Produce Prices, SKUs on the Rise

MATTHEW ENIS

NEW ORLEANS — Produce prices are on the rise, and consumers are responding by purchasing less in many top categories. This was one of the themes of the session “What Loyalty Card Data Tells Us about Consumer Habits,” presented here at the United Fresh Produce Association's 2011 convention by Steve Lutz, executive vice president of The Perishables Group.

Lutz began the presentation citing several key similarities between 2008 and 2011. In 2008, gas prices rose sharply, and due to this and other factors, food prices were pressured higher as well. This year, gasoline could once again be headed toward a national average of more than $4 per gallon, and food price inflation is already becoming an issue at retail. With the economic recovery still weak, many shoppers are feeling the pinch.

“We've just gone through the lowest food inflation [during 2009 and 2010] that we've had nationally since the 1960s … that's no longer the case,” Lutz said.

However, during the past several years, store formats have become more stratified than ever, and retailers have refined the way they deal with rising prices.

Also, convenience is once again becoming a priority for many shoppers. As Lutz put it, “just because you're cooking at home doesn't mean you can cook.” As a result, prepared food sales have grown 15.2% since 2005.

And, despite rising prices, produce departments remain one of the single most important traffic drivers in the supermarket. Shoppers make an average of 31 trips per year to supermarket produce departments, and 43% of the time, their shopping baskets contain multiple items from other departments. Compare that with meat departments, where shoppers make an average of 18 trips per year, and 27% of their baskets contain multiple items.

Also, the organic produce category looks like it has been reenergized since its brief slump during the worst part of the recession. In 2005, organic fruits and vegetables had a 2.6% dollar share of the entire produce category. In 2010, organic dollar share had increased to 5.4%.

However, another issue at the retail level is the growth of SKUs. Lutz noted that when he was in the produce business in the early 1980s, most grocery stores offered three different apple SKUs. Now, the average grocery store carries 29 different SKUs of apples alone. Nationally, fruit SKUs are up 38% since 2005, while vegetable SKUs are up 38%. Although this trend presents many opportunities for incremental profits, the increasing complexity of the modern produce department also presents challenges to produce department managers.

“We've become a marketplace of niches in every single store,” Lutz noted.