FRESH-CUT INDUSTRY BUILDING STRATEGIES TO GAIN RETAIL SPACE

NANCY GRIFFIN

SALINAS, Calif. -- A number of fresh-cut processors said the fast-growing, value-added produce category is still being undersold by retailers, and have developed proprietary research in an effort to gain more shelf space.

Although figures by IRI and A.C. Nielsen show the category grew from $82 million in sales in 1989 to $1.4 billion in 1999, fresh-cut is still "significantly underspaced," they said.

"There are more profits in each segment of produce than the space allotted," said Dan Reighn, director of account strategies for Fresh Express, Salinas, Calif. "It's a $210 million opportunity for retailers."

His research resulted in the Fresh Express "space to sales" program, which anticipates potential future sales based on calculations of current growth if the products "get the deserved space. The category growth rate could double."

According to his findings, the complete value-added produce category represents more than 6% of retail produce profits while comprising only 4% of the space. Salads represent 53% of value-added produce profits, but receive only 39% of store space, even though salad sales are growing at twice the rate of regular produce.

Dollar-wise, sales for salad in 1999 jumped 15% over the previous year, and salad sales grew 50% faster than value-added produce in general, he found.

Reighn is working with Fresh Express customers to enhance category sales. "It's very effective to do tests in a few stores of a chain to show exactly what the growth can be," he said, adding that the side-by-side comparison sharply illustrates the increases, often 20% to 30%, when shelf space is enlarged.

"We are taking the message to our retailers," said Reighn. "We are showing them this information from a national perspective." He presented the statistics he compiled from his research, including Nielsen and IRI data, at the most recent PMA conference.

Tanimura and Antle, also based in Salinas, is another processor that tries to show that stores are far from maximizing sales in the category.

"We have developed a whole category-management system that provides data and analysis and synthesization of the data for retailers," said David Leach, T&A's director for value-added sales and marketing. "We help our clients increase profitability and reduce shrink. If a new customer has not been using best practices or category management when we start with them, we often see up to 15% increases in profitability and a 20% reduction of shrink -- right off the bat."

The category management program, a "complete turnkey operation," starts with the client sharing confidential "clean" sales data with the firm's specialized team. By analyzing the data, the client will learn how products perform, how sales of different lines compare -- everything the retailer needs to makes changes that will boost produce sales.

Retailers who use this best practices plan can expect to see sales increases of 5% to 15% on the entire category, "and we've seen 20%" in both value-added and commodities, said Leach.

"It's a complete management tool," he said. "We like to have retailers for whom we can be the value-added supplier. But we also deal with retailers who buy competitors' products. We can't skew the numbers."

If a competitor's product is doing well, T&A tells the retailer. The analysis is done objectively on the total category, he said.

"What's really good about the information is that we can build a national composite," Leach said. "For instance, we can compare how shrink rates compare in Dallas and New York."

Five years ago, when Tanimura and Antle started the program, "it was hard to get the attention of produce managers," Leach explained. "But during the past three years things have changed substantially. Now we are approached by produce managers who realize the importance of the information."

"It takes six months to a year to build a strong database and get clean data," Leach said. In one example cited, T&A studied category-management profiles to help Save Mart Supermarkets, Modesto, Calif., to not only grow the category, but also launch a private-label program, according to Steve Junqueiro, director of produce and floral.

"To date, we've outpaced national and regional numbers in the salad category," he said.

An internal study done by T&A in 1999 showed that while packaged salads account for more than 50% of value-added produce profits, they occupy less than 40% of the value-added produce shelf space. To increase profitability, T&A estimates an additional 24%, or 20 linear feet, of space is needed for packaged salads.

The T&A study's figures show how improvement in category management can bring big results. Salad sales per store, per week, for the average retail chain of 100 stores are $3,800. A 10% increase in salad sales would generate an additional $1,976,000 annually.

The data also looked at shrink, found to be $646, or 17% per store, per week. A 10% improvement in salad shrink saves $335,920 in sales and adds $157,882 in profits annually for the chain.

"The bottom line is, we've turned a very complex concept into an extraordinarily simple program for retailers," said Leach. "Basically, they give us the data, and together we develop an action plan."