Shaking The Tree

Quality-positioned and convenience-oriented products are proving to be fine antidotes to the deflation, drought and waste-adverse shoppers threatening to prune the full potential of supermarkets' fresh produce prowess.

Though consumer awareness of the key role fresh produce plays in healthy lifestyles has never been higher, deflationary pressure from low fruit and vegetable prices, coupled with persistent frugal consumer behavior that has given rise to more home gardens and fewer weekly store visits, is keeping retail produce directors on their toes, according to top-line insights of Progressive Grocer's 2012 Annual Produce Operations Review.

With the majority of supermarket produce executives striving to ensure that their stores' fresh produce prices are as competitive as possible with discount formats on both ends of the spectrum, bottom-line reinforcements are being generated by higher-ticket organics, more packaged salads and locally grown products, expanded fresh-cut fruit and vegetable options, and more impactful displays of specialty/exotics and mainstay pantry staples.

As an encapsulated overview of the principal operational issues retail produce directors square off with on a daily basis, PG's annual produce report was compiled from a range of retail executives with authority for the all-important category. Panelists responding to the benchmarking survey were asked to provide comparable estimates for a variety of operational issues in play in their stores' average produce departments, along with projections about what's on the horizon for the balance of the calendar year, among other requests. (PG's 2012 Annual Produce Operations Review is once again enhanced by 52-week point-of-sale data from Nielsen Perishables Group FreshFacts, which also furnished shopper insights data powered by Spire.)

Among the key highlights of this year's annual produce survey, year-to-year total department sales generated $52 billion versus $50.2 billion a year ago, good for a 3.6 percent overall gain, or 1.8 percent in actual per-store department sales growth. The remaining 2.8 percent sales increase, meanwhile, was driven by an increase in new stores opened during the study's measuring period.

When asked to gauge the baseline performance of their average produce departments during the past year, 58.3 percent of panelists weighed in with favorable progress, which, while not as upbeat as last year's tally, is nevertheless positive. Even better, fewer survey respondents — 25 percent — reported downward sales during the past 12 months, although a higher comparable sum — 16.7 percent — reported steady sales trends.

With the most influential selling period of the calendar year (Q4) still to come, retailers were asked to anticipate what produce department sales would be for total 2012. The response from a majority is positive, with 63.5 percent of respondents eyeing gains, while 14.6 percent anticipate decreases and 21.9 percent expect to hold the line through year-end.

Mindful that many consumers are striving to eat more healthfully without depleting their limited food budgets, most grocers, generally speaking, are stepping up efforts to enlighten consumers that eating more nutritiously isn't budget-prohibitive. Taking cues from high-profile initiatives from the likes of the Produce for Better Health Foundation, First Lady Michelle Obama and celebrity chefs rallying folks to eat more fresh produce, grocers are rolling out campaigns that actively engage consumers, and their kids, in exciting ways.

Although random-weight fruits and vegetables continue to far outpace sales of their fresh produce department counterparts, retailers in this year's study are heeding the industry call by adding more quality-focused, value-added, convenience-oriented products that lend splendidly to immediate consumption and quick preparation. Innovative kid-inspired and menu-making products, in particular, are helping grocers meet demand for fresh and healthy snack foods that are housed in easy-open/quick-to-reclose packaging. However, given that price is generally the biggest factor for consumers deciding between packaged and loose produce, continued sales growth in this segment will depend upon how well retailers promote the convenience of packaged produce and help consumers to see the value of these products.

Interestingly, an encouraging trend bloomed in this year's study, with regard to floral sales: Among the 65 percent of retail panelists with floral departments, after several years of wilted progress, 35.5 percent reported an increase in floral category sales — 10 points higher than last year. Concurrently, sales declines were reported by a smaller percent (25.6) of study participants.

When evaluating the always-insightful problem index, which asks Produce Operations Review panelists to rank the most troublesome departmental issues on a scale of 1-6 (with 1 being not serious and 6 being extremely serious), the impact of the summer drought in key growing regions leapfrogged to the top of this year's hit parade, a particularly noteworthy fact in light of the issue's first-ever inclusion on the produce retailer's worry list.

To be sure, while the full impact of this year's drought isn't expected to affect food prices across other parts of the store until 2013, many grocers faced the summer with scarce supplies of locally grown crops, which severely hampered their ability to take advantage of fine-tuned partner plans hammered out with local growers earlier in the year.

Among other heartburn inducers for produce execs, competition from Walmart and traditional supermarket rivals claimed the second and third spots, while wholesale prices dropped three rungs to rank as this year's fourth most vexing consideration, paced by that familiar foe — profits — to round out the produce department's top five hot buttons.