Making an Impact

Retail trading partners explore the challenges and opportunities for the produce business.

With consumer interest in better dietary choices steadily on the rise, fresh produce departments are universally viewed as the single most influential destination for shoppers to heed the call to action. And it appears the call is decidedly being answered, based on overwhelming confirmation from a contingent of leading produce trading partners, who gathered ’round the PG table at New Orleans’ Royal Sonesta Hotel last October to explore the drivers, barriers, best practices and desired actions necessary to make the most of a highly promising outlook.

PROGRESSIVE GROCER: In your opinion, what’s the single biggest headline relating to fresh produce sales in the past 12 months?

STEVE WRIGHT: It’s a series of issues. The complexity of our business … the tremendous changes from the grower standpoint … food safety … immigration reform (an issue that the government doesn’t really seem to want to address) … traceability mandates … the many choices consumers have about how and where to spend their food dollars. In general, the business has gotten much more complex and scientific. You have to really bring your A game, and be ready and willing to adapt to change.

DAVID JOHN: As a wholesaler, labor is the critical issue, with local growers struggling to balance the complexities and adversities of harvesting some crops, and surrendering others, because of labor shortages. And there’s no shortage of customers or a decent market — they just literally cannot come up with sufficient labor.

On the brighter side are some of the things the government has done to fund healthier school lunch programs and related actions to promote fresh produce to younger kids as part of their lifetime habits. So we’ve seen a higher demand and a broader line of products making their way into the mainstream, and that’s a very encouraging story for our industry moving forward.

BRIAN HUH: One of the things that we’ve seen that’s been helpful for most of our retail customers is the media attention being devoted to the role fresh produce plays in better eating. I don’t know if that necessarily always translates into dollars for retailers. What we really saw this past year was that across the board, most all categories are up — not only in pounds, but [also] dollars. I think there’s fundamental changes going on that are now translating into dollars.

JOE WATSON: I would definitely agree. We’ve more than doubled the growth of produce for the past three years. But supply and availability, as noted earlier, are definitely affecting things. Take, for instance, what just happened locally with a fall crop of okra. Our grower partner could not find labor to harvest it, and he lost his entire crop of okra. When you look at it in terms of, “We need the product, we can sell the product, but we can’t get it to market,” that’s very problematic for everyone.

JAMIE STRACHAN: Labor is a huge issue of concern for all of us. And I think the other big trend we’re seeing is being able to combine freshness, quality and supply chain activities that are happening in the store in certain categories as a result. I think people are beginning to make better decisions. That’s been a big trend.

PAUL GREGG: I would absolutely agree. Specifically Steve [Wright] talked about the complexity of the marketplace, but at the same time, our job as leaders is to create an environment of simplicity at the shopper level. And by that I mean having fresh, convenient, prepackaged products — which give shoppers a chance to experience their beauty — but not feel those levels of complexity that we are still able to integrate into our day-to-day business. And while it’s a huge challenge, it’s still a tremendous opportunity for us to look at and see how we can make it happen.

BILL PRICE: There’s been a lot of good things mentioned thus far, but one thing that’s on my mind is transportation, particularly fuel costs and driver restrictions, all of which have big ripple effects on how we can get the most promising products in shoppers’ carts.

DREW SCHWARTZHOFF: All good points. And I’ll also refer back to Steve [Wright]’s points about the complexity and pace of change, which are taking place so much quicker across the entire supply chain, along with changes in regulations that impact drivers and hours of service, changes in retailers and formats, and the various kinds of products that are desired.

JEFF GARRETT: I would also mention the major influence of prepackaged, washed, ready-to-go products, which, on average, equates to 30 percent of the average produce department today. Eight to 10 years ago, we couldn’t have sold most of it for 50 cents, because no one would have bought it.

BYRON BELLOWS: The biggest headline issue for us is food safety, but overall we’ve clearly made strides on that front. Transportation also remains a key issue and big obstacle for us personally, with our stores on an island. But we go with the flow and do what we need to do.

PG: What has been revealed about your company’s produce sales trends in general and specific categories in particular that are showing the most promise?

GARRETT: The meat department used to just destroy produce sales, but our produce departments are now commanding a greater percentage of sales than our meat departments. However, 10 to 15 years ago, it was the exact opposite; meat has gone down, and vegetables and fruits have definitely gone up.

WATSON: In terms of the most significant trends we’ve seen is the really strong network of local growers we’ve cultivated, particularly in Louisiana and Mississippi, where growers plant crops exclusively for us, which helps offset transportation costs and elevates our differentiation.

We’re also expanding our reach into other parts of the country and are sourcing more products from the East Coast more than we ever did before, for the same reasons above. We want to keep our quality as high as we possibly can, and if we can source from other parts of the country where it’s more convenient or where it’s more economical for our stores, we will definitely do that.

WRIGHT: Produce has been — and always will be — predictably unpredictable. But we’re now digging deeper into our toolbox than ever before, because it’s up to us to continue to be innovators in an ever-changing business. Paul [Gregg] hit on a great point: There can be pure chaos going on around us, but we have to send a clear message about being passionate to drive more consumption and more produce profits. We’ve done some crazy things to that end, such as running an entire back-page ad with 30-plus BOGOs. I intend to continue to drive produce sales, no matter what’s going on, in order to send a clear and consistent message to our shoppers of our commitment.

PRICE: Absolutely. Serving customers is what’s most important. They don’t need to know, nor could they ever imagine, the complexities we deal with on a daily basis. Instead, we just have to play the hand we’re dealt and create experiences at store level that make them feel compelled to buy that product. We’re not blessed in Utah to be in close proximity to many growers, so we rely a lot on that strategy. Thankfully, we have good partnerships with well-established companies, such as with Green Giant and Dole, which we can depend on to get the products we need on a regular basis.

SCHWARTZHOFF: Just to build on the point around complexity, and strategies that have evolved around it … A few years ago, we took a long, hard look to determine where we could deliver the highest value. And it really wasn’t in the easy stuff — nothing in produce is easy — but in the things that are nomadic, tough and difficult to source in the fragmented supply chain, and made a determination to concentrate on products that offer the most year-round value. While we’ve had our share of difficult discussions in conference rooms, we decided to double down on addressing the complex things, because that’s where it counts the most, with the consumer, who doesn’t need to feel the difficulty, but who can ultimately reap the benefits with the items they’re most interested in buying.

PG: Aside from the “usual suspects,” what specific categories are trending stronger?

PRICE: We are seeing our best growth in value-added, ready-to-eat items.

WRIGHT: Kale is huge, whether in salads or conventional format. Bush berries — raspberries, blueberries and blackberries — are also great. Snacking nuts are also just on fire, whether it’s almonds or pistachios, and fresh herbs and premium juices as well.

SCHWARTZHOFF: We’ve seen great growth in greens, and kale is definitely leading the way. The other hot category is tropicals like avocados, mangoes, limes and sprouts, all of which are growing.

JENNIFER FANCHER: We continue to see continued advancement with convenience products across the board. Anything we can take from a traditional product and move up a level in convenience is where we’re really seeing the biggest growth. Radishes have been huge. They’ve moved from an afterthought item to something that’s useable, easy to use, and stands out on the shelf.

HUH: We are also seeing strong growth within organics, not only in salads, which are still predominating, but also with a lot of other categories. I definitely think there’s going to be another next-wave surge of products that are going to further propel the organic category.

GARRETT: I agree. The new prepackaged chopped salads by Dole and Taylor Farms, with kale, cabbage, romaine, have done really well and are selling through the roof. Regular green-salad kits are almost a thing of the past. And I think a lot of it has to do with Michelle Obama’s “Let’s Move!” initiative that’s also been embraced by Nickelodeon and The Disney Channel. Cooking and travel shows are also helping people become more familiar with the tastes and textures of other kinds of vegetables.

WATSON: Organic salads are up for us 25-plus percent this year. Conventional salads are up as well, but just a fraction of the growth is in organics, which has been a consistent trend the past couple of years. While we’ve already talked about the kale, we have 10 SKUs and they all sell — customers just can’t seem to get enough. We’re also seeing branded items coming on stronger, which in my opinion, is a fairly big shift from past years and a very important area of focus for us.

PG: Are your companies doing anything noteworthy to sell and promote fresh produce beyond the traditional boundaries of the department?

STRACHAN: We are asked pretty regularly about helping get consumers into the produce departments, and have great success extending the successful “Box Tops for Education” campaign to produce. It’s been very popular and has worked out really well. We’ve paid over $200,000 in redemptions over the last couple years to American schools from fresh produce Box Tops.

WATSON: We are working on having cases at the front end dedicated to our products, and are going to have at least one checkout in each store with healthy snacks — packs of dates, pistachios and almonds — instead of candy bars and gum. We’ve already tested it in a couple of stores, but we’re preparing to roll it out across the board in 2014. It’s just huge for us because it’s been a long time in coming, trying to get the support to do that.

Another thing we’re going to do is place produce departments in the center of some our newer stores. I’m very excited about that and believe it will lead to more growth down the road.

GARRETT: We place display bins with on-ad items like tomatoes and lemons right at the front door, so shoppers see them as soon as they walk in. We also do sidewalk displays outside with berries, watermelons and cantaloupes, which adds a farmer’s-market vibe.

PRICE: In our stores, we are really trying to make a fresh impact at the front end as well, with a mix of traditional candy and gum products and apples, bananas and fresh snacks. We’re having tremendous success with it now. But there was a day when I was a produce manager that I didn’t dare go on vacation because there would be a pile of soda stacked in the produce department. But we’ve got to change that territorial mindset across the total store to understand where the profitability is by using different strategies.

JOHN: What we’ve done as a wholesale group for our small independents is add a five-man merchandising team that visits all the stores and works with them on various tactics, such as tent sales that are set up specifically to allow the local growers that are near the store to get involved. We see a pretty good impact in almost all the stores with the tent-sales events.

GREGG: I think to get that silo effect broken down is a pretty productive way to conduct business going forward, because there are clearly opportunities that we’re not capitalizing on.

SCHWARTZHOFF: We’re seeing more and more people working to cut out the silos. We service both the market and fresh side, and had done conventional juices displays in produce — which has traditionally been difficult — as well as in center store. It seems like every time we get the data back, it shows great results for both, but getting it done and scaling it out is very difficult. But it’s not just good for brands, but [also] for the whole store.

HUH: We are seeing more and more of what Joe [Watson] was talking about — having the snack sets replace one of the soda pop sets at the checkstand. We’re working on something like that, but I frankly think it’s mandatory for everyone, because more and more produce aisles are going to be in the center floor area. I am seeing that in some of the big stores, which are installing large coolers inside the center store aisles.

PG: What are the key benefits of branded produce from the standpoints of both profit center and image builder? How has this changed and/or evolved – or not – in the past two years?

FANCHER: Trust is key.

WATSON: In terms of pricing, I think there is a threshold in most categories. But I also think we sometimes don’t give ourselves — or our customers — enough credit for what something is worth. It’s a constant ebb-and-flow process. But perhaps the most important thing about a brand is the built-in equity of customers’ trust: that when they see a higher price, they know the brand is consistent in terms of quality and yield, and will most likely want to invest in that over and over and over.

JOHN: The acceptance of brands at the store level with consumers has been phenomenal. The consumers you would least expect to buy branded, packaged products are looking for things that they know are going translate into value for what they pay, because their money is too important to waste. So we’re really seeing a great uptick with branded product, and the momentum that we’ve been able to sustain has been kind of surprising, especially coming off a really drastic economic situation. You would think going to a higher quality and a higher value format with brands may not play very well in such a depressed situation, but it’s playing really well. It’s the trust that they have in the products, and it’s lack of waste. People understand that what they buy, their families will eat all of it.

BELLOWS: I think brands are causing the whole thought process of what we have been taught from generation to generation to change. Consumers don’t understand that everyone is kind of close on price. So it’s a given that the price tag is going to be fairly competitive and fairly comparable. We’re often cheaper, but we’re often a little bit more expensive, too. But the value is there. We offer a quality product, and if the quality and value are there, I don’t think the price matters as much as it used to.

WRIGHT: Even though people want to eat healthier, they are still very cognizant of what they throw out, I think probably more so now than ever. Yet I think in the produce industry, we’ve always struggled with our lack of flexibility. If you look at a box of cereal or a bag of potato chips, they’ve constantly reformulated the sizing and packaging to maintain the necessary value proposition. But we just sit back and do as we’ve always done with, say, potatoes. We tell them, “Here’s a 10-pound bag and a 5-pound bag. Have a good day.” I think that’s one of the fundamental flaws that we have as an industry.

But one of the great things we talked a lot about is value-added and branding, and I think when we do that, we’re able to alter the perception of value. Otherwise, we’re just sitting on a head of lettuce. But the consumer knows what the market for a head of lettuce is. They really don’t understand what the market is for packaged, quality fresh produce, and that’s where we can get a little bit more margin.

“Produce has been – and always will be – predictably unpredictable.”
–Steve Wright, Tops Markets