fresh produce industry trends: context for key ripening fruits1 fresh produce industry trends:...

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Fresh Produce Industry Trends: Context for Key Ripening Fruits

DR. ROBERTA COOKDept. of Ag and Resource Economics

University of California Davis

March 26, 2014

Agenda• Factors affecting demand for fresh produce,

including plant breeding and the economic downturn• Growing awareness of produce waste and importance

of cold chain management, info sharing • Need for greater use of information technology to

improve coordination of supply and demand – better serve consumers profitably

• Per capita consumption trends• Case studies of two ripening products: tomatoes and

avocados

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Factors affecting demand for fresh produce

• Commodity price, consumer income, prices of substitutes and complements, population growth rates

• Quality: appearance, flavor, color, shape and size; more breeder emphasis on flavor

• Info on produce selection, ripening, recipes• Convenience in prep, usage and consumption;

packaging role• Shelf-life, postharvest technology • Consistent availability, year-round supply

Factors affecting demand for fresh produce

• New marketing channels handling produce: convenience store potential, drug stores, dollar stores, e-commerce

• Promotion and advertising, brand and generic• Story told on how and where product grown• Govt education and other support • Food safety • Foodservice fresh produce menu introductions;

challenges (cost, consistent availability, quality)

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McDonald’s Introduces Oatmeal with RTE Fresh Blueberries: blueberry banana nut oatmeal (May 2012)

Plant Varieties and Flavor

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Pink Lady Apples – Clear Positioning to Womenand Marketing Buzz Backed by Quality Standards

Heart logo, feminine ads, target women 25-40

Managed Varieties – Breeding for Flavor• Managed varieties have royalty fees (often 5% of

FOB/box price) when using the trademark brand.• Apples lead the way, Jazz, SweeTango, Kanzi.• There are over 30 managed apple varieties.• It’s all about controlling the rate of growth in

acreage and production in order to avoid price erosion for growers.

• Quality standards with an emphasis on the consumer eating experience,

• Investing in promotion and market development to generate consumer trial, repeat purchases and willingness to pay.

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Tasti-Lee Tomatoes: U of Florida Managed Variety

Tasti-Lee is a new, naturally-developed* vine-ripened tomato variety that brings significant improvements to health, flavor and freshness in grocery store tomatoes! For health, this new tomato contains high Lycopene, up to 50% more than regular varieties. It has the right balance of sweet & tangy flavor for an eating experience that will put a smile on your face. And for freshness… Tasti-Lee brand tomatoes have been bred to stay on the vine until fully ripened by Mother Nature, yet remain firm all the way to the store shelf and your kitchen counter! The quality of a home garden tomato found in the convenience of your local grocery store. Enjoy! *Tasti-Lee Vine-Ripened Tomatoes are NON-GMO!

Genome mapping and marker-assisted breeding helping to zero in on flavor*

*Does not involve the use of biotechnology

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The Economic Downturn

Inflation-adjusted Per Capita Food Spending Fell During the Recession and Had Not Recovered by 2012

Source: USDA Amber Waves, “Less Eating Out, Improved Diets, and More Family Meals in theWake of the Great Recession”

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USA Select Supermarket* Fresh Produce Dept. Performance During the Economic Downturn, % Change vs. Prior Year

2008 2009 2010

Source: Perishables Group FreshFacts® powered by Nielsen.

*Excludes club stores, supercenters, part of conventional grocery and other alternative formats, not same store sales. In 2013 includes Walmart Supercenters, Sam’s Club and Target.

3.3

‐2.5

3.24.3

7.8

‐3.6

2.0 1.5

‐1.1

3.0

$Sales Quantity

2011 2013

• 2009, the quantity of food sold in food stores down.• “I buy only what I need.” Consumers concerned

about waste.• This negatively impacts fresh produce.• More low income people - 78 million people on food

stamps in 2012.• Consumption rates of fresh produce increase

markedly with income level. • In 2012, 18% of households earned >$100,000/yr

yet accounted for 27% of food spending, and 30% of spending on fresh produce.

The Economic Downturn and Consumer Food Behavior

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2011 Distribution of U.S. Households by Income Level, Share of Total Fresh Produce Expenditures/Income Level & Ave. FreshProduce Expenditures/Income Level

Source: Calculations byRoberta Cook from the FoodInstitute’s Demographics of Consumer Food Spending, 2013.

$469 14%

$268 9%

$399 19%

$326 17%

$ = Average fresh produce expenditures per income group

% = Percent of total fresh produce expenditures contributed by each income group

$796 30%<$15,000

15%

$15,000-$29,999

18%

$30,000-$49,999

20%

$50,000-$69,999

14%

$70,000-$99,999

15%

$100,000+18%

Share of Households

$537 17%

4.78.3

5.910.6

15.620.7

0.9 2.9 3.5

10.915.4 16.5

Weekly $ sales/store

Weekly quantity sold/storeOrganic Fruit

Organic Veg

Fresh-cut, Organic and Total Produce Sales in Select US Food Retailers, % Change Q3 2013 vs Q3 2012

All Produce

FreshcutFruit

Salads

Source: FreshFacts® on Retail, Q3 2013, Perishables Group/United Fresh Foundation.

Fresh Cut Veg

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Copyright ©2013 The Nielsen Company. Confidential and proprietary.

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Value became the new category driverValue means something different to every consumer: quality, price, convenience, health

ROMA TOMATOES

HOT HOUSE ON THE VINE TOMATOES

SNACKING TOMATOES

Source: Nielsen Perishables Group

NAVEL ORANGES

MANDARINS

Consumers and Fresh Produce - behavior change more than attitudes is the challenge.

• Higher income segments driving demand; their preferences lean to organic, convenience, flavor,local.

• For mainstream, positive consumer attitudes about wellness benefits of fresh produce not translating into purchases. Improved flavor might help.

• Perception that produce costs more and may be wasted. Better shelf-life might help.

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The economic downturn: • More than originating new trends, it intensified

pre-existing forces driving greater competition at all levels of the food system, such as, channel blurring. Margin pressure!

• Means ever more pressure for firms to increase productivity and efficiency.

• Brought home the need to better control shrink.• Need for major investments in info tech and BI.• Advantages of sharing data between suppliers

and commercial buyers to improve store-level assortment and merchandising.

Forecast of Compound Annual Sales Growth Rate vs. Inflation 2012-2017

Source: The Future of Food Retailing, Willard Bishop, June 2013-6.8%

0.2%1.7%1.9%2.1%2.7%2.8%3.2%3.4%3.5%

6.0%6.2%

12.1%13.4%

MassTradl Supermarket

MilitaryConv. wo/gas

Other Sm GrocSupercenterSuper Whse

Wholesale ClubDrug

Conv. w/gasDollar

Ltd Assortm.e-Commerce

Fresh Format

Food Inflation Compound Annual Rate: 3.0%

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US Food Retailer Mergers & Acquisitions2007-2013

Sources: The Food Institute Report, January 6, 2014.

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22

1420 21

16

27

2007

2008

2009

2010

2011

2012

2013

Food Losses, Technology and Big Data

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Estimated Food Loss in the USA for Fresh Fruits and Vegetables at the Retail and Consumer Levels

Source: Buzby, Jean C., Hodan F. Wells, and Jeffrey Hyman. The Estimated Amount, Value, and Calories of Postharvest Food Losses at the Retail and Consumer Levels in the United States, EIB-121, U.S. Department of Agriculture, Economic Research Service, February 2014.

Losses from Food Supply

Food Supplya

Retail Level

Consumer Level

Total Retail and

Consumer level

billion pounds percent percent

billion pounds percent

Fresh Fruit 37.6 12 25 13.9 37

Fresh Veg 53.5 10 24 18.0 34a Food supply at retail level, which is the foundation for retail- and consumer-level loss stages in the loss-adjusted data series.bTotals may not add due to rounding.

Estimated Ranges of Losses in the U.S.Fresh Produce Distribution System*

• Distribution Percent Activity Losses

• Transportation 2.80 – 5.00

• Wholesaling 2.50 – 5.03

• Retailing 2.74 – 6.58

• System losses 7.04 – 16.61Source: Pierson, Thomas R., Allen, John R. and McLaughlin, Edward W., "Produce Losses in the U.S. Food Distribution System," MSU Agricultural Economics Report, 1983.*Exclude consumer level.

Update: 2010 Guestimate by Roberta Cook, Preliminary:9-12% or $11-15 billion.

Percentage losses are based on dollar values of losses in each phase of distribution as a % of the wholesale value of products entering the distribution system.

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• Datasets whose size is beyond the ability of typical

database software programs to analyze, store, and

manage

• Volume, variety and velocity

• Making sense of the information inherent in these

massive amounts of diverse data to make better

decisions, analytics

“Big Data”

Fresh Produce Realities (Random-weight limits analytics)

• With PLU codes (vs UPC) there is no identification of the individual supplier.

• Most retailers not yet comparing the shelf-life and quality of suppliers’ products to measure performance (sales and shrink). Without this it is harder to convince retailers to pay more for investments in quality. Incentives not aligned!

• The global industry needs PTI not just for potential food safety incidents but for product identification and metrics.

• Retailer focus on gross vs net profit is a problem.

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SHOPPER INSIGHTS

CONNECT

COOLER & DC INSIGHTS

RETAIL INSIGHTSTRACEABILITY

UTILIZING TECHNOLOGY TO SUPPORT THE SUPPLY CHAIN

rcc1

rcc1 Roberta Cook, 3/24/2014

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Freshness Histogram (days of shelf-life remaining) for the Same Product Sourced from the Same Supplier: Comparison of Competing Retailers in the Same Market

1%

2%

4% 4%

9% 9% 8% 14%

16%

14% 11% 9% 1%

Banner A

1% 1% 1%

2%

3%

6% 6%

7%

8%

15%

16%

23%

7%

3% 2% 0% 0%

-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13

Banner B

Significantly more product

with more than 8 days remaining

Source: HarvestMark/Yottamark, Where Did The Day Go?, August 2013

The Produce Industry Challenge• Getting the right product to the right consumer at the right

place and price, with reasonable remaining days of shelf-life.

• Requires collaboration between suppliers and retailers, including loyalty card data and promotional efficiency.

• Shippers increasingly involved in category development but most not assisting with individual store shelf-set recommendations, unlike CPG firms, great opportunity.

• We can increase efficiency and reduce shrink through better coordination of supply and demand. This will make produce more affordable to more consumers, expand demand.

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Per Capita Consumption

Per Capita Consumption of Fruits and Vegetables, All Product Forms

• Changes in total consumption mask significant changes in:

• product form• product mix• diversity within product segments

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Fresh Noncitrus, Incl Melon

Fresh Citrus

Process Citrus

Process Noncitrus

0

50

100

150

200

250

300

350

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

(frozen, dried and canned)

US Per Capita Total Fruit Disappearance/Consumption, Including Melons, Pounds

1976-2012, (all channels, foodservice and retail)Po

unds

per

cap

ita

28297

53

24108

282

7329

102

78

Source: Fruit and Tree Nuts Yearbook, ERS/USDA, 11-19-13.

Fresh includes fresh-cut and commodity.

U.S. Per Capita Consumption/Utilization of Selected Fresh Fruit 1985-2012

pounds per capita

05

101520253035

Orange Grape Banana AppleSource: Fruit and Tree Nuts Yearbook, ERS/USDA, 11-17-13

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U.S. Per Capita Disappearance/Consumption of Melons, 1985-2012

(watermelons have generic promotion)

Pounds per capita

05

101520253035

Watermelon Cantaloupe Honeydew Others

Source: Fruit and Tree Nuts Yearbook, ERS/USDA, 11-17-13

U.S. Per Capita Consumption/Disappearance of Selected Fresh Fruit 1985-2012

pounds per capita

Source: Fruit and Tree Nuts Yearbook, ERS/USDA, 11-17-13

0

2

4

6

8

Mango Papaya Pear Pineapple Peach/Nect.

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Top 10 Fruit Sales and Pricing in Select US Food Retailers, Q3 2013 vs. Q3 2012

Product

Weekly $ Sales per

Store

PercentChange vs. Q3 2012

Weekly Vol. per Store


AvgRetail Price


Berries $3,965 4.6 1,404 -0.4 $2.82 5.0Grapes $3,045 4.5 1,725 4.3 $1.77 0.1Bananas $2,714 1.7 4,719 1.7 $0.58 -0.1Apples $2,569 3.2 1,573 5.0 $1.63 -1.8Stone Fruits $2,319 4.9 1,512 7.0 $1.53 –1.9Melons $2,122 3.4 4,160 -0.3 $0.51 3.7Citrus $1,781 4.5 1,796 1.2 $0.99 3.3Cherries $1,399 -15.4 427 -33.6 $3.27 27.4Avocados $1,178 12.5 1,070 7.7 $1.10 4.5Specialty Fruits $520 13.7 548 4.3 $0.95 9.0Source: FreshFacts® on Retail, Q3 2013, Perishables Group and United Fresh Foundation.

Value-added Fruit Category Sales and Pricing in Select US Food Retailers, Q3 2013 vs Q3 2012

Source: FreshFacts® on Retail, Q3 2013, Perishables Group and United Fresh Foundation.

Weekly $ Weekly Vol. AverageSales / Store per Store Retail Price

% Change vs. Q3 2012

Value-Added Fruit 8.3 2.9 5.2

Fresh-Cut Fruit 12.3 16.3 -3.4

Jars & Cups -13.0 -16.8 4.6

Overwrap 0.0 -8.0 8.7

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STRATEGY DEVELOPMENT

• Micro‐segmentation: HOW to prioritize shoppers

• Mindset: WHAT drives them to buy

IN‐STORE ACTIVATION

• Targeting: WHERE to focus retail efforts

• Marketing: HOW to reach shoppers

• Prioritization: WHAT methods will earn more sales/buyers

WHO, HOW & WHERE

• Segmentation: WHO buys

• Behavior: HOW they buy

• Demand indexing:WHERE they shop

SHOPPER FOUNDATION

ENHANCED INSIGHTS

ACTIVATION STRATEGY

CREATING AND ACTIVATINGA SHOPPER‐CENTRIC APPROACH

What shopper data is already available to you, and where can you fill‐in the gaps?

SHOPPER



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Consumers Search for Value

GiantWegmans

Safeway Mobile

app usage up 85% in

12 months


•Usage ideas for recent purchases

•New recipes ideas with ingredients added to shopping list

•Personalized portion recommendations to feed household

•Aisle location information in‐store

•Replenish list

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ShopWell: Personalized Recommendations

US Fresh Tomato Trends

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0

1000

2000

3000

4000

5000

6000

700019

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

13P

U.S. Fresh Tomatoes: Production, Consumption, Imports, and Exports, 1990-2013p

million pounds

Consumption

Production

ImportsExports

Sources: USDA/ERS, Vegetables and Pulses Yearbook Data May 31, 2013 and unpublished update for 2013. (includes estimate of US GH production)

Pounds per capita

P=PreliminarySources: USDA/ERS, Vegetables and Pulses Yearbook Data May 31, 2013 and unpublished update for 2013.

0

5

10

15

20

25

US Per Capita Utilization/Consumption of Fresh Tomatoes (1985-2013P)

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Protected Culture in Mexico

US Retail Fresh Tomato Trends

• Remember – scanner data excludes foodservice tomatoes!

• Foodservice is likely over half of tomato volume sold in the USA and relies on mature green tomatoes. Foodservice sales also took a hit during the economic downturn.

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US Retail Fresh Tomato Trends• Scanner data sets did not include

Wal-Mart, Sam’s or Target until the last couple of years – so data are not comparable.

• However, during the period 1997-11, for the store universe Nielsen had at the time, the quantity (and $) of tomatoes sold at retail declined from a peak in 2007, due to the economy.

US Fresh Tomato Retail Market Shares (in Lbs) by Key Type,2013

Source: FreshLook Marketing

Roma27%

TOV22%Grape

14%

Vine Ripe12%

GH9%

Field, excl vine ripe7%

Mini, excl grape6%

Other3%

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US Fresh Tomato Retail Market Shares (in $) by Key Type,2013

Source: FreshLook Marketing

TOV23%

Grape22%

Roma16%

Vine Ripe11%

Mini, exclgrape10%

GH9%

Field, exl vine ripe7%

Other2%

The Avocado Story in the US Market

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The Avocado Story in the US Market• Market access for Mexico – gradual process.• Important to include all shippers into a market as

contributors to generic promotion or free riders will make the program unsustainable.

• CA created a national marketing order for promotion of all Hass avocadoes, administered by the Hass Avocado Board (HAB), assessments began in 2003.

• Demographic changes helped demand.• Generic promotion pays off!• Major changes in relative competitiveness and market

shares, and quickly!

0

200

400

600

800

1,000

1,200

1,400

1,600

2004 2006 2012

California MexicoChile Other

Million

poun

ds

Avocado sources of supply in the U.S. market,million pounds

Source: Hass Avocado Board, online data queries.

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2003-2007 50,980 16,705 14,347 0 9,268 91,300

2008-2012 46,444 17,301 63,647 952 21,430 149,774

Total2003-2012 97,425 34,006 77,993 952 30,698 241,073

Source: ARE Update Sep/Oct 2013 17(1):5-8

U.S. Avocado Promotional Expenditures by Organization2008-2012

Year CAC CAIA MHAIA PAC HAB Totalthousand dollars

Rounding affects totals.

0%

20%

40%

60%

80%

100%

2004 2006 2012

California Mexico Chile Other

Avocado sources of supply in the U.S. market, market shares by origin

64%25%11%

28%59%57%

29%15% 6%

Source: Hass Avocado Board, online data queries.

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U.S. Per Capita Consumption of Selected Fresh Fruit 1985-2012 (all have positive health messages, and all but kiwis have generic

promotion*)

Pounds per capita

*Kiwis slashed generic promotion in the late 90’s and were unable to sustain growth and capitalize on a positive health message.Source: Fruit and Tree Nuts

Yearbook, ERS/USDA, 11-17-2013

0

2

4

6

8

10

Strawberries Kiwifruit Avocados

• Competitive pressure on retailers means on-going margin pressure for suppliers as well.

• Firms at all levels of the fresh produce supply chain must take management practices to a higher level and become more shopper-centric.

• Better information technology and business intelligence is necessary to reach today’s standards for efficiency.

• Understanding shopper segments as they relate to preferences for a product/retail format is vital to better coordination of supply and demand and reduction in produce waste.

• Improved vertical coordination (by sharing data between supplier and buyer) can lower prices and increase consumer demand.

Conclusions: Need for Shopper-Centrism

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• Flavor is where it’s at!• Creative marketing and merchandising that communicates a product’s benefits to consumers

• Reaching consumers in multi-channels and utilizing mobile technology can stimulate purchases

Conclusions: Need for Shopper-Centrism

Supplemental Information

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Top 10 Vegetable Sales and Pricing in Select US Food Retailers, Q3 2013 vs. Q3 2012

Product

Weekly $ Sales per

Store


Weekly Vol. per Store


AvgRetail Price


Packaged Salad $3,264 5.9 1,226 3.5 $2.66 2.4Tomatoes $2,540 5.1 1,178 2.3 $2.16 2.7Potatoes $2,519 11.2 3,316 -4.3 $0.76 16.1Cooking Vegs $1,546 7.9 922 2.5 $1.68 5.2Onions $1,522 5.1 1,637 0.3 $0.93 4.7Lettuce $1,387 3.8 783 -2.8 $1.77 6.8Peppers $1,349 6.4 626 4.8 $2.16 1.6Carrots $824 0.0 489 0.1 $1.68 -0.1Mushrooms $772 1.1 323 -0.1 $2.39 1.3Cucumbers $730 9.1 765 2.7 $0.96 6.2Source: FreshFacts® on Retail, Q3 2013, Perishables Group and United Fresh Foundation.

The Basics on Managed Varieties• Managed varieties have fees for sales of the product when using the

trademark brand. Unlike patents trademark fees are indefinite. Quality and other parameters may need to be met for use of the trademark. Managed varieties include clubs which have the most control over marketing

• There may be control over how many trees/vines/seeds can be sold and where with managed varieties and definitely with clubs.

• A brand trademark controlling product quality and for clubs who and where the product is sold; invests part of the fees in marketing/promo support. Key club example is Enza for Jazz apples, grown in NZ, Washington and some other international locations permitted by Enza.

• Evidence so far is that price premiums can consistently be obtained both at retail and the FOB levels for managed apple varieties. Retail premiums often 50% for premium apples. At the shipper level the premium varieties are more than covering the trademark fees - once they get established.

• Special varieties may also help shippers sell the rest of the crop.• The trend is toward more trademarked varieties being planted, also for

grapes, veg breeding part of the trend.

fresh produce industry trends: context for key ripening fruits1 fresh produce industry trends:...

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