact of Consumer Trends on the Produce Industry,” presented by Jonna Parker of Nielsen Perishables Group at the United Fresh Produce Association meeting, June 10, 2015, p. 12.

US Retail Bag Salad Dollar Sales, Shares by Key Salad Type, Q2 2014 vs Q2 2015

Q2 2014 Q2 2015

Source: Fresh Facts on Retail Q2 2015, United Fresh and Nielsen

12%

13%

30% 7%

20%

18%

Garden

Premium Garden Blends

Other

Kits

Organic

11%

13%

27%

6%

24%

19%

61% 30

%

9%

US Bag Salad Market Shares in Select Retailers: Top 5 Firms and Private Label, Share of Dollar Sales

Sources: 1994 - IRI; Nielsen *52 weeks ending July 14, 2014. Excludes Walmart and clubs.

Private label

share 2%

Other share 6%

1994 2014

Private label share

Other share

Top 5 firms 91%

Top 5 firms

Value-added Vegetable (VAV) Trends

Note: in general, scanner data show growth rates in cooking veg items such as brussel sprouts much higher for value-added (fixed weight) than bulk (random weight).

Responding to Consumer Preferences: Convenience, Nutrition/Wellness, and Personalization

New VAV Items Addressing Demand for Convenience, Health and Customization

US Retail French Green Bean $Sales — Fixed (Value-added) vs. Random Weight Sales, 2014

43% 49%

53% 56% 57% 57% 51%

47% 44% 43%

2010 2011 2012 2103 2014

Fixed Weight Random Weight

Source: Food Marketing Institute, The Power of Produce 2015. (IRI US MULO scanner data 2014)

US Value-added Veg Sales by Subcategory: Share of Total VAV Dollar Sales in Key Retailers (includes nontraditional retailers), 2014

Side dish 58%

Trays 16%

Snacking 11% Meal prep

15%


Note: Consumers Purchase VAV on 4 trips/yr.

Locally Grown

Frequency of Purchases of Locally Grown Products, 2015

Source: FMI U.S. Grocery Shopper Trends 2015

Occasionally 83%

Always 11%

Never 6%

Occasionally Always Never

Definition of “Locally Grown” Products according to Shoppers, 2015

Source: US Grocery Shopper Trends 2015, FMI.

grown in my state

38%

[CATEGORY

NAME] [VALUE]

grown on family-owned farm 11%

other 2%

Note: Consumers identified an average of 87 miles as the limit for local.

US Consumers’ Reasons for Purchasing Locally Sourced Fresh Produce, 2015

16%

20%

23%

23%

25%

43%

65%

78%

Unique local/regional product

Knowing the farm/story

Lesser environmental impact

Better price

Better nutritional value

Knowning where produce is grown

Support of local economy/farmers

Freshness


Top 5 US Fresh Market Vegetable States* in 2015: Geographic concentration of production (due to climate) limits local sourcing potential, yet it is growing in the summer/fall

Source: Vegetables 2015 Summary, USDA/NASS, February 2015

Area Harvested Production Value

State % of Total

State

% of Total

State

% of Total

CA 46 CA 51 CA 58 FL 10 FL 8 FL 9 AZ 7 AZ 7 AZ 9 GA 6 WA 5 GA 4 NY 4 GA 5 WA 3

Other 27 Other 24 Other 17 *Excludes potatoes

0 20 40 60 80

100 120 140 160

1970

19

72

1974

19

76

1978

19

80

1982

19

84

1986

19

88

1990

19

92

1994

19

96

1998

20

00

2002

20

04

2006

20

08

2010

20

12

2014

Thou

sand

s

Arizona

CA and AZ Broccoli Harvested Acreage, 1970-2015, fresh and processed (growth in rest of US not captured by USDA)

1,000 Acres

California

CA and AZ total

Sources: Various USDA/NASS Vegetable Annual Reports, including January 2016, and USDA/ERS broccoli series.

0

5,000

10,000

15,000

20,000

25,000

Thou

sand

s

Arizona

CA and AZ Fresh-Market Broccoli Production, 2000-2015, (growth in rest of US not captured by USDA) 1,000 cwt

California

CA and AZ total

Sources: USDA/NASS online queries, February 22, 2016.

•  Channel blurring and consolidation!

•  Consumer demand for convenience, health/wellness should drive further expansion in VAP sales.

•  New product innovation, differentiation and strategic marketing are key!

•  VAP processors will be selling more products and pack sizes, making cost control more of a challenge.

•  VAP leads in category development but there is still great potential to improve store level assortments “right sizing,” pricing and promo, reducing shrink.

Conclusions

•  Ongoing margin squeeze means that firms must become more efficient. IT will play a growing role.

•  Future growth rate of VAP depends partly on successful healthy menu options in foodservice.

•  Snacking trend will stimulate small pack sizes in both retail and foodservice.

•  New marketing channels may expand sales.

•  The complexity of doing business will grow!

•  Economic growth will stimulate produce sales.

Conclusions

fresh produce marketing challenges and opportunities … · fresh produce marketing challenges and...

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