Organics in Produce: the retail gateway April 12, 2018
Background CP shared this presentation during the following CMA Organic & Natural Webinar Series Part 3 Thursday, April 12th @ 10 am CT Tom Barnes, CEO and Adam Brohimer, President of Category Partners Dan Lohman, Organic & CPG Industry Advisor, Category Management Solutions "Organic Produce and Center-store Organic Sales... Is There a Link? The produce department experts at Category Partners will highlight the latest sales trends in organic produce, along with a profile of the organic consumer and how they interact with produce in the retail channel. CMS and CP will tackle some questions including, Should organic consumer packaged goods companies care about produce? And if they should, What are some basics they should know in order to leverage opportunities for their own brands and retail customer?
Organics in Produce today s conversation What? So What? Now What?
Total Produce 2017 size and trend Produce generates $52,779 per store per week (more than $50 billion in total sales) in 2017 + 1.3% 2017 vs. 2016 99.6% HH penetration 4
Total Produce share vs all other perishable departments 5
Produce Department organic size and trend Organic produce $4.9 billion in 2017 retail channel sales $4,233 per store per week + 7.3% 2017 vs. 2016 Organic Produce Dollars 6
Produce by Category top ten If organic produce ($4,233 per store per week) was removed from their respective categories and viewed as a separate category, it would capture the #1 spot in the produce department Total Produce ($s/store/wk) Organic Produce ($s/store/wk) 7
Organic by Category growth Of the top-10 organic categories, only tomatoes exhibited a year-over-year decline. This is likely due to weather related production impacts in Q4 Hurricane Irma? 8
Organic Produce growth drivers Accessibility/awareness driving growth Supply increased volume in the pipeline, as more growers convert to organic production More channels traditional, mass merchandisers and club increasing organic selection and, simultaneously, merchandising, promoting and pricing more closely aligned to conventional Consumer demand for organic options, especially beyond mainstream, innovation in convenience/value add and premium Consumer perception as wellness rises in importance, organics more healthful vs. conventional
Organic Produce key trends Larger quantities (i.e., 2lbs of berries vs. pints) Shift to organic value buys Convenience fresh cut, ready-to-eat, meal kits (Green Chef) Information high-level transparency (food safety, sustainability, origin, certifications), as consumers question authenticity of big companies organics Strong marketing to establish trust Conventional retailers further supporting, via: Private label Walmart Marketside, Kroger Simple Truth Organic/natural formats Publix GreenWise Non-traditional merchandising/marketing (demos, wellness programs, culinary classes) to capture impulse buy general QSR The Organic Coup; first USDA-certified, quick-serve restaurant (SF based and founded by two former Costco employees) Growth, in and outside retail formats
Organic Produce consumer overview Younger Millenial, Gen X California slight skew (but growth appears to be in central areas of U.S.) Female but aligned with total produce profile Retail Format Non-produce items skew high in warehouse/club, superstore, natural/specialty, local markets, online Produce items skew low in supermarket, skew high in natural/specialty Income middle range Urban/Rural Lives in large cities Employment Full time Education College graduate Presence of Children More likely to have children in HH, especially as millennials represent the largest demographic and raise families Source: Category Partners 2017 Barriers to Purchase Study, June 11
Total Produce consumers eat organic fruits and vegetables for the health benefits Millennials comprise the largest demographic and are increasingly moving into family raising life stage Source: Category Partners 2017 Barriers to Purchase Study, June Multiple choice question, select up to three responses 12
Organic Produce shoppers most often seek locally grown and natural, when buying produce Organic shoppers also look for locally grown, natural and non-gmo produce labels Other responses include country of origin and price Older shoppers are more likely to look for locally grown produce, while younger shoppers, especially those with children, more often place importance on natural, organic, non-gmo and gluten-free. Forty-four percent of Millennials with children look for organics, compared to just 15% of those in the Silent generation. Except for locally grown, consumers with children are significantly more likely to look for all of the characteristics listed, than those without children. Source: Category Partners 2017 Barriers to Purchase Study, June 13
Organic Produce impulse purchases are a major sales driver Organic vegetable consumers are more likely to plan their purchases. Fruit, whether conventional or organic, is a higher impulse segment of produce than vegetables. Source: Category Partners 2017 Barriers to Purchase Study, June 14
Organic Produce consumers tend to use more sources to plan Consumers most often use recipes, circular ads/store flyers web sites to plan fruit and vegetable purchases None of the above Source: Category Partners 2017 Barriers to Purchase Study, June 15
Total Produce organics rank low for the average produce consumer Whether it s fresh fruits or vegetables, appearance / quality still rates the highest. It is important for retailers to pay attention to merchandising, product rotation and culling, to ensure product looks fresh Chart shows the percentage of respondents who rated each factor a 6 or 7 Source: Category Partners 2017 Barriers to Purchase Study, June Amongst all produce consumers organic ranked 12 th ranked attribute 16
Bringing it Home so what?
Bringing it Home so what? Customers choose where to shop based upon produce, and retailers are recognizing it Fresh produce is the #1 most important attribute consumers associate with their preferred grocery store Top performing fresh retailers allocate 30% of their perimeter assortment to fresh produce items Source: Nielsen Store Choice Driver Report 2016; Nielsen Fresh Guiding Principles Research 2017
Retail Performance produce is #1 in fresh department sales in high-velocity retailers and #2 in low velocity Organic shoppers spend 8.6% more per trip across the total store than those who don't purchase fresh organic products 19
Organic is a Differentiator AVERAGE ORGANIC DOLLAR SHARE OF FRESH FOODS 10% 8% 12% 6% 4% 8.7% 2% 5% 2.1% 0% HIGH FRESH VELOCITY RETAILERS Source: Nielsen 2017 Fresh Guiding Principles 20
Fresh Food Categories Slower to Move Online Compared to Total CPG E-COMMERCE SHARE OF SALES Beauty Care 28% Pet Care 27% Health Care 14% Personal Care 12% Household Care 10% Packaged Grocery Produce 3% 3% Meat Dairy 2% 2% Bakery Beer and Wine Frozen Foods 1% 1% 1% Source: Nielsen e-commerce measurement, 52 weeks ending April 29, 2017. Projected from ~1MM e-commerce CPG consumers and cooperating epos retailers based on reported commodity groups that may not match prior custom or syndicated category definitions. 21
Click and Collect is Bringing Perimeter Shoppers Online LIKELIHOOD TO BE PURCHASED VIA CLICK & COLLECT Alcohol Fresh Meat Fresh Produce 280 Dairy Deli Packaged Meat Frozen Foods Dry Grocery Health & Beauty Source: Nielsen Homescan Total Outlets, Total Panel, 52 weeks ending June 3, 2017. Index based on C&C basket inclusion relative to the avg. e- commerce order. 22
The Total Organic Shopper The organic appeal is expanding across more food categories and beyond Organic produce will be critical to the future of brick-andmortar retail with more categories shifting online The organic shopper is a digital shopper and she s already finding new ways to buy online Source: Nielsen s THE TOTAL ORGANIC SHOPPER 2017 23
Bringing it Home
Retailer Takeaways growth drivers Develop your center store product offerings that align consumer demographics with those shared by the organic produce shopper. Circular ads/store flyers are still impactful. Use them to target and drive organic produce sales. Identify opportunities to align ad spend with share of fresh dollar sales. Impulse buying is an important factor in produce. Retailers looking to leverage organic produce sales should make in-store opportunities a high priority. Organic produce production capacity takes a while to come online. Making a strong commitment to suppliers on the conventional side and working in partnership as production transitions will be important in helping secure product and convincing your grower/supplier partners that the ROI is worth the pain of transition.
Producer Takeaways growth drivers Target new product or organic (CPG) line extensions for rollout in retailers who understand and emphasize produce/organic produce Understand the organic produce shopper/consumer. Including demographics, psychographics and behaviors. Support your retail customers efforts to showcase and drive fresh (particularly produce) organic sales. Identify stores, retailers and/or markets that index favorably in organic produce sales. Some organic produce categories are more equal than others. Most consumers do not buy 100% organic. Thirty percent report looking for/buying organic yet organic s share of produce is 8%. Develop a clear understanding of the category preferences/drivers amongst organic produce consumers.
Tom Barnes tom.barnes@categorypartners.com 208.656.7177 Adam Brohimer adam.brohimer@categorypartners.com 402.578.4494
CP brief background CP was founded in 2008, as a partnership between Farm Fresh Direct and Wada Farms (two leading potato and onion grower/shippers). The driving motivation for establishing CP was to share resources and coordinate programs, in support of business and consumer insights in the retail channel. Sales and distribution for its principals have boomed, due to CP s efforts. Following 2008, CP expanded support beyond its principals businesses to drive insight-based sales, across a number of grower/shipper and commission clients; exclusively in the produce industry. CP s core capabilities include: data integration and reporting via CP Conduit, technology solutions, analytical and business consulting services, consumer/market/retail/category research and go-to-market strategies. Category Partners is headquartered in Idaho Falls, Idaho, with satellite offices and staff located in: Denver Atlanta Orange County Chicago