If there is one mega-trend that has transformed produce retailing more than any other, it has to be the move to data from intuition and experience.
As an industry, we really have no other choice. There was a time, not all that long ago, when produce retailing was a distinct enterprise, and the people involved in produce were passionate about the field or, even if they weren’t passionate, they perceived their future as tied up in produce where they acquired great product knowledge and personal connections. If for some reason they left their job, if they couldn’t find a comparable position in produce retailing elsewhere, they were far more likely to work on the supply side than to go into some other area of retailing.
This is no longer the case. Young workers at Wal-Mart or Amazon are often rotated through produce or perishables to gain experience in the way companies rotate people through international operations. Their next job is likely to be selling clothing or toys, and their knowledge and incentive to gain knowledge about produce is slight.
So, to run produce or their category, without the benefit of 20 years of apprenticing under experts and without the personal experience to comfortably rely on their gut, they rely on data. And, fortunately, we have more and better data available than ever before.
But, data has severe limitations; with so many numbers, how can they be interpreted?
To make that data actionable, we need to transform it into insight, and few have helped in this effort more directly than the US-based Food Marketing Institute, or FMI. We were pleased to give them a forum to unveil their initial results at our New York event:
And we are even more pleased to help gain international exposure for this important work by giving them a speaking forum in Amsterdam. We ran a piece focused on Rick Stein, Vice President Fresh Foods at FMI, and his contribution to the presentation under this piece:
Now we asked Pundit Investigator and Special Projects Editor Mira Slott to gain more insights by speaking with FMI’s analytics partner in this study:
Principal and Founder
210 Analytics Company
Q: Rick Stein provided an excellent preview of your upcoming presentation in Amsterdam, leaving room for you to elaborate on key issues and further break down and analyze the numbers. I can jumpstart your thoughts with some questions Rick addressed, and then you can add your perspective.
A: I can’t wait to dig in!
Q: Could you talk about your role in the study? One important aspect of the research is that it enjoins scientific and empirical data. How does this process work?
A: It all started with the Power of Meat 12 years ago. I was looking for a way to document trends in meat consumption and purchasing, but wasn’t satisfied with just showing the sales numbers, or with just the “why” behind the buy, as neither tells a complete story.
Exploring options with IRI and Nielsen, the idea was born to conduct a shopper survey to document the attitudes and emotions and overlay it with the actual sales data for the perfect 360-degree picture. The meat study has built such a strong following that when Rick joined FMI, we decided to do the same for produce. With his retailer background, he knew from experience how important this kind of information is.
Q: Do you have examples of where the science and empirical data connected and where it clashed?
A: Interestingly, there are categories like snacks, where what people say and what they do can be very different. In produce, people are actually pretty accurate in their consumption and purchasing estimations, likely because of its planned nature.
But we do see some “aspirational reporting” for sure. For instance, people’s preferences for buying organic versus their actual organic purchases once confronted with the price difference. Same for their actual price sensitivity for things like local and value-added versus how they believe they would act on paper. That’s where it’s wonderful to have the “he said, she said” and better understand the purchase drivers to optimize marketing and merchandising.
Q: Could you compare and contrast any changes from the baseline results?
A: There are many subtle and larger shifts throughout the path to purchase over these past three years. This is why it’s so important to understand trend lines in the very habitual produce purchase. This being Year Three of the study allows us to see how things are shifting. For instance, we’re seeing the consumer definition of local settling on a radius or state lines.
We’re seeing the rise of alternative channels, the ever-growing interest for local and why. For instance, keeping the dollar in the community and freshness are still very important, but because of the Millennial influence, the environmental impact is becoming a stronger driver every year. That allows the industry to play into that angle more, especially in stores with a younger crowd. It’s what makes the study so unique and valuable.
Q: How do results break down generationally, and by demographics? Could you highlight some areas that would be of interest to industry executives? Do retailers need to be cognizant of major differences in consumer behaviors before, during and after purchase, based on age, income, lifestyle, etc.? Could you share some specific findings on that front?
A: Absolutely. Bottom line is that one size fits no one. Let’s look at promotional research for instance. We still have three-quarters of Boomers and seniors browsing the paper circular. On the other hand, Millennials have massively taken to in-store research, apps, digital circular and other forms of advertising. This means that for some stores, you still need all forms of advertising. In others, say urban stores with a younger crowd, you have to be much more focused on in-store execution and digital delivery and may start to de-emphasize paper delivery.
Another good example is special growing attributes, such as organic, sustainable, local, etc. Because they are often sold at higher prices, we see above-average interest among high-income shoppers. Likewise, there are fascinating differences between young families versus singles, the middle of the country versus the coasts, etc.
Q: How complex is the report in laying out this data and pulling out the relevant information to alter strategies?
A: The study is set up in such a way that you can just hit the highlights using the Executive Summary or chapter summaries; you can read the big findings in the Top Ten; you can see a visual presentation using the deck, or you can take a deep dive into the 50-page report, where you’ll find all these demographic insights.
We have people telling us they read the report from front to back; we have others that use it as a reference guide when studying up on a certain topic. You’ll also see tips and callouts throughout the report to highlight important conclusions. I’m a big believer of insights over data, and we make it a point to help connect the dots for the reader.
Q: Rick says supermarkets remain a stronghold for the primary store most consumers choose to buy produce. However, he says Millennials over-index in the organic specialty stores. Could you provide more information on the breakdown of primary- and secondary-store shopping locations and number of trips?
How much does channel choice and cross-over shopping vary by demographics, age, household size, income, etc.? What alternative channels do traditional supermarkets need to be most concerned about?
A: The channel choice is quite a fascinating story. Produce is on the consumer radar, and one of the biggest and fastest growing areas of the store. Traditional retailers are not the only ones to realize that produce is a great differentiator and sales driver, and we’re seeing produce emerge in vending machines, dollar, convenience and drug stores and, of course, farmers’ markets are appearing everywhere.
But supermarkets have very high shopper conversion in produce (more than 85%) and are the Number One channel among switchers – shoppers who purchase the majority of groceries in one channel and produce in another. But as strong as supermarkets are, they still have an opportunity to do better in areas like ethnic-item variety and organic, where their conversion is much lower.
We’re seeing a lot of growth in convenience stores right now as well as online, but it’s important to keep in mind that the dollar base is miniscule compared with that of supermarkets. In other words, the growth percentage is huge, but the hard dollars are a fraction of the supermarket growth. Most importantly, only 56 percent of trips across all these channels involve fresh produce. Yet, when produce is in the basket, the ring is more than 40% higher. So, traditional channels have to focus on keeping and getting people into the produce department and stealing the thunder of these alternative channels; the fun and local assortment from a farmers’ market, for instance.
Q: Rick pointed to products/categories in growth mode, and how the produce department is being realigned to accommodate. Could you go deeper into that data?
A: We’re seeing four big growth areas emerge, some with quite a bit of overlap. These are organic, locally grown, brands and value-added.
1. Organic produce continues to see double-digit dollar and volume growth with aggressive gains for organic fruit. Even so, organic remains less than eight percent of the total retail produce market. However, given its popularity among Millennials, organic can be a way for traditional channels to capture and retain more of the purchase. Household penetration saw a small increase, and 26 percent of current buyers expect to purchase more, citing benefits ranging from “free-from” and positive long-term health effects to a lesser environmental impact. Non-buyers cite a price barrier along with skepticism over added benefits and superior taste as reasons to stick to conventional. With household penetration growing, two distinct segments have developed: core buyers (24 percent) and periphery/in-and-out buyers (66 percent) — each with very different attitudes, behaviors and growth opportunities.
2. Locally grown produce continues to win with shoppers and is the favorite over organic among many consumers in a direct comparison. Shoppers are settling on a mile radius and state lines as the two predominant definitions of locally grown produce. Shoppers’ reasoning for buying locally sourced produce centers on supporting the local economy and a perceived better freshness.
3. Value-added produce and packaged salads continue to be strong growth drivers for produce, with opportunity for further expansion in household penetration and purchase frequency — provided the segment can overcome price barriers and consumer questions over shelf-life, safety, freshness and quality. When estimating future purchases, 23 percent of shoppers overall expect to buy more value-added produce in the coming year. In contrast, 33 percent of the core value-added shoppers anticipate they will buy more.
4. Branded produce, both national and private brands, are growing — reflecting a +12 percent 5-year dollar compound annual growth rate (GAGR). Brand influences about half of shoppers when buying fresh produce, with national brands being more important in processed produce and local/smaller brands taking preference in unprocessed produce. Among those with a brand preference, a general like for brands is the primary reason, but brands are also seen as being safer to eat, being fresher, higher quality and more consistent purchase to purchase.
Q: Did the study reveal any unusual findings or surprises from what you anticipated?
A: I don’t think there are any earth-shattering findings in the report, so much as developing a deeper understanding why certain sales trends are happening and what we can do as an industry to grow produce dollars, units and pounds. At 99 percent, produce is a mature category. So, what are some new consumption occasions we can go after? How can we grow customers’ confidence to purchase items they’ve never made before? How can we move shoppers to higher margin items?
Q: Rick talks of the 80/20 rule in order to have good trend information. You want about 80 percent of the questions to be the same, but each year new topics and new discussions need to be introduced because of the changing dynamics of the industry. What are your thoughts here? Could you elaborate on what you’ve learned and new avenues you want to explore for 2018?
A: Well, it’s a little more like 50/50 or 60/40 to make sure that we trend all the important information but leave enough opportunity to rotate in important new topics to keep the study fresh and reflect market changes. As to 2018, I keep a running tab of all the questions and suggestions I receive over email, phone or during speeches.
I welcome everyone to provide input. This is a study developed in very close collaboration with retailers, wholesalers, growers, media, suppliers and anyone working in the produce world. In my experience, the best research is developed for the industry, with the industry. So folks, email me any time!
Q: Rick mentioned that the report explored consumers’ perceptions of food safety and trust. He said supermarkets ranked really high in food safety, as well as farmer’s markets and produce stands (despite the reality that farmer’s markets and produce stands often face temperature control and handling problems adversely effecting food safety). He also said online shopping for produce ranked lower in food safety. Do you have any more details on this issue of food safety and trust?
A: Having tracked shoppers’ food safety perceptions across many different categories, I jokingly say, “in food retailers we trust.” As pillars of the community for decades on end, grocery stores have often built up a very strong trust and loyalty among their shoppers. Online is new, and many shoppers trust their own eyes over someone else’s when it comes to safety and quality.
In the report, we ask consumers what they think about the safety (growing and handling) of the produce at different channels, and we break out the percentages, but we qualify: By no means do these numbers reflect actual food safety or quality problems; these are purely consumer perceptions of quality and safety.
Q: You’ll be presenting your U.S.-based research in Holland to a diverse global audience. What findings will be most applicable, and will there be some areas harder to translate? Do you see universal trends, as well as diverging trends? Since you are from Holland, I’m sure you have some interesting insights in that respect…
A: Absolutely! I’m very excited to share U.S.-market insights with my fellow Duchies and others. The United States is a massive market with lots of opportunity. Americans are getting more and more curious about trying new items, organic, etc., and trade without a doubt will be strong in years to come.
The harder area will likely be the discussion surrounding the various channels in the United States. Europe has always had a strong presence of markets and farm-direct sales, something the U.S. is only now starting to contend with. At the same time, the U.S. is very fractured in terms of the different channels, chains, formats and store sizes.
Another major difference, of course, is trip frequency and basket size. Thinking about my mom who hops on her bike every day for her trip to the market, the store or the farm isn’t quite what we see over here in the States! At the store level, that translates into different needs for freshness, packaging, sizes, etc.
Q: Rick shared his key takeaways to help industry executives prosper in a vigorous retail environment. How important is the produce department in that mission? What do you think are the biggest challenges and opportunities ahead?
A: Vigorous is right, and that’s why produce is on everyone’s game plan. Between deflation challenging same store sales and fierce price competition challenging margins, it’s a rough environment. Total store sales have been flat for several years now. So, everyone is looking for growth opportunities, and produce is one of the stronger ones.
Against the no- or low-growth background, produce has been averaging 3-4 percent sales growth for several years. Produce is benefiting from the health and wellness mega trend that is only strengthening. Bottom line, you have to get produce right to win in the current environment. And hopefully the Power of Produce will provide a few or a handful of nuggets and tips to do just that.
Organic produce, locally grown, value-added and branded produce – four drivers of growth in the produce retailing and four great challenges in an environment where the deep discounters are putting enormous pressure on margins.
These issues are all complicated. Organic gets so many headlines, but is about 8% of produce sales by dollar and less than 5% by volume. Branding is a focus, but how does that tie in with proprietary varieties? Value-added increasingly involves proteins that weren’t sold in produce at all until recently, and locally grown may mean new things as urban agriculture and controlled-atmosphere farming grows along with it.
What a fantastic opportunity to combine industry knowledge and these analytics to have a robust discussion at The Amsterdam Produce Show, and what a great opportunity to pick the brains of people like Rick Stein and Anne-Marie Roerink in the intimate setting that is the Hilton Amsterdam and Westergasfabriek.
Come and be a part of this discussion. You will become a smarter, more insightful person while helping your company and the industry advance.
You can check out the website right here.
Register for the event here.
Book a hotel room — where the action is — at the Headquarters Hilton Amsterdam right here.
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And, of course, we are happy to answer questions right here.
We look forward to seeing you in Amsterdam!