Natural Foods Merchandiser

Fresh-Cut Produce Provides Packaged Profits

Back in 1984, Myrah and Drew Goodman had a Sunday tradition. They would prewash and bag salad greens from their farm for each day of the coming week so they'd have ready-to-eat salad after a hard day's work. When the cofounders of Earthbound Farm later began packaging the mixes in Ziploc bags with hand-drawn labels and selling them at the farmer's market, they probably didn't know what they were getting into.

"This is a category that didn't exist 20 years ago," says Larry Hamwey, vice president of marketing at San Juan Bautista, Calif.-based Earthbound Farm, referring to bagged salads. "And today it's going to do in excess of $2 billion."

Fresh-cut and packaged produce, from salad mixes to baby carrots, is indeed a fast-growing category. The International Fresh-cut Produce Association estimates 2002 sales between $10 billion and $12 billion, and the segment now represents more than 10 percent of all produce sold in the United States.

And the organic portion of the industry is actually exceeding overall growth. "When you look at the organic growth rates (in the fresh-cut produce industry), it's outpacing conventional growth rates 3 to 1," Hamwey says.

From its outset, fresh-cut and packaged produce was a producer-driven phenomenon. But the more recent trend of heightened consumer demand for anything convenient is now pushing the industry to even higher levels.

Steady As She Goes
From the processors' perspective, the biggest advantage of fresh-cut and packaged produce as opposed to bulk produce is steady prices, says Ken Whitacre, editor/publisher of Produce Business magazine.

Fresh Express pioneered the conventional packaged salad category when it patented a breathable bag in 1989. Recognizing the opportunity, the Salinas, Calif., company switched its focus from that of a commodity supplier to a food manufacturer. Fresh-cut and packaged products allowed the processor a way out of the commodity markets and gave it a way to sophisticate its business.

Companies were able to run their business more like a packaged goods provider, Whitacre says. They could put UPC codes on their products and track sales data. "You can't do that in the produce industry. They still don't do that in the produce industry."

Hamwey agrees: "There's much less volatility of pricing with the packaged product." Bulk field greens are a commodity, and the price goes up or down based on supply and demand. But if you wash and cut them and put them in a bag, price is consistent day to day.

The fact that much of the fresh-cut industry was initially driven by producer desires to avoid commodity pricing is part of the reason there aren't as many organic packaged produce companies. But that could change. "The more and more people that begin playing in the organic game, the more regular organic produce will become commoditized," Whitacre says.

Bag It And They Will Buy
From consumers who don't have the time to properly wash and cut their vegetables to those who have a small family and don't want to buy four kinds of lettuce so they can have a mixed-greens salad, customer demand for convenience underlies all growth in the fresh-cut industry.

"Convenience is the No. 1 driver," says Kathy Means, vice president of the Produce Marketing Association in Newark, Del. "But there's an underlying aspect of the demand that's also focused on nutrition."

Convenience is a broad motivator, Means says. It's not just the time-starved, takeout-oriented or lazy consumers that buy products that allow them to skip a step or two toward dinner. For some elderly consumers who may have arthritis and difficulty working with knives and cold water, "bagged romaine mix is a way to keep salad on the table," Means says.

Edith Garrett, who serves as president for the Alexandria, Va.-based association of fresh-cut producers, agrees with Means that convenience isn't the only motivating factor. Fresh-cut and packaged offerings entice shoppers who may not otherwise include vegetables in meals.

"There's no evidence that the presence of fresh-cut erodes interest in bulk commodities," Garrett says. "When you look at the numbers put out by the [U.S. Department of Agriculture's] Economic Research Service, overall consumption of vegetables has increased during the 1990s, so fresh-cut sales can't be cutting into that."

Carrots are an excellent example of that, she says. The bunch carrots sold in bulk produce don't really compete with bagged baby carrots or carrot coins, a new product recently introduced by the fresh-cut industry. "Hardly anybody snacked on carrots 20 years ago. Kids will eat baby carrots," Garrett says.

The fact that fresh-cut is available means more people eat vegetables, Means says. This is shown by the comparison of bulk and packaged sales of same items. When fresh-cut iceberg lettuce salads became available, sales of bulk didn't drop as much as sales of fresh cut expanded.

"There was an overall increase," Means says. "And that means the category is attracting some customers that weren't buying bulk before."

The popularity of packaged produce will likely continue to grow, predicted Earthbound Farm's Hamwey, especially the organic varieties. These products bring together several consumer trends. "Clearly, today's consumer trends are organic, good taste and convenience," he says. "When you have all those elements, you do well."

Natural Foods Merchandiser volume XXIV/number 2/p. 38, 40

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