Setting The Table With Fresh Views

1/1/2013

A contingent of leading produce trading partners sounds off on a medley of timely trends, tribulations and budding opportunities unfolding in the retail produce sector.

With consumer interest in better dietary choices steadily on the rise, the fresh produce department has become ground zero for supermarket retailers seeking to help ever more shoppers heed the call to increase their intake of fresh fruits and vegetables.

With this the case, fresh produce trading partners are angling mightily to move the consumption needle decidedly forward with innovative merchandising, promotional, procurement and efficiency-based platforms aimed at helping to impart differentiation and reaffirm their brands' overall fresh cred with products of various price points and quality measures for maximum relevance with multiple customer segments. At the same time, today's produce trading partners are confronting an increasingly demanding array of supply chain complexities that requires peak operating efficiencies to generate the highest level of customer satisfaction at the lowest possible cost.

To help gain additional insights into these and other related top-of-mind issues, Progressive Grocer recently gathered together a contingent of leading produce industry executives from both the retailer and supplier communities for a casual, candid and enlightening Top Retail Produce Trends roundtable, highlights of which appear on the following pages. Additional roundtable coverage can also be found on our website, www.progressivegrocer.com/produce-roundtable-extra.

PROGRESSIVE GROCER: Please share your observations on what you consider to be the most significant developments relating to fresh produce sales in the past 12 months. How has that changed from recent years?

STEVE WRIGHT: It's been a period of dynamic growth for Tops, but in my role, I see produce through the lens of pre-2008 and after. Prior to 2008, everything was going so well. The economy was driving itself at such a high degree, and I think that many of us, pardon the expression, were succeeding through sheer luck. After 2008, obviously, everything changed, which has required us to now be far more strategic. I almost feel at times I'm an economist, looking at inflationary and deflationary trends. And I'm probably not the only one that has found themselves saying in recent years, "I've never seen that happen before." For example, our home state, New York, lost roughly 50 percent to 60 percent of its crop; Michigan almost lost its total crop; Ontario is just getting decimated. We've never seen this before, and that causes pretty severe effects for the whole dynamics of our industry. It's required us to really refine our abilities to fortify the various parts of the whole business. The overall mindset has changed over the years.

PG: There have been a few other issues at play that have been quite trying as well.

WRIGHT: Most definitely. The melon food safety issue has also been catastrophic — it really took a huge toll on that entire category — and continues to be quietly at the forefront of everybody's minds, because just when we had the category built back up, we had to take several steps backwards after the Indiana outbreak and others.

JENNIFER FANCHER: We're starting to see so many people with center store expertise now moving into produce, and I think it's really changing how people are viewing the business — the type of information they want to see, and the type of things that they're willing to consider and try over time, has really changed. The importance of category management, and that carries over from the center store side over into produce, is becoming such a big piece of what we do. And I think it's one of the key pieces of the pre-and post-2008 recovery time frame, which is moving into that strategic side of things, and how to best tie all those pieces together and put strategies in place that are going to actually work at shelf level.

DARVEL KIRBY: One of the challenges that we've faced this year are the changes with the national transportation laws, and logistics in general. The new trucking regulations that require a driver to sit at a dock to get loaded for a certain amount of time, and then not having much time to be on the road, sometimes add an extra day, if not more, to deliveries. And especially with dated product like packaged salads or cut vegetables, which not only results in losing a day from the date stamp, but overall freshness of product in general. It's also been a challenge when we're busier than expected, and potentially running short and needing to get that product into the stores, and we've seen times where it just can't get there and we miss those sales. So there have been a lot of challenges with logistics that have affected us in the past year.

SETH PEMSLER: One of the things I've observed is the local grower confusion, but our category actually hasn't been affected, simply because there are not that many options, but there's still considerable confusion on what local means.

Another change is the whole safety issue with the recalls of several items. There's not a one-size-fits-all approach to how we address safety. There are certain items in the produce section that are less safe, and there are certain items that are more safe. With potatoes, we're obviously on the "more safe" side of the pendulum, but again, our farmers are struggling with the expectation that they meet the same safety standards that spinach does, which is really hard to do. And as we go through the process, no one really understands what it all means, and it's got to become more specific with regard to individual threats of categories.

JIM CORBY: What I've seen the last 12 months as being among the most impactful were recalls, which were high. And they may not surface everywhere, because there were a lot of regional recalls, but I never remember as many recalls overall as what we've been contending with lately, with one virtually once a week for many weeks at a time.

MIKE ANTLE: The recall numbers are up, but when you've got the FDA viewing any presence of a microbe triggering a recall, it becomes a serious problem, particularly with no risk analysis associated with the recall. And in the case of our products, they're not washed and ready to eat, yet whenever the FDA and state agencies are taking these samples, we don't know how they're being handled. They don't tell us what the microbe load is; we don't know if they're washing it before they're sampling it, whether they're chopping it up, holding it, incubating it at an elevated temperature to see if they can get something to grow even faster. Where is the risk level? We really need guidance from the FDA — as part of the Food Modernization Act — to establish a standard in this regard. Even with our industry's produce traceability initiative, we've got people still sitting on the fence, waiting for the mandate that says, "Thou shalt trace your product," rather than taking the initiative on their own to proactively step up.

JAMIE STRACHAN: The Food Modernization Act has ostensibly been in effect for a couple of years, but it hasn't been enacted because there's no formal ruling. It's just scattered all around.

JEFF FAIRCHILD: I have a really different take on the subject. For instance, our home state of Oregon is a very strong growing area; it's not far from California, so our orders generally arrive in less than a day. A lot of people migrate to Oregon because they want a healthy environment. And even though food safety is a big issue nationally, it's not a big thing for our customers. When the industry had the cantaloupe outbreak, we didn't see a big drop in cantaloupe sales, or melon sales in general. Our customers aren't really concerned about food safety — they're more concerned about flavor.

Flavor profile is really important for our customers — where it's grown, who is growing it. The growing practices really drive people into our stores, and it seems it's even becoming more so because of all the food media and information. People are becoming more educated and actually looking for more unusual, different things. But I'd peg my biggest change more on customer education — their desire to feel that connection with growers.

JIM CORBY: There is another challenging issue we've confronted, which is the 12 periods of overall cost deflation. I've never seen it occur 12 months in a row across the board. Some items have taken a hit during one period, but it generally spikes back up and rebounds. But overall deflation over 12 consecutive months is unprecedented. And as the more competitive marketplace goes, deflationary costs consequently deflate retails a little bit more.

WRIGHT: The kicker is that all the various organizations come out with their predicted inflation numbers for the year, which, as it moves forward, becomes essentially a part of our budget projections that have inevitably defied expectations of inflation.

TIM EBERLE: We're all in the same boat.

PEMSLER: Do you have to increase margins?

EBERLE: Our upper-management team has allowed us to fine-tune our original forecasting goals to real-time situations, because they realize that holding onto unrealistic numbers is not productive, because the numbers just aren't there.

STRACHAN: It seems over the past couple years, there's been somewhat more recognition that produce is a key driver of the total store and, in turn, a lot of focus on produce as a key category in the overall grocery shopping experience from all kinds of different directions. As traditional grocery strategies and methods are adopted with produce, we're also seeing new technology platforms and capabilities that are infiltrating our industry in a number of ways, whether it's category management or whether it's tracking production information, warehouse information and logistics information, and tying a lot more into a platform basis.

Historically, it's been more of a one-to-one, but with some of the evolutionary and technological changes, we're starting to see the capability to look at many relationships, and then use data to drive decisions, whether they're back on the farm with planting schedules, or harvesting logistics or warehousing — all of which affects the time to shelf and the overall consumer experience. And we're finding that the higher quality is based on how fast you get the product there with proper temperature management, which ultimately drives sales.

BRIAN HUH: We've seen a pretty dramatic decline in commodity prices across the board, so we now spend a tremendous amount of time on analysis and understanding the consumer buying cycle. The thing that's probably fascinated us the most in the last year is all the trade-offs consumers make because of some of the pressures associated with prices. We hear in the press that the U.S. is becoming a bifurcated market, with people on the lower end trading down, while the people on the higher end are trading up. The middle area seems to be the real conundrum for retailers and growers to best manage.

Interestingly, while organics are on the rise with higher-income households, some are actually buying fewer salads because they think it's a healthier product, in that they don't have to eat as much salad. There are a lot of misnomers about what's happening from a consumer perspective. When you start drilling it down, it's pretty fascinating for us to understand it, and then figure out what the dynamics of that category mean for our retail customers and the industry as a whole.

STEVE WESSEL: Are you sure it's not because they can't afford two bags?

HUH: It's not the pricing, which amazes me. And I say that because organics can be more speculative; they are presented in a different format, and you have consumers gravitating towards it, but at the same time, they buy less of it because they feel it's a better product and don't have to consume as much of it.

ANTLE: Another thing that is becoming more apparent is the cost of getting the product from the farm to the shelf that's surpassed the FOB product price, and that's something that's going to need to be addressed. We have to make sure that every pallet has got the maximum number of sales units on it, that every truck is completely cubed out, weighted and best utilized, so that every product can be sold.

There's a lot of talk about sustainability programs, but our No. 1 goal with our sustainability program is to ensure a customer receives a load that's less than 1 percent out of grade. When you stop to really think about it, if we want to drive costs down, we have to work toward having everything used that's on that truck, because it just costs so much to do otherwise.

EBERLE: One of the things that's been tremendously impactful are improvements with growers' support of merchandising plans at retail. We're getting more sales on specific items with specific programs than we've seen in the last few years. We're putting together programs that impart education to our produce managers at the store level, and we're seeing such bigger lifts in sales of those specific items, it's just been phenomenal.

A lot has to do with how we're going to market, but the more we can get support with that, and the more we can educate that produce manager to help educate the consumer, that's really where we want to go. We've gotten so much more support from the grower to the consumer than we've ever had, and I think that's really starting to pay dividends.

PEMSLER: Interestingly, clean-store policies in certain accounts are working against that. We can educate the produce manager, but it's hard to do if some of the information we're able to disseminate is frowned on, since a lot of stores these days don't want anything to clutter up the back rooms or departments. We are only too happy to provide education for front-line produce teams. But how do you get there? Maybe technology will afford us different options to alter our collective efforts.

WESSEL: A lot of cooking shows have helped boost consumer interest in education.

EBERLE: Nothing says fresh better than produce it really doesn't. Our whole produce program overall has been a huge focus for our company.

PG: Where do you see the next frontier migrating to in the realm of increasingly popular locally grown programs?

WESSEL: The biggest challenge, I think, is the vague definition of local. Is it 500 miles? 200 miles? A day's drive?

PEMSLER: Even the same country?

HUH: I'm in a lot of stores across the U.S. and Canada, and over the summertime, I see locally grown everywhere, and I don't think it's as much of a competitive advantage as it used to be, because of the fact that in any given market, the local growing seasons are identical and they're all running the same locally grown items at the same time. But the bigger challenge is, God forbid, if something happens from a safety standpoint, what do you do?

WRIGHT: Indeed, and as a retailer, we must look at a lot of situations where proper food safety procedures may or may not be in place, in regards to proper documentation and traceability. It's going to be a huge deal as we move forward. Everybody likes to say they want to support local, but expected levels of food safety with local growers are often simply not up to par with where they should be. And the consumer really needs to hear that from our industry loud and clear.

EBERLE: We don't necessarily market locally grown; we market the local grower in a specific town who is well known for growing a particular crop.

FAIRCHILD: Like it or not, local is what customers are looking for. So while it's often difficult to define what local means, I have an advantage because of the geographic location of our stores, where people have a strong allegiance to the Northwest. But whether I know how to market it or whether I believe in it makes no difference, it's what customers are demanding. But I agree with Tim about promoting growers rather than the location, and we've seen it with both local and organic. It's mission-based. People want to support things that they believe in with their buying choices.

PEMSLER: Realizing that retailers can't do local with everything in the department, I agree with both Tim and Jeff that grower connections are key. One of the fastest-growing quick-serve restaurants is Five Guys, which has big sacks of potatoes on the floor that prominently display their growers and their locations. It's a big deal for them because they're identifying who the grower is.

We actually did a study and found that where tons of scale exist for a specific product or category, it actually offers customers a better carbon footprint, by maximizing the supply chain technologies to grow in one location and ship it by rail, or even by truck, than if you grow it locally with pesticides and harvest it and deliver it to a local market.

FAIRCHILD: I've been sourcing direct since the mid-80s, but what I'm trying to concentrate on most is creating those relationships year-round, and it doesn't necessarily have to be with small growers. They can be large growers from other regions, but we're trying to do more and more visits to their farms and facilities, to get more information to share with customers on our website, so our shoppers can see for themselves — whether it's a banana or a pineapple — that it has a name and a face and certain attributes that make it a value to find that product for them. So we're trying to expand our realm of local for our customers through grower recognition.

WRIGHT: Gravitating away from local and organic, I believe what today's customers are also seeking are food experiences. They're being more bold in their food choices, which is evidenced by fast-growth categories like fresh herbs and nuts, like almonds and walnuts, that are in salads in all kinds of different combinations. The tough part for us is there is an upper end that is very vocal about what kind of options they are demanding, but for a large majority of others, their decisions are based solely on cost.

It's tricky marketing to different generations, just like the millennial generation is completely different from their counterparts of earlier years. And I think for retailers, it's a moving target, and it's up to us to get shoppers more aligned with the various experiences they are seeking in our stores.

FANCHER: I completely agree. Consumers are still quite disconnected from where their food comes from, and I think that's why so many have latched on to the idea of local produce. But I think tying in sales plans with growers and growing regions really helps the consumer start to understand a little bit more about the food supply, and where their food should be coming from.

KIRBY: We most heavily promote Texas-grown currently, but I agree that the next step is people. The reason folks are seeking locally grown, and even organically grown, is the perceived safety message and knowledge of who it comes from. They want to know where it's grown, the family or the farmer, or even the company that grew it, and what their practices are, and feel good about what they're buying. Consumers are hungry for food information — that's why cooking shows are so popular — they want to learn more. And I think the more we can do to get the message out on all categories, whether it's through signage or packaging or our own people, the better.

CORBY: I wouldn't characterize my view as a full supply chain problem, but whether it's organics or local, to me, in some way, we're just trading sales, as opposed to growing sales or growing a category. In my view, the real issue is how to increase consumption. That should be the basis of our efforts for the next frontier. Local can fit under that umbrella, and so can organic, but we need to worry about increasing consumption. We're losing share of plate to other parts of the store every day.

Additional roundtable coverage can be found on PG's website, www.progressivegrocer.com/produce-roundtable-extra.

"Our customers aren't really concerned about food safety — they're more concerned about flavor."

—Jeff Fairchild, New Seasons Market

"There's a lot of talk about sustainability programs, but our No. 1 goal with our sustainability program is to ensure a customer receives a load that's less than 1 percent out of grade."

—Mike Antle, Tanimura & Antle

"As traditional grocery strategies and methods are adopted with produce, we're also seeing new technology platforms and capabilities that are infiltrating our industry in a number of ways."

—Jamie Strachan, Growers Express/Green Giant Fresh

"One of the things that's been tremendously impactful are improvements with growers' support of merchandising plans at retail. ... Nothing says fresh better than produce."

—Tim Eberle, Nash Finch Co.

"Tying in sales plans with growers and growing regions really helps the consumer start to understand a little bit more about the food supply, and where their food should be coming from."

—Jennifer Fancher, Growers Express/Green Giant Fresh

"Consumers are being more bold in their food choices, as evidenced by fast-growth categories like fresh herbs and nuts."

—Steve Wright, Tops Markets

"The real issue is how to increase consumption. That should be the basis of our efforts for the next frontier."

—Jim Corby, Delhaize America/Food Lion

"We are only too happy to provide education for front-line produce teams."

— Seth Pemsler, Idaho Potato Commission

"Consumers are hungry for food information. The more we can do to get the message out on all categories, whether it's through signage or packaging or our own people, the better."

— Darvel Kirby, United Supermarkets

"When you start drilling it down, it's pretty fascinating for us to understand it, and then figure out what the dynamics of that category mean for our retail customers and the industry as a whole."

— Brian Huh, Dole Fresh Vegetables

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