Trends in the Marketing of Fresh Produce and Fresh-cut Products

Trends in the Marketing of Fresh Produce and Fresh-cut Products DR. ROBERTA COOK Dept. of Ag and Resource Economics University it of California, i Davis September 13, 2011 2010 USA Food Sales: $1,241.0 Billion Retail Sales- Equivalent, and Channel Shares, Quantity and Value Dollar Sales Quantity Sold Retail 52.1% Food service 47.9% $594.269 Billion Retail 72.8% $646.766 Billion Food service 27.2% Sources: USDA for dollar sales and dollar shares; Technomic, Inc. for share of quantity sold, 2006. 1

13.9 13.2 3.6 4.2 11.6 % at home 4.1 4.1 4.1 4.1 4.2 4.2 4.1 7.4 7.3 7.2 7.2 7.3 7.4 7.5 9 10.3 away from home 5.9 5.9 5.9 5.9 6.2 6.2 6.5 6.4 6.5 6.7 6.8 6.8 U.S. Food Expenditures as a Share of Disposable Personal Income, 1970-2010 9.4 3.9 3.9 3.9 4.0 4.0 4.1 4.0 3.9 3.9 3.9 3.9 4.0 4.0 4.1 4.1 4.1 4.2 4.1 4.0 5. 5. 5. 5. 5. 5. 5. 5 5 6 6 6 8 7 9 9 9 9 2 2 5 4 5 7 8 8 10 09 08 07 06 05 04 03 02 01 00 99 98 97 96 95 94 93 92 91 90 89 88 87 86 85 80 70 Source: ERS/USDA Ingredients to Prepare vs. Meals to Eat Top Food Industry Trends Shoppers have migrated towards retailers with strong value for money credentials; on-going channel-blurring trend Many retailers have lowered prices to close the gap with discount competitors Retail strategies include new pricing initiatives, format development, e.g., smaller, price impact, and fresh food formats by non-traditional grocery retailers (Walgreen s, Target P-Fresh) Cost-cutting to maintain margins, seeking efficiency gains Lowering inventory levels, SKU RAT, painful lessons already Retail corporate restructuring to eliminate duplication and generate cost savings Store brand/private label growth 2

Supply Chain Imperatives Mutual dependency between buyers and sellers get away from adversarial relationships Streamline supply chain, improve vertical coordination - involves identifying mutually beneficial strategies and tactics, e.g., promotions, packaging, logistics Identify which activities add more value than cost Eliminate non-value-adding activities Decrease internal operational inefficiencies i i due to lack of ERPs and underutilization of BI, they are often hidden or not considered important enough to attract attention in more favorable markets but with margin squeeze, they count Recession Impacts on Fresh Produce and Fresh-cut Produce Sales 3

US Supermarket* Fresh Produce Sales: Quantity, Dollars and Average Retail Price, % Change 2008 vs 2007 Dollars Quantity Ave. Retail Price 7.2% 3.3% -3.6% Source: Perishables Group *Excludes club stores and supercenters US Supermarket Sales of Fresh Produce, 2009 vs 2008, excludes club stores and supercenters Total Produce Vegetables Fruits Other Produce 20% 2.0% 2.7% 1.6% 0.4% -0.5% -0.9% -2.5% -2.4% -2.9% 29% -4.4% -3.9% -5.5% Dollar Growth Volume Growth Retail Price Change %PY Source: The Perishables Group Dollar Share 46.2% 45.2% 8.6% 4

US Supermarket* Fresh-Cut Produce: Dollar Sales and Quantity, % Change from 2009* to 2008 % Change Sales % Change Quantity Fresh-Cut Fruit Packaged Salads +0.03 Fresh-Cut Vegetables 1.2 4.1 3.8 *Excludes club stores and supercenters 13.8 14.3 Source: Perishables Group FreshFacts powered by Nielsen; *52 weeks ending July 4, 2009. US Supermarket* Fresh-Cut Produce: Dollar Sales and Quantity,% Change from Q1 2009 to Q1 2010 Fresh-Cut Fruit 13.8 10.8 *Excludes club stores and supercenters Packaged Salads 0.1 2.4 Fresh-Cut Vegetables 4.8.8 % Change Sales % Change Quantity Source: FreshFacts on Retail, Q1 2010, United Fresh Foundation, July 2010. 5

US Supermarket* Fresh-Cut Produce: Dollar Sales and Quantity,% Change from Q4 2009 to Q4 2010 84 8.4 11.6 *Excludes club stores and supercenters Value-added Fruit Packaged Salads -1.1-2.8 4.1 1.6 Value-added Vegetables % Change Sales % Change Quantity Source: FreshFacts on Retail, Q4 2010, Perishables Group and United Fresh Foundation. US Supermarket* Fresh Produce Dept. Performance, % Change from Q2 2010 to Q2 2011 *Excludes club stores, supercenters and other alternative formats. Weekly $ sales/store Weekly quantity sold/store All Produce Fruit Vegetables Other 3.2 3.1 1.4 1.0 1.5-1.0-1.2-1.3 Source: FreshFacts on Retail, Q2 2011, Perishables Group/United Fresh Foundation. 6

US Supermarket* Fresh-Cut Produce: Dollar Sales and Quantity, % Change Q2 2011 vs Q2 2010 *Excludes club stores and supercenters 5.0 % Change Sales % Change Quantity 5.6 7.0 3.0 1.7 0.1 Value-added Fruit Packaged Salads Value-added Vegetables Source: FreshFacts on Retail, Q2 2011, Perishables Group/United Fresh Foundation. US Supermarket Value-added Fruit Category Sales and Pricing, Q2 2011 vs Q2 2010 % Change vs. Q2 2010 Weekly $ Weekly Vol. Average Sales / Store per Store Retail Price Value-added Fruit 3.0% 5.0% -1.9% Fresh Cut Fruit 3.4% 0.7% 2.7% Overwrap 4.8% 7.2% -2.2% Jars & Cups -2.4% 24% 94% 9.4% -10.8% Source: FreshFacts on Retail, Q2 2011, Perishables Group and United Fresh Foundation. 7

US Supermarket Value-added Vegetables Category Sales and Pricing, Q2 2011 vs Q2 2010 % Change vs. Q2 2010 Weekly $ Weekly Vol. Average Sales / Store per Store Retail Price Value-added Veg. 5.6% 7.0% -1.3% Side Dish 10.2% 10.8% -0.5% Trays -2.1% 0.2% -2.4% Meal Prep 27% 2.7% 08% 0.8% 19% 1.9% Snacking 4.4% 6.4% -1.9% Source: FreshFacts on Retail, Q2 2011, Perishables Group and United Fresh Foundation. Valued-added Fruits and Vegetables Show Consistent Growth in Dollars and Quantity in 2010/11* 9.3% 7.0% 6.0% 6.6% 11.2% 14.9% 0.3% 12 2.6% 5.4% 6.4% Dollars % Chg vs YAGO Quantity % Chg vs YAGO 5.6% 8.7% 0.7% 0.5% 7.9% 5.6% 7.6% 5.5% Snacking Meal prep Trays Side dish Value-added vegs. Jars and cups Overwrap Fresh-cut fruit Value-added fruit Sources: Perishables Group *52 weeks ending July 16, 2011 8

Change (%) in Unique Valued-added Produce Items Sold in 2010/11* 11.8% 80% 8.0% 4.8% 6.9% 2.3% 1.1% 0.9% 5.5% 3.8% Snacking Meal prep Trays Side dish Value-added vegs. Jars and cups Overwrap Fresh-cut fruit Value-added fruit Source: Perishables Group *52 weeks ending July 16, 2011 Fresh-cut Trends Industry Size 9

Estimated Fresh-Cut Produce Sales in US Supermarkets, $4.4 Billion and Shares by Type, 2011, Preliminary (excludes supercenters and club stores and represents about 62% of supermarket sales) Fruit 31.9% 50.6% Packaged salads Vegetables 17.5% Sources: Estimated by Roberta Cook from various sources. Estimated US Fresh-cut Industry Size, All Channels, 2011, Preliminary Estimated projected national retail fresh-cut produce sales of $9.4 Billion, including all retail channels, representing about 15% of total produce sales Foodservice sales are unknown due to no publicly or privately reported data sources Conventional industry wisdom is that foodservice sales represent about 60% of total t fresh-cut sales, and as such foodservice sales may be $14 billion Total US fresh-cut sales through both foodservice and retail channels estimated to surpass $23.4 billion Source: Roberta Cook, UC Davis 10

Fresh-cut Trends Fresh-cut Lettuce/Bagged Salads U.S. Per Capita Utilization/Consumption of Lettuce, by Type, 1985-2010 F. Per Capita Lbs 35 30 25 20 15 10 5 0 Head Lettuce Romaine All - 28.2 Leaf 4.0 7.1 17.1 Source: Gary Lucier, USDA/ERS, September 2010 F=Forecast 11

Leading US Fresh Market Vegetable States in 2010: Geographic concentration of production (due to climate) limits local sourcing potential, yet it is growing in the summer/fall Area Harvested Production Value State % of Total State % of Total State % of Total CA 43 CA 49 CA 48 FL 10 FL 8 FL 14 AZ 7 AZ 7 AZ 8 GA 6 GA 5 WA 5 NY 4 WA 4 GA 4 Source: Vegetables 2010 Summary, NASS/USDA, January 2011 Monterey County Head Lettuce Shipments 1990 vs 2010 Million Cartons* Percent Share Product Form 1990 2010 1990 2010 Bulk to Process 6.9 14.68 15% 33% Wrapped 14.2 22.72 30% 52% Naked 26.1 64 6.43 55% 15% TOTAL 47.2 43.83 100% 100% * 50 lb carton-equivalent units, may not sum to 100 due to rounding Source: Monterey County Ag Commissioner, various annual reports 12

Crop Monterey County Leaf Lettuce Production, by Type, 2010 Acreage Cartons, thousands Value, thousands Carton Share Butter Leaf 1,489 1,816 16,744 2.3% Endive 408 429 3,810 0.5% Escarole 339 353 3,135 0.4% Green Leaf 8,294 8,568 80,196 11.1% Red Leaf Romaine 2,313 36,294 2,396 38,254 20,654 361,500 2.9% 49.9% Leaf, bulk N/A 51,816 238,580 32.9% Total 95,436 87,345 $724,619 100% Source: Monterey County Crop Report 2010, Ag Commissioner. US Supermarket* Bagged Salad Key Segments: $ Sales and Annual Growth Rates %, 2011,* Excludes club stores and supercenters $Millions $3,000 1.6 Number above bar $2,500 represents % change vs. prior yr. $2,000 $1,500 $1,000 $500 0.6 11.8-2.9-4.44-7.9 70 7.0 38 3.8 18.6 $- Source: Nielsen *52 weeks ending July 16, 2011 13

Index of US Packaged Salad Sales ($) by Spectra Lifestyle/Behavior Stage, All Channels Very High 150+ High 120-149 LIFESTYLE Affluent Modest Cosmopolitan Suburban Comfortable Struggling Working Plain Rural Behavior / Stage Centers Spreads Country Urban Cores Towns Living Total % Total $ Start-up Families 83 104 82 45 47 50 73 6.3% HHs with young children only <6 Small Scale Families 76 92 69 43 43 38 64 5.2% Small HHs with older children 6+ Younger Bustling Families 54 72 57 31 37 38 51 3.8% Large HHs with children (6+), HOH <40 Older Bustling Families 124 213 161 61 74 84 144 16.3% Larger HHs with children (6+), HOH 40+ Young Transitionals 87 76 79 58 51 56 67 7.3% Any size HHs, no children, <35 Independent Singles 118 95 105 44 44 51 78 9.5% 1 person HHs, no children, 35-64 Senior Singles 85 82 85 51 58 48 68 6.0% 1 person HHs, no children, 65+ Established Couples 177 210 198 96 113 100 163 18.6% 2+ person HHs, no children, 35-54 Empty Nest Couples 141 172 167 79 85 80 135 13.7% 2+ person HHs, no children, 55-64 Senior Couples 117 154 158 65 90 89 121 13.2% 2+ person HHs, no children, 65+ Total 111 141 126 56 64 65 100 Percent Total $ 16.5% 33.4% 23.2% 5.8% 12.4% 8.6% Sources: Spectra BehaviorScape: Total Dollars / Spectra 07C/PG-Kids-Revision3 52wks (Total Dollars) US Supermarket Bagged Salad Category Market Shares by Key Firm (% total $ sales) and Point Change in Market Share 2011* vs 2010 % Share Share Pt. Change Fresh Express 36.5-4.3 Private Label 25.4 3.3 Dole 21.6-0.5 Earthbound Farm 5.2 0.1 Ready Pac 4.7 0.4 Organic Girl 1.4 0.6 Source: Nielsen *52 weeks ending July 16, 2011 14

Fresh-cut Trends Value-added Fruit U.S. Per Capita Consumption of Selected Fresh Fruit 1985-2009, and 2010 estimates for berries (all have positive health messages*) 8 6 Pounds per capita 4 2 0 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 Blueberries Strawberries Kiwifruit Avocados Source: Fruit and Tree Nuts Yearbook, ERS/USDA, 11-1-10 *But kiwis slashed generic promotion in the late 90 s and were unable to sustain growth and capitalize on a positive health message. 15

U.S. Per Capita Consumption/Utilization of Selected Fresh Fruit 1985-2009 8 6 4 2 0 Pounds per capita 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Mango Papaya Pear Pineapple Peach/Nect. Source: Fruit and Tree Nuts Yearbook, ERS/USDA, 11-1-10 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 U.S. Per Capita Consumption/Utilization of Selected Fresh Fruit 1985-2009 40 30 Pounds per capita 20 10 0 1985 5 1986 1987 19888 1989 9 1990 19911 1992 1993 1994 1995 1996 1997 1998 1999 9 20000 2001 2002 2 2003 2004 2005 2006 2007 2008 2009 Melon Orange Grape Banana Apple Source: Fruit and Tree Nuts Yearbook, ERS/USDA, 11-1-10 16

US Supermarket Fresh-cut Fruit Category Shares by Key Item in Dollars and Quantity 2011,* $368.5 million total sales, unprojected Item Dollar Share % Unit Share % Mixed Fruit 36.7 23.3 Apples 19.9 30.8 Pineapple 15.4 17.7 Watermelon 12.9 13.0 Cantaloupe 4.9 5.9 Mixed Melons 44 4.4 37 3.7 Mangos 3.2 3.1 Berries 1.1 0.9 All Other 1.5 1.6 Source: Nielsen *52 weeks ending July 16, 2011 Income and price matter: apple example The 2008 Fresh Trends illustrates that 94 percent of households with an income of $100,000 or more are likely to buy apples, versus 76 percent of households h with less than $25,000. Apples remain the 2nd most purchased fruit in the USA, 2008, so it is logical that fresh-cut apples hold market potential. Apple dippers are one of the fresh-cut fruit products that can help mom s encourage healthy eating, both purchased at retail for in-home consumption, and via purchase in fast food restaurants. Quantity sold increased by 13% in 2010. 17

Fresh-cut Trends Value-added Vegetables U.S. Per Capita Consumption of Select Fresh Vegetables, 1985-2010 P Pounds per capita 15 10 5 0 Carrots Bell pepper Broccoli Chile pepper Cucumber P=Preliminary Source: USDA/ERS, Vegetables and Melons Situation and Outlook Yearbook, May 2011 18

US Per Capita Utilization/Consumption of Fresh Tomatoes (1985-2010 P ) Pounds per capita 25 20 15 10 5 0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 P=Preliminary Source: USDA/ERS, Vegetables and Melons Situation and Outlook Yearbook, May 2011 Fresh Tomato Sales in U.S. Supermarkets: Share of Total Tomato Category Sales by Tomato Type in Quantity and Value, 2010 vs. 2005 vs. 1999 Percent Share of Value Percent Share of Quantity Type 2010 2005 1999 2010 2005 1999 Greenhouse: 43 43 42 39 41 31 Round/beef 12 14 21 11 14 18 TOV/Cluster 31 29 21 28 27 13 Round field 16 21 36 18 23 43 Roma 16 13 16 26 19 23 Snacking 26 23 6 18 17 3 Sources: CTC, IRI, and The Perishables Group *May not sum to 100 due to rounding and retailer-assignedassigned PLU codes. 19

US Fresh-cut Vegetable Category Shares by Key Item (% of total supermarket fresh-cut veg $ sales) and Growth Rate, 2011* Item Share (%) $ Sales Chg YAG (%) Carrots** 49.6%.1% Mixed Vegetables 20.0% 2.5% Broccoli 3.7% 3.8% Green Beans 6.6% 29.2% Greens 3.3% 12.0% Snap / Snow Peas 2.7% 6.9% Onions 2.0% 14.2% All Others 12.1% NA Source: Nielsen *52 weeks ending July 16, 2011 **32 oz packages or less only U.S. Supermarket Fresh-Cut Vegetable Shares, Quantity and Dollar Sales, by Key Product Category 2009* Snacking 8% Snacking 23% Carrots Side Dish Meal Prep 30% Quantity 39% 16% Side Dish 25% Carrots 32% Meal Prep 29% Dollars Source: Nielsen, *52 weeks ending July 4, 2009. Snacking quantity sold down 17% vs. YAGO. 20

Branded vs. Private Label Private Label Share of CPG Spending in U.S. Grocery Channels, 1989-2010 Dollar Share Unit Share 1989 11.6 15.3 1993 13.9 18.2 1995 14.9 19.4 1997 15.7 20.1 2003 16.1 20.8 2004 16.2 20.6 2005 16.1 20.8 2006 15.9 21.3 Source: Various Private Label Magazines 2007 16.2 21.5 2008 16.9 21.6 2009 17.6 22.8 2010 19.1 23.5 21

Private Label Sales in US Supermarkets, 2010: Top Private Label Categories by Dollar Volume: Fresh Produce Becoming Important Milk Bread & Baked Goods $6.6 $4.1 Cheese Fresh Produce $3.9 $3.1 Paper Products $2.2 Billion Fresh Eggs $2.1 Deli Dress., Salads, Prep'd Foods Pkg'd Meat Unprep'd Froz. Meats, Seafood Canned Vegetables $1.7 $1.6 $1.5 $1.3 Source: Food Institute Report, June 24, 2011 Example: Branded Importance to US Consumers of Fresh-Cut Fruit is Low (brand loyalty is also low for bulk fresh produce) Prefer store brand Prefer brand/ 4% will not pay more 13% Prefer brand/ will pay more 15% No Preference 68% Source: Fresh Summit 2007 Ripe for the Picking, Perishables Group, Oct. 2007. Also, 74% of Fresh-Cut Veggie Consumers Have No Preference 22

U.S. Supermarket Bagged Salad Market Shares, Top 5 Firms and Private Label, Share of Dollar Sales Private label share 24% 2.4% Other share 6.4% Private label share 25.4% Other share 5.2% Top 5 firms Top 5 firms 91.2% 69.4% 1994 2011 Sources: 1994 - IRI; 2011 - Nielsen *52 weeks ending July 16, 2011 2009* US FRESH-CUT VEGETABLE CATEGORY MARKET SHARES, BY KEY FIRM, (% of Total $ Sales) and Change in $ Sales 2008/09* % Change in $ Firm Share Sales vs. YAGO Private label 45.3% 16.5% Mann s 5.9% -30.7% Eat Smart 4.5% -16.8% Fresh Express 3.1% 8.0% Greenline 3.1% -4.7% Dole 3.0% 2.2% Grimmway 2.3% -11.3% All other 33.0% 10.7% Source: Nielsen *52 weeks ending July 4, 2009. 23

Share of Total Private Label Vegetable Sales Accounted for by Key Vegetable Categories in U.S. Supermarkets, 2010 (Latest 52 Wks Ending 09/25/10); and % Change from 2009 Onions 4.5% Prepd Veg 6.2% Tomatoes 6.8% Cooking Greens 4.4% Mushrooms 7.5% Lettuce 7.6% Celery Dollar % Change vs. Year Ago 3.0% All Other Potatoes -9.0% 3.5% Pkgd Salads 57.4% Carrots 16.3% Potatoes 20.6% Pkgd Salads 19.5% Carrots 4.3% Lettuce 16.6% Mushrooms 17.1% Tomatoes 5.7% PrepdVeg. p d 55% 5.5% Onions 17.2% Cooking Greens 15.9% Celery 12.2% Source: FreshFacts on Retail, Whole and Fresh Cut Produce Trends: Q3 2010, United Fresh Foundation 2010* US FRESH-CUT FRUIT CATEGORY MARKET SHARES, BY KEY FIRM, (% of Total $ Sales) and Share Point Change, 2010/09* Share of Sales % Share Point Change vs. YAGO PRIVATE LABEL 28.3 1.5 Del Monte 14.4-1.6 Ready Pac 10.7-2.3 Garden Highway 7.6 0.7 Chiquita 6.8 0.8 Crunch Pak 6.8 0.9 Source: Nielsen *52 weeks ending July 17, 2010. 24

Share of Total Private Label Fruit Sales Accounted for by Key Fruit Categories in U.S. Supermarkets, 2010 (Latest 52 Wks Ending 09/25/10); and % Change from 2009 Specialty Fruit 0.3% All Other 0.1% Dollar % Change vs. Year Ago Cherries 0.2% Prep d Fruits 8.9% Apples 9.8% Prepd Fruits 48.2% Citrus 37.7% 7% Apples 1.4% Grapes Other Fresh 281.3% 0.3% Berries 24.7% Stone Stone Fruits 352.3% Fruits Other Citrus 0.5% Grapes 514.7% Fresh 34.2% Berries 3.4% Specialty Fruit -9.0% 3.0% Cherries -32.4% Source: FreshFacts on Retail, Whole and Fresh Cut Produce Trends: Q3 2010, United Fresh Foundation Retailer Sustainability Efforts, 2011 Neither retailers nor suppliers environmental and sustainability efforts have been negatively impacted by the recessionary pressures. In addition to the environmental concerns, retailers and suppliers are learning to leverage the demand for energy-efficient, organic, sustainable, environmentally friendly and socially conscious products and services. As such, sustainable practices can help retailers gain a competitive advantage or develop a positive public image as well as achieve operational efficiencies generated by internal practices such as waste reduction and energy-efficiency. Source: US Grocery Shopper Trends 2011, FMI 25

Promotional Measures in Action for Packaged Salads The garden premium subcategory sold 67.9% volume on promotion. At 76% promotional efficiency, this subcategory demonstrated the highest promotional efficiency. The coleslaw subcategory demonstrated the lowest promotional efficiency, 30.8%. Percent subsidized volume in coleslaw was 69.2%. Only about 30% of the volume sold on promoted weeks was unexpected. Source: Perishables Group FreshFacts powered by Nielsen 100.0% 90.0% 0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Blends 38.1% 61.9% % on Promotion % Subsidized % Promo Efficiency 40 0.8% Kits 43..8% 56.2% 37 7.5% Organics 36..3% 63.7% 36 6.6% Garden 35..4% 64.6% 19 9.4% Garden Premium 76..0% 24.0% 67 7.9% Single Serve Bowls 47..0% 53.0% 34 4.6% Spinach 60..1% 39.9% 41 1.6% Coleslaw Promotional Efficiency Volume. Packaged salads, Retailer X, 52 wks ending 03/28/09. 30..8% 69.2% 17 7.5% Conclusions Firms at all levels of the fresh produce supply chain must take management practices to a higher level Better information technology is a necessary but not sufficient condition for meeting today s and future standards for efficiency and performance Companies must develop cultures of continuous improvement and innovation in order to fully exploit the potential benefits of information technology Understanding consumer segments as they relate to preferences for a product/retail format is vital The fresh produce value chain is becoming more vertically coordinated, enabling buyers and sellers to more closely align their incentives and rewards, and supply and demand 26