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CUTTING EDGE

Today's generation of fresh, pre-cut produce targets health-conscious consumers with sophisticated taste buds. Gourmet greens are eclipsing iceberg lettuce in bagged salad mixes, while exotic items are creating excitement in the pre-cut fruit category, according to retailers and other industry sources.Overall, the value-added categories are still rising stars for produce departments. Packaged salads

Today's generation of fresh, pre-cut produce targets health-conscious consumers with sophisticated taste buds. Gourmet greens are eclipsing iceberg lettuce in bagged salad mixes, while exotic items are creating excitement in the pre-cut fruit category, according to retailers and other industry sources.

Overall, the value-added categories are still rising stars for produce departments. Packaged salads are a $2.6 billion business, fresh-cut vegetables generate $1.4 billion in sales, and fresh-cut fruit is a $300 million category, according to current annual sales estimates from the International Fresh-Cut Produce Association, an Alexandria, Va.-based trade group.

In fact, sales for the three categories are growing at an annual estimated rate of 10% to 15%, said Jerry Welcome, president of the IFPA. "We're projecting in the next two to three years, fresh-cut fruit will be over a billion [in sales]," he said. "It hasn't slowed down. There's only 13% [household] penetration of fresh-cut produce in the marketplace. For the amount of time we've been in the marketplace, that's not too bad. That gives us plenty of room to continue to grow."

Over the past five years, officials at Bashas' have seen year-over-year sales increases of 15% for the value-added categories, said Alison Bendler, spokeswoman for the Chandler, Ariz.-based chain, which operates 78 stores under the Bashas' banner. In fact, bagged salads are the top bananas in the produce departments. As a total category, bagged salads actually outsell perennially popular bananas. The top-selling salads are upscale blends, while packages of cut-up melon are the best-selling cut-fruit products. The stores recently added pre-cut mango and papaya to the fruit line-up, and moved cut fruit to the front of the wet racks so it's the first item consumers see when entering the front of the produce departments.

Value-added produce is "one of the few produce categories with healthy growth every year," Bendler said. "There's nowhere to go but up."

For Bashas', most of the growth is seen on the conventional, not the organic, side of the business. That's also true at Bristol Farms, an upscale, 11-store chain based in Carson, Calif. The stores have seen some growth on the organic end, but the merchandise offerings are extremely limited, said Raul Gallegos, senior director of produce and floral for Bristol Farms. The stores range in size from 25,000 to 30,000 square feet, so space is an issue. For that reason, officials concentrate on merchandising conventional value-added produce. Nevertheless, Gallegos sees potential for growth on the organic side.

"We have not expanded in that category," Gallegos said. "I would say that would be on my wish list."

In the fresh-cut category, one important change Gallegos has observed is increasing variety in the salad and fruit blends offered by vendors. A growing number of suppliers offer exotic cut-fruit products that include papayas, mangoes and golden pineapples. On the salad side, the mixes are getting fancier, with cranberries, sliced almonds and other restaurant-style toppings appearing in the blends, he said.

"Exotic fruits have a decent following," Gallegos said. "The gourmet offerings of bagged salads are the most sought after."

Another new development can be seen in the packaging. Single-serve salad and fruit products, and clear clamshell packages for salads are becoming more common, Gallegos said. He thinks the innovation is just another sign of the times.

"The direction [vendors] are going is single serve, out of convenience," he said. "Bagged salads and packaged fruit continue to explode. Because of today's lifestyles, people want that quick grab-and-go. The younger crowd [especially] wants to grab and go."

Packaged fruit, being a much younger category than bagged salads, has grown the fastest in recent years, Gallegos said. Sales of cut fruit, in fact, have grown probably 70%, vs. five years ago, while salads have grown about 30% over the same time period, Gallegos said.

"I have not seen it plateau," he said. "I think it's a growing category. Again, it's all being driven by consumer demand. As [suppliers] continue to come out with these new combinations, we'll continue to see growth."

Offering products in clamshell containers is driving business for Earthbound Farms, a leading grower and shipper of organic produce and specialty salads. The San Juan Bautista, Calif.-based company this year introduced a line of clamshell salad kits featuring restaurant-style salad blends, such as baby spinach salad with sesame soy vinaigrette and peanuts. The kits include organic greens with dressing, topping, fork and napkin packed in an inset package. Also this year, Earthbound Farms rolled out a line of organic fresh-cut vegetables, packed in 10-ounce recyclable plastic clamshells. The pre-washed veggies, including broccoli florets, cauliflower and carrots, can be used for cooking, snacking, dipping or as salad ingredients.

Clamshell packaging seems to be the next big thing for marketers of pre-cut produce. Earthbound saw its clamshell salad sales more than double in the past year, said Larry Hamwey, vice president of marketing for Earthbound Farms.

"Consumers are looking at those clamshells like the next wave of innovation," Hamwey told SN. "They think the product lasts longer, there's less damage, and there's better visibility."

Beyond packaging, consumers also prefer salad blends similar to what they enjoy in restaurants. Upscale salads are in demand, and that's a fairly recent change, Hamwey said.

"Ten years ago, nobody could spell radicchio, let alone pronounce it," Hamwey said. "We see consumers continuing to be interested in more nutritious, healthier and specialty type salads. Consumers are gravitating toward the dark greens. Baby spinach is another high-growth area in the fresh-cut salad category. Baby spinach, arugula, the darker greens -- that's where we're seeing the growth. Iceberg-based salads are of lower interest today. They're not growing."

Hamwey's research tells him organic fresh-cut produce is growing at a faster rate than conventional. Organic packaged salads are also one of the most successful organic categories in the supermarket, he said. In general, he sees supermarkets doing a better job merchandising organic salads together with their conventional counterparts. The price difference between the two is getting smaller, and that is also helping the organic salad category, he said.

"If anything, it's gotten easier to compete with conventional salads," he said.

Indeed, that seems to be the case at Giant Eagle stores in the Northeast. The Pittsburgh-based chain is seeing higher growth on the organic side, vs. conventional. The company recently added four organic salad blends from Fresh Express to its organic program, said Craig Ignatz, vice president of produce merchandising for the chain of 210 stores.

Overall, the fresh-cut category continues to be strong, particularly in the salad and fruit areas.

"We have experienced strong, double-digit growth for both bagged salads and cut fruit for the past five years," Ignatz said. "Sales in the processed vegetable category have had lower double-digit growth, with this category still representing a smaller portion of the overall convenience foods category."

Over the past five years, the technology involved in packaging and processing has improved significantly, he said. Ignatz also noted suppliers today offer higher-quality varieties of lettuce that are more conducive to processing and maintaining freshness for longer periods of time.

The future should bring more enhancements to processing and packaging, Ignatz predicted, while products themselves will become even more competitive with restaurant food.

"We expect further advancements in both packaging and processing technology," Ignatz said. "With customers continuing to try to live healthier lifestyles and looking for healthier food alternatives, it is anticipated that complete salad kits will experience increased competition from fast-food and casual-dining industry players who are also trying to accommodate this customer need. We will continue to see new, exciting varieties of baby lettuces, greens and heirloom lettuces included in new salad blends."

For all its growth and potential, fresh-cut produce isn't a must-have item for the majority of households. While the new products create excitement and encourage trial, they don't always generate repeat sales. Increasing purchase frequency is a top goal for the industry, IFPA's Welcome said.

"We're looking for that repeat sale," he said. "Now it's something people buy once in a while. The industry is hoping that trend will continue to grow. Hopefully, [consumers] will buy it more than once a month."

For modern consumers, the convenient nature of fresh-cut produce could be the most appealing thing about it. Convenience will drive future growth, as well as continued advances in technology, particularly on the cut-fruit side, and the category's overall healthy image, Welcome said.

"The introduction of fresh-cut fruit is another driving force," he said. "Seeing the new products come out in the marketplace is helping the whole category."

In the Bag

Packaged, refrigerated salad sales remain robust for supermarkets

Dollar Sales; % Change Vs. Year Ago; Unit Sales; % Change Vs. Year Ago

Salads/Coleslaw: $3.3 billion; 9.3%; 1.6 billion; 4.3%

*Fresh-cut salad: $2 billion; 8.6%; 896.4 million; 5.8%

*Fresh spinach*: $274.8 million; 15.7%; 112.4 million; 13.7%

Dollar Sales

2003; 2001; 1999

SALADS/COLESLAW: $3.15 billion; $2.72 billion; $2.2 billion

* Uniform weight. Supermarkets only. Latest 52 weeks ending Aug. 8, 2004.

Source: Information Resources Inc.