There is no question that innovations such as “Wonky Fruit” are excellent for getting publicity; whether anyone actually makes money on these programs is subject to debate. The problem is a disconnect between consumer expectations and the realities of the produce business. The actual produce in the field is a very small part of the produce value chain. By far more money is spent on harvesting, cooling, packing, transportation, distribution, marketing and retailing than is spent in the produce in the field.
Consumers are typically aware of this and so expect dramatically different prices between “perfect” and “wonky” produce. So, as a result, most of these efforts are introduced with great fanfare only to disappear quietly.
Even successful innovations, like organics, struggle sometimes because industry realities make transitional product a big financial loser – and many aimers to go organic can’t take the losses.
Now, however, there is innovation from Germany that addresses both of these challenges. Stephen Weist of Rewe in Germany is doing double duty, both presenting at The Global Trade Symposium on Tuesday, along with Patricia Brunn of Rewe’s wholly owned subsidiary, Penny Market (in Austria, it is known as Penny Markt), and Stephan will also serve on the Perishable Pundit Thought-Leader Panel on Wednesday.
We asked Matt Ogg, Contributing Editor to Pundit sister Publication PRODUCE BUSINESS, to get us a sneak preview of what lies in store:
Director Category Management:
Fruit, Vegetables, Flowers & Plants
Fruit and Vegetables
Flowers & Plants at Penny
Q: At the New York Produce Show, you and Patricia Brunn of Penny Market will be discussing ‘misfits’, which I am guessing fits with the whole wonky fruit trend. What has been the growth in this area in Germany, and how is REWE responding with its approach and activities?
A: We will expand on this in New York. The original “wonky” fruit gets a lot of media attention. Nonetheless, our approach is a bit different. Penny’s “Naturgut Bio-Helden” (organic heroes) and “Junior-Helden” have been developed in intensive interchange with farmers.
“Bio-Helden” are a solution in times when nature has not helped production to perform to their standards, producing fruit or vegetables that were traditionally not marketable. So it’s about pragmatic wonkiness instead of show wonkiness.
“Junior-Helden” is a brilliant idea from my Penny colleagues. This concept allows the marketing of products in their transformation period to organic, when our farmers usually have much lower yields and therefore higher cost but are by EU food regulations not allowed to be marketed as organic. Penny communicated this to the consumer and helps our growers through the tough transition period.
Q: Is this concept for partner farmers globally, or just from within Germany or Europe?
A: Obviously we started in Germany with growers who are just around the corner, and maybe a bit closer to the heart of the consumer, but by now we have already expanded to Europe.
Q: This strategy focuses on wonky organic produce, but what about conventionally-produced fruits and vegetables? These crops too are subject to challenges with the weather and biological diversity.
A: We have not developed a brand for the challenges but we meet them. Every year we sit together with our growers and we do discuss abnormalities. This year, for example, Germany has had a terrible drought, so vegetables in particular have suffered. If we take a product like onions, we have accepted much smaller sorting. So instead of accepting only 40mm, we start with 25mm. On potatoes, we accept more scuffing, and last year we had hail-hit apples. We do that on occasion, but not as a branded concept.
Q: Another aspect of the presentation you’ll be doing with Patricia Brunn is regionality. Could you please tell us more about that?
A: This has been the big thing of the last decade in Germany. With “REWE Regional” we have developed a strong and trusted brand, and we have strengthened regional production structures. In times of globalization, we give production a “face” again.
The consumer loves it, and it is a big success. In 2017, we reached over 10% of produce turnover with regional products, and during the German season, it was more than 20%.
Q: How has that percentage of German produce on the shelves compared to say, five years ago?
A: Five years ago, when we started, after the first year we were at around 2%, so it’s grown five-fold in just five years.
Q: And what are the implications of this trend for overseas suppliers to the German market? Do they need to change their strategy?
A: I do not really see collision between our overseas suppliers and their product base, and regionality. Regionality in the majority is vegetables, and in fruit we have a seasonal differentiation between the Southern Hemisphere and German or European production. But in terms of regionality of course, only Germany is relevant.
Q: It’s a very competitive space you’re in. Germany is renowned as the home of discounters like Aldi and Lidl that are taking the global supermarket trade by storm. What does it take for a supermarket to stay ahead in the heartland of this heavy discounting phenomenon, particularly in the fresh produce department?
A: Indeed, we see hard discount stores growing in many markets in Europe. In Germany, we have seen their business model losing a bit of market share to full service retail over the last years.
However, they are remaining on a very high level. What is essential right now is to understand the consumer and constantly adjust the assortment accordingly. Fresh produce has been one of the differentiating drivers of our latest growth.
The hard discounters have understood and are expanding their assortment and raising qualities as well. Therefore, we are trying to find and develop new differentiators to meet these challenges.
Q: Amazon Fresh has also made headway in Germany, but your company has made moves to compete in the online space through the launch of your Online Marktplatz. Could you please discuss your online strategy and what it means for the produce department?
A: We believe in omni-channel retailing. Germany has a very dense supermarket infrastructure, and we believe that the consumer wants to choose his own mix; where some — maybe more emotional — products like fresh produce will be preferably bought live; others online.
Nevertheless, everybody has his own score set for what product group is emotional. We provide the ingredients for everybody’s mix by offering our assortments both in store and online and by making purchases as convenient as possible with many other services.
Q: There is also the Food Fulfillment Center 2.0 that has been built in Cologne to boost capacity. How has that helped your omni-channel retailing? One common challenge for e-commerce is often finding a cost-effective way to deliver products ordered online to consumers, and with perishables, the task is harder due to handling and temperature issues.
A: Yes indeed, the last mile and the handling in the last DC (distribution center) is a big challenge, particularly in food online retailing. Therefore, we have built this warehouse. It is a little bit early to judge but so far, we are exactly on, and in some elements actually beyond our business plan.
Q: Are there any other major facility developments in the pipeline? For example, ripening centers to foster development of particular produce commodities like avocados, kiwifruit or mangoes?
A: We are in constant fine-tuning based on our consumer insights. Ripe products are only one of many developments over the past years. There is not “the big REWE produce thing” but rather a big array of little, but important, things. That said, we have just recently invested in five regional “head DCs”, dedicated fruit DCs, which help us to gain more control over our supply stream, bundle volumes and increase freshness.
Each rising category has different challenges. There is ripening for avocados and taste differentiation such as origin or the time of the season for tomatoes or blueberries, and these are only a few examples.
An overall challenge is the homogeneity in produce, both in quality and quantity. The massive and increasing global climatic changes of the last decade make predictability particularly challenging. Investment in technology to limit volatility is unavoidable, but also the spread of geographical risks.
Another major challenge is packaging — how to communicate differentiation at the Point of Purchase, when packaging, particularly plastic, becomes increasingly outlawed.
Plastic and global warming are the two subjects that worry German consumers the most. For global warming, we all have it in our own hands, be it by personal action or voting. Plastic is something that we will have to speed up on reducing, replacing and avoiding.
Q: What actions is REWE taking to cut down on plastics use or adopt recyclable or more sustainable packaging?
A: Here we have done so many things that I’m sure I will forget even some important ones in this interview. We started by reducing plastic already five years ago. We were the first that doesn’t have a single banana wrapped in plastic, and that I think is for three years now.
We have started to have a reasonable net, so people do not take the little plastic bags if they have loose products to take them home. We have replaced almost all our plastic punnets in, for example, products like apples and tomatoes with paper or cardboard punnets.
We have started to laser-brand organic sweet potatoes and avocados, so we could spare the packaging completely and still differentiate the product at the checkout so that the person at the cashier sees that the product is indeed organic.
We were one of the first to use cardboard where the material is not made of wood but of grass, so replacing wood with grass. But there are many more things that we have done and will continue to do.
Q: But do you find the cost of alternative materials are still too expensive? How do you see that aspect developing?
A: Yes, alternative materials are still fairly expensive. I mentioned grass paper, for example, where we had thought it could end up in the same price level.
So far, it’s a bit higher, but we are fairly certain that with the scaling effects and as more people participate, or we ourselves expand to more and more products, we will definitely be able to see these costs going down.
Possibly we’ll be able to get them to the levels we are at today or find other ways; we are always curious, so any good idea, call me.
One of the reasons for creating The New York Produce Show and Conference was to encourage an exchange between thought- and practice-leaders in the produce industry. By sharing best practices and innovations, we could help individuals succeed, help companies prosper and help the industry increase consumption and so grow and prosper.
Having leaders such as Stephen Weist and Patricia Brunn in New York is a perfect example of succeeding in this goal.
Come to the Global Trade Symposium and hear this presentation, come to the Perishable Pundit Thought-Leader Breakfast and hear the exchange of ideas of thought- and practice-leaders from around the world. Come to the whole event and learn to SOAR!
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