FRESH-CUT CATEGORY OFFERS GREAT POTENTIAL

Tom Zind

WASHINGTON -- With the spotlight on health and wellness, fresh-cut fruits and vegetables could be ideally positioned as a silver bullet combining flavor, convenience, healthfulness and greater profits in one package.

One of the big drivers of fresh-cut's future growth is likely to be its ability to address multiple consumer demands. Across the retail and food-service sectors, fresh-cut was an $8.8 billion business in 2003, according to International Fresh-Cut Produce Association, Alexandria, Va. It's estimated to grow to $10.5 billion this year.

"A lot of retailers are putting a lot of money into their produce sections and it appears they're adding more fixturing to be able to merchandise fresh-cut produce," said Jerry Welcome, president of IFPA. "Consumers are getting more used to seeing the product and processors are putting more innovative products out there. The market is continuing double-digit growth."

The produce director for a six-unit Detroit-area retailer, Hiller's Supermarkets, might well speak for the mass of retailers who've been pleasantly astounded by fresh-cut's growth.

"It's been incredible -- from products from Dole and Fresh Express to our own fruits and vegetables we cut in-store -- people love it," said Fabrizio Casini. "Our selection has continued to grow, and as the industry comes up with more new ideas, there will be no end to where this can go."

Earlier this year, the U.S. Department of Agriculture released new dietary guidelines that recommended Americans eat 4 1/2 cups of fruits and vegetables daily. To boost their intake, consumers may find the convenience of fresh-cut produce hard to resist.

As its quality improves with better raw product selection and improved packaging, fresh-cut fruit could be particularly well positioned as a vehicle for increasing consumption. In fact, cut fruit may be on the verge of a big breakout that could even eclipse salads. That quick-service restaurant chains including McDonald's and Wendy's have added cut-fruit products to their menus is a clear sign of the times.

Meanwhile, retailers could see produce, one of their highest gross-margin departments, get a bigger slice of the consumer snack dollar that's been nabbed by merchandising-savvy marketers in the cookie and snack aisles.

Seeing the possibilities, fresh-cut suppliers are responding by developing new products and new alliances to design and better merchandise fresh-cut products to pick up some of the consumer snack dollar.

River Ranch Fresh Foods, a Salinas, Calif., company that transformed fresh spinach from a wet-rack afterthought into a dynamic category of multiple stockkeeping units, recently rolled out a line of snack packs of selected fresh-cut vegetables. Dubbed Popeye Snacks!, the line includes convenient serving sizes of products like snap peas, snow peas, carrots and celery. The products are the centerpiece of a River Ranch program designed to encourage retail customers to set up high-profile destination fresh-cut snack areas in their produce departments.

Although they've decelerated from robust double-digit growth to more modest rates, bagged salads remain the single biggest element of that fresh-cut profile. Continued growth could come on several fronts. In a sign of how tempting the fresh-cut sector has become, Chiquita Brands International recently acquired bagged-salads behemoth Fresh Express, Salinas. The purchase will put banana industry icon Chiquita into a line that will complement its growing fresh-cut fruit initiative. Industry watchers said it's likely the new pairing will work to further advance fresh-cut's profile in the produce department.

Packaged salads could get a run for their money with the emergence of fresh-cut fruit and more innovative value-added vegetable products.

A former retail produce executive, Dick Spezzano, who now consults for retailers as Spezzano Consulting Services, Monrovia, Calif., said continued innovation in all three areas means retailers will be constantly challenged to manage this second wave of fresh-cut growth. But it's a challenge they're likely to welcome because of all the advantages fresh-cut offers.

"From a retailer's profit-and-loss point of view, most will want to see an increase in value-added products over commodities, for reasons such as lower labor costs, longer shelf life, less shrink and higher retail rings," Spezzano said.

"If it takes an hour of labor to produce $100 of a commodity sale and you can do $150 with value-added in that same hour, retailers would rather have the latter," he added.

As the selection of fresh-cut products increases, retailers will need to employ more sophisticated category management, with the close assistance of suppliers, Spezzano said.

"The space needed for the category is going to have to grow, but just because there may be 20 new items out there doesn't mean you can just handle them all," he said.

While more fresh-cut has the potential to make the produce department easier to manage, Bruce Axtman, an executive with The Perishables Group, a Chicago-based fresh-foods consulting company, said it comes with its own set of challenges.

"It's definitely not a slam-dunk that it's more profitable," he said. "You can't stick this stuff in a corner. There is shrink, you have to analyze your store demographics to get the proper selection and you have to make sure that you're getting incremental sales, not just cannibalizing bulk. But there is a lot of upside potential to handling more fresh-cut."

Retailers will have to focus on protecting their share of the fresh-cut market, now that more restaurants and other food-service operators are adding fresh-cut choices to appeal to health-conscious consumers, one industry observer noted.

"The growth in the market is clearly going to create additional demand," said Tom Stenzel, president of the United Fresh Fruit and Vegetable Association, Washington.

"We want to make sure it's additional [demand], not cannibalization of retail sales. "We want to make sure they hang onto their bagged salad business," he said.