PMA SURVEY SHOWS FRESH PRODUCE GROWING IN IMPORTANCE

STEPHEN DOWDELL

ANAHEIM, Calif. -- Arguably the most comprehensive set of performance benchmarks ever assembled for the fresh-produce industry was released last week at the Produce Marketing Association's annual convention here.

Using data from surveys of more than 500 produce executives (including 58 retailers) and personal interviews, PMA and Cornell University researchers pieced together a detailed profile of the industry against which retailers and other produce practitioners can measure their own performance and marketing programs.

"The need for this information is especially keen during such a time of industry growth and change," the study's authors said. "This is more primary data collected on the operations and performance of the fresh-produce industry than at any time since the major U.S. produce wholesaling study, commissioned by the U.S. Department of Agriculture nearly 40 years ago."

The study presented last week, called FreshTrack 1997, is the first of what officials at the Newark, Del.-based PMA and Ithaca, N.Y.-based Cornell intend to offer as an annual series of benchmarks for the industry.

It looks closely at the four major segments of the business: grower/shippers, wholesalers, food-service operators and retailers. The presentation here offered highlights of the research addressing all segments. In addition, SN obtained a full copy of the study, which for retailers paints a picture of the department as an increasingly important part of their business, projected to surpass meat as the No. 1 contributor to total store distribution among fresh departments by the year 2000.

It is a department that on average generates $149.1 million in sales annually, according to the study, and represents 7.2% of company sales on average. It is also a very profitable contributor to retail coffers, laying claim to an average 17.2% share of company profits, which is more than twice the level of produce's retail sales share. "It would thus appear that additional produce sales would make a substantially positive contribution to company profits," said FreshTrack's authors.

Produce is also a strong contributor to store transactions, according to FreshTracks. It accounted for 21% on average of total store transactions. On average, produce gross margin for all firms in the study was 32.4%, with large chains (with greater than $1.5 billion annual sales) reporting the highest gross margin, 33.5%.

The 58 retail operators who participated in the survey -- representing a 29% response rate -- together reported annual produce sales of $7.6 billion. Cornell researchers said the majority of the respondents could be characterized as "mainstream" supermarket operators with traditional departments, especially the larger chains included in the study. Among smaller firms represented by the research, however, are more specialized "fresh-format" operators as well, lending the research a balance of the more innovative and conventional produce sellers.

Edward W. McLaughlin, professor of marketing at Cornell, who along with two other Cornell researchers presented the highlights, said the study points to a "new and exciting era for the produce industry," one with a lot of challenges that the industry appears well equipped to handle.

One such challenge is sourcing. The study showed that direct buying is a dominant factor in supermarket procurement strategies, with 65.7% of all produce being shipped directly from the production area to retailers, whether the transaction was actually consummated by a shipper's sales agent or a broker. Just over 30% is purchased through a wholesaler: 15.8% from a full-line wholesaler and 14.4% from a produce wholesaler. Larger retailers -- with sales of $300 million or more -- buy direct more than 90% of the time, the study said.

Those sources are filling departments with tremendous variety. The average department in the study is carrying more than 500 products, while some are up to more than 1,000 stockkeeping units. That compares with earlier Cornell research that indicated in 1990 an average SKU count of 370. Researchers said a hunger for new items was driving that growth; retailers reported that last year they'd added an average of 34.2 fresh items and 24.4 nonfresh for a total new item count of 58.6. And it is apparently not just more, but different products, in the mix that are fueling growth. Retailers said nontraditional items are making a mark in sales, accounting for an average of 14% of total department revenues. Included in the "nontraditional" classification were specialty products, packaged salads, organics and fresh-squeezed juices. Large firms reported that packaged salads alone accounted for 15% of total department sales. The bigger retailers were also adding more new items than smaller retailers.

The researchers concluded that traditional products will face increasingly intense competition for space on the shelves, and that retailers are getting as aggressive in dropping products as they are in adding them, compared with earlier Cornell research; they deleted an average of 22.6 products in 1996.

Produce Grows

The FreshTrack research portrays an industry enjoying the fruits of increased consumption and more efficient production, distribution and marketing. Per capita consumption of fresh fruits and vegetables keeps rising, and retailers said they expect produce to lead all other fresh departments in terms of sales distribution in the near future