From The April/May 2003 Issue of Natural Grocery Buyer

Capitalizing on Convenience

Fresh-cut fruits and veggies have mass appeal

Steve Taormina

Fresh-cut," "value-added," "packaged" or just plain "bagged" produce is a relatively new category with plenty of growth potential. Although it goes by several names, this produce subsection clearly means convenience. And convenience attracts customers.

In fact, 83 percent of survey respondents described fresh-cut produce as "convenient" when asked why they purchased it, according to a study by Cambridge, Mass.-based Cogent Research, formerly known as Axiom Research.

Of the more than 1,000 people surveyed, 76 percent also selected the word nutritious to describe produce that has been washed, trimmed, peeled, cut and packaged. The International Fresh-Cut Produce Association, based in Alexandria, Va., sponsored the study in the summer of 2000.

"We've gotten fresh cuts into the hands of the consumers; now we're trying to build repeat sales," says IFPA President Edith Garrett.

Annual category sales, including retail and foodservice, doubled to more than $10 billion today from about $5 billion in 1994. The total represents about 10 percent of all produce sales, according to IFPA.

Retail sales for fresh-cut salads in the United States were $2.2 billion for the 52-week period ending Dec. 21, 2002, according to SPINS/ACNielsen. And these salad sales have seen steady increases since 1998, according to Information Resources Inc.

"Marketers need to realize that fresh-cut produce, and fresh-cut fruit particularly, are relatively new to the market," says Matthew Caito, director of marketing for Caito Foods in Indianapolis. "Product variety is continuing to increase as more and more items are available for fresh cut due to improvements in cutting and packaging technology."

Those technological improvements are helping grocers attain healthy profit margins in the value-added produce category. "Depending on the [store] format and the retailer, margins can range from 15 percent to 55 percent," Caito says. "For fruit, margins should be kept low to build customer purchases."

Earthbound Farm is a leader in the value-added produce category. Its original certified organic salad line—available in 4-ounce bags and 5-ounce recyclable plastic clamshells—provides grocers with profit margins that range between 30 percent and 50 percent.

"On our original salad line, the average regular retail price is $2.99 per bag. On promotion, a typical ad price would be two bags for $4," says Tonya Antle, vice president of organic sales for Natural Selection Foods, the publicly traded company based in San Juan Bautista, Calif., that produces the Earthbound Farm brand. Antle says retailers typically mark up Earthbound bagged salads 45 percent to 50 percent; on special, the salads are marked up 30 percent to 35 percent.

Bagged salads may have jump-started the value-added produce category, but it's the wide range of other vegetables—and now fruits—that promises growth.

Value-added produce coming from regional distributors across the United States includes broccoli and cauliflower florets, brussels sprouts, carrots, coleslaw, spinach, jicama, mushrooms, onions, squash and zucchini, apples, papaya, pineapple, fruit salads and vegetable plates as well as stir-fry and soup mixes.

"Consumers need to be educated to the benefits of centrally produced fresh-cut produce," Caito says. Those benefits are typically consistency and safety. "Consumers also need to be shown the real cost-value relationship between bulk produce and fresh-cut produce."

There is a clear value for the retailer, too. As more organic produce is brought into mass-market grocery stores, fresh-cut produce has the advantage for the grocer who must now abide by the handling guidelines of the U.S. Department of Agriculture's National Organic Program. With packaged products, the retailer doesn't have to worry about contamination or commingling.

For retailers to really capitalize on the new range of fresh-cut offerings, they need to pay close attention to their suppliers' production and shipping schedules, Garrett says. "The closer to the production date a grocer can get the product into the consumer's hands, the better the quality and the longer the shelf life."

An average shelf life of about 10 to 14 days should be stamped as a "use-by code date" on the package, Caito says. But if the product's velocity is high, then availability could be a problem.

"Availability to a retailer is vitally important," Antle says. Once suppliers gain shelf space, they need to keep it full to earn their keep, she says. This pressure to make available a consistent, high-quality product line year round is what drives the fresh-cut industry into a regional business.

"Regional items, specialties and peculiarities are developing in the fresh-cut market," Caito says. "This is providing marketing niches for the regional producers of fresh-cut products, especially fresh-cut fruit."

With such quick selling specialty products, retailers need to pay special attention to their merchandising. Creating a value-added section in the produce aisle is one option. Another method, which Antle recommends, is to mix the value-added items, especially the organic products, in with the rest of the produce.

"You want to make sure there is consumer discovery," Antle says. "If you put organics in an organics section—especially value-added organics—you may lose discovery [by] a new customer. You should integrate the value-added section with conventional and organic. That's the point of decision for most consumers."

Finally, as with every grocery category, promotions are important for boosting sales. "Promotions give lift to the category, give visibility to the category and introduce a new consumer to that item," Antle says. "If they've had a great experience, then they'll stay."

In light of the new National Organic Program, grocers can expect good promotional activity for fresh-cut, value-added, certified organic produce in 2003. And with good promotions, there is a strong chance for retailers to gain additional sales by attracting crossover or borderline organic shoppers.

Sidebars:
Organic Produce Commands Financial Respect

Steve Taormina is New Hope Natural Media's tradeshow standards coordinator.