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10/06/2015

Fruits of Labor Pay Off Big

The produce sections of America’s grocery stores are being turned upside-down and inside-out, thanks to explosive growth in the sales of fruits and vegetables. Think of it as the nation’s grocers intentionally slipping on a highly profitable banana peel.

Some stores are even hauling their insides outside — literally.

At six Super King Markets, produce of all kinds — from melons to mangoes to citrus — is being creatively merchandised in front of the stores. “This creates a farmers’-market atmosphere before the customer even enters the store,” explains Daniel Barth, general manager of the chain, whose supermarkets are in Los Angeles and California’s Orange County. “This is especially true for seasonal merchandise.”

Changing Consumer

To say that the produce section is red-hot at grocery stores nationwide is an understatement. Produce is white-hot —and steaming ahead.

Produce sales jumped a healthy 4.3 percent during the first six months of 2015, according to Progressive Grocers 2015 Retail Produce & Floral Review, which surveyed 100 grocers nationally. For the full year, grocers project that produce sales will increase 4 percent, which compares with 2014’s actual increase of 4.4 percent over 2013, boosting annual produce sales in 2014 to $56.1 billion.

Behind all of this is a changing consumer not only more concerned about healthy eating habits often linked to eating more fresh fruits and vegetables, but also increasingly interested in where the produce comes from and how it’s been grown.

“Eating produce is linked to better health,” says Barth. “That’s why the produce section is going to continue to increase in importance.”

It’s not so much a revolution as a national evolution of the produce section from a sleepy corner of the store to a vibrant hub where shoppers gather in search of fresh groceries that they feel good about purchasing.

“Consumers are passionate about produce — particularly locally grown and organic produce,” says Jeff Tomassetti, director of produce and floral at 15 Buehler’s Fresh Food stores in central Ohio.

A hefty 12.7 percent of produce sales nationally were organic in the first half of the year, according to the survey by PG. Perhaps that’s why Wooster, Ohio-based Buehler’s now offers nearly 100 organic produce selections. “We make sure our customers don’t have to go to the organic specialty store,” says Tomassetti.

Organic produce sales are also growing at Super King Markets, according to Barth. Out of 300 produce items in the store, roughly 35 are organic. The store plans to expand its organic section and its organic offerings later this year, he notes.

About 10 additional organic produce items have been added at the Jay-C Foods Store, in Brownstown, Ind., notes Produce Manager Logan Doane. “You’d think the younger crowd would be buying it, but it’s mostly older people trying to be healthier,” he says.

Local Express

Popular as organic is at Buehler’s, even more popular are “locally grown” products, asserts Tomassetti.

“Customers are buying into locally grown,” he says. The chain defines “local” as any produce grown in the state of Ohio. Some stores strategically place “locally grown” signs next to Ohio produce — sometimes even featuring photos of the farmers or where the produce comes from. “We’ll show pictures of trucks coming back from local auctions,” affirms Tomassetti.

In social media blasts to customers, Buehler’s also will occasionally identify the farm and farmer who supplied the produce.

Cincinnati-based Kroger, which owns Jay-C, is broadly buying more locally grown produce, Doane points out. “When it’s local, it sells a lot better,” he says.

But Super King Markets is hesitant to slap the term “locally grown” on products, because of the confusing definition of the term. “Most consumers think that ‘locally grown’ means it came from within a few miles of the store,” contends Barth. Instead, he says, the store puts a “California grown” sign by some produce.

In Search of Value

At the same time, consumers both young and old are increasingly purchasing value-added produce such as pre-cut fruit or pre-washed veggies.

It appears that manufacturers have successfully tapped into the need for value-added vegetables, and shoppers are biting. Sales of value-added produce were up more than 10 percent, and volume was up more than 8 percent for the 52-week period ending June 27, 2015, according to Schaumburg, Ill.-based Nielsen Perishable Group Fresh Facts. The average price change compared with a year ago is just 1.7 percent (data not shown). Value-added fruit also continues to see gains, with dollar sales up 7.5 percent. Volume is up a mere 1.1 percent, however, and the average retail price change is 6.3 percent (data not shown), indicating that price increases are affecting purchases.

The biggest driver in value-added sales: busy Millennials.

Cut fruits and veggies account for more than 10 percent of produce sales at Buehler’s this year, versus about 8 percent last year, Tomassetti estimates.

“No one wants to take the time to cut it up themselves,” he explains. “Some people even say they don’t know how to cut things like pineapples — so they pay us to cut it.”

But the biggest buyers of value-added fruits and veggies at Jay-C are older folks, notes Doane. It’s not just about convenience, he says, but also to avoid waste. That’s why some will pay $3.99 for a pre-cut quarter-watermelon instead of the same price for an entire uncut watermelon.

As a result of this growing consumer interest in produce, some stores are even boosting the size of their produce departments and ordering produce they never stocked before.

Taking Up Space

Findings from PG’s proprietary survey, along with observations gleaned from new store information, indicate that the space that grocers devote to produce is also increasing, illustrated by merchandising produce outside traditional departments and increasing square footage among new builds.

At Buehler’s, some stores have increased produce space, says Tomassetti, and others are taking over patio space with seasonal fruits and veggies in the spring, summer and fall.

At Rush City Foods, in Rush City, Minn., there’s growing consumer demand for cilantro, but it’s not always available, according to Produce Manager Amy Benolken. “Sometimes we have to put out signs that say: ‘Sorry, no cilantro’,” she says.

Cotton Candy grapes, at $3.99 a pound, are outselling $1.99-a-pound conventional grapes at the Jay-C store in Brownstown. The store’s consumers also are increasingly asking for jalapeños, some to make raspberry jalapeño jelly, says Doane.

Meanwhile, at Buehler’s, sales of Honeycrisp apples at $3.99 per pound are outpacing the former top-selling Gala apples at $1.99 per pound, says Tomassetti. “We’ll just put them on the end cap and leave them there all season.”

Not Just Produce

Some grocers are devising ways to sell more produce in other areas of the store — like the lemons and limes that Buehler’s sells by the seafood section, and bananas in the cereal aisle. But increasingly, says Tomassetti, non-produce products are finding their way into the produce aisle to get in on the action.

For example, the chain places a display of Reddi-Wip next to the berries and puts some seasonal beers and wines in its floral department. Earlier this summer, Buehler’s sold hundreds of $15 cherry pitters only because it merchandised them right next to the cherries, Tomassetti says. Further, the grocer sold hundreds of corn holders by placing them beside the sweet corn.

There’s also a quiet countertrend that could impact produce sales at some supermarkets: home gardening.

Folks know that it can be a lot cheaper to grow produce at home than to buy it from the grocery store, says Benolken at Rush City Foods: “To save money, some people just want to do it themselves.”

But that’s still a minority of consumers. Most of the nation’s shoppers arrive at grocery stores increasingly prepared to load up on fresh produce, but the key challenge for thousands of grocery stores nationwide is, who’s ripe for action?

“Eating produce is linked to better health. That’s why the produce section is going to continue to increase in importance.”
—Daniel Barth, Super King Markets