PRODUCE PRODUCES

Retailers are increasingly using produce as a total-store statement of quality, variety and freshness. Departments have been expanded, redesigned and moved up front, promoting fresh fruits and vegetables as the yardstick by which consumers can measure a store's total appeal. The in-store dynamics at work here, coupled with improved efficiencies on the supply side, have provided retailers with new opportunities to introduce private-label fruits and vegetables -- from individual stockkeeping units to bagged salads -- into the mix. And because they carry a high level of liability, these fresh store-brand items represent the strongest link between the store and the shopper, whose purchase is an ultimate display of trust.

over to the entire store.

Terry: I think produce sets the first impression in most stores, and that impression has to represent quality and clean and friendly service, and it sets the tone for the rest of the store.

SN: Tell us about your private-label programs in produce.

Rostan: We've got a dozen or so items under our ShopRite brand. We've had garlic forever, but have really gotten into some fresh products, like salad mixes, tomatoes, potatoes, over the last three or four years. We're moving into processed or controlled products -- products that can be graded, with specifications that are higher than the normal or common product that are found in the department, and we've quite a bit of success.

Terry: We position our private labels as very proprietary. Gerald Harp, who was our chairman of the board, has his picture on half a dozen of the items. It's Harp's signature. We have an open mission statement about how important it is to provide the best quality product, and an 800 number for our consumers to utilize. We offer some value-added items, but we're also trying to go for core items to separate ourselves from our competition, so we went after the 4-by-4 tomato, the mushroom category and Idaho red potatoes. We're looking at some value-added fruit. We've seen this program push our envelope and give us an opportunity to project to the customer not only quality, but quality we're willing to put our name on.

SN: What's the key to taking private label to the next level of consumer acceptance?

Rostan: We believe that when a customer comes to the store and buys an apple, they consider it a ShopRite apple. And our research says that that is the case. We don't think there is going to be a return to significant quantities of packaged product like there was 20 or 30 years ago. We think there's a place for carrots and things that are obviously packaged like that.

Morrow: I think it's important that the purchase executives have marketing skills and branding skills. I think they already do. I think produce people are some of the best marketers in the world, in understanding merchandising and that produce sells visually, and the consumers buy with their eyes and the produce has to look fresh and produce people understand that. But when it comes to branding, you need to partner with people who understand and can lend a hand in things like graphic development, and some of the more technical sides that the produce people aren't dealing with everyday, and that's what we bring to the table. We have that side covered.

O'Donnell: A lot of times we're guilty of getting together in groups like this and making decisions when it doesn't go outside the room, and if you take all these steps in the cold chain and the procurement chain and safety chain and the partnership chain, and it doesn't translate back to the consumer, then you've really missed. I'm keen on consumer-based marketing vehicles, but you have to reach beyond that sales paper to let customers know what we're doing and what we can do to help them.

Phipps: I agree with Marji in that you have to have the right color complements with product lines. Packaging is critical to rollout, and as a regional supplier, we've partnered with three different tracking teams in the research and development of colors, and how they blend. We just recently rolled out a cut-fruit program. It is a branded item, Fresh Solutions, with beautiful four-color packaging, and by heating the tray in the back room to about 300 degrees we lower bacteria counts. It's breathable, tamper-resistant film on the top side of the packaging as opposed to clam shell, and is beautiful, state-of-the-art packaging. We feel like our core business, as one of the Top 10 mushroom growers for almost 20 years, is going to shift to the value-added side. We've already rolled this line out with tremendous success.

SN: Your comments raise the question: How can retailers and suppliers coordinate comprehensive store-brand programs, from the products to the labels to the buyers, everything that goes into it?

Terry: Harps is not a large organization and it doesn't require a series of "scheduled meetings" to get things done. We're able to sit down at our regular meetings and talk about the tone behind a concept, and communicate that feeling before the product ever gets to the shelf. And that's some of the strengths that co-packers bring in developing the right type of artwork, the right type of typeface, continuity in managing the program and POS material.

Knobeloch: Category analysis, category management, new product, new development -- all those things work in conjunction with each other, starting with the consumer. Is it an item that the consumer wants? You better know that in the very early stages of your product development or you end up spending a lot of money that you'll end up throwing away.

Phipps: Something I found very impressive about Harps sometime back when we were in the partnership-development stage, trying to launch a new value-added item at that time. We sent out 20,000 postcards with a picture of the product line and five questions on the back, such as "Would you buy this product?" It wasn't private label, but a brand that was already somewhat recognized, and in that particular case, had competition. When the surveys came back pretty negative, Harps decided to move in a different direction, and the exact opposite has happened in the private-label line, which has been very well accepted, and is not found in competitor's stores. I thought that was a real good way to handle it, rather than merely throwing an item on the shelves and hoping it takes off. It's the kind of commitment we really like from a supplier side.

SN: Is there a lot of activity on the 800 number?

Phipps: The 800 number is fielded at our facility. As the produce shipper, J-M made a decision to assign a customer-service specialist to Harps' private-label program, and so far most of the calls -- and we've had just a few -- 80% have been positive. We had a couple of early calls, as you would with any package, where we sent the customer a letter and rebate check for the customer we're supplying. But it helped us attack problems early on.

SN: Vince, any consumer feedback on your approach?

Terry: The customer feedback that we've had in the store has been every positive. They like the idea that there's a name, face and phone number associated with a perishable product. Too often you walk into larger stores and there isn't anyone available, or if a person is in produce, they're not really educated on how to take care of it. We try to staff our stores as heavily as possible during the time when shoppers are in there, and when they can go home and still have that information with them.

SN: Vince, how did you fold out your program, starting with particular products and then which ones would be most amenable to the customer and to the Harps image?

Terry: The first out were the 4-by-4 tomatoes, our full mushroom line, followed by our packaged potatoes, followed by our salad. As far as reaching out to the customer, we had a tremendous amount of publicity announcing this program. We reinforced the importance of providing not just as-good, but better-than, quality.

than, quality.

Phipps: We partnered our company with a fellow co-packer/grower down in Dallas, Texas -- Combs Produce. Combs is responsible for the tomatoes and potatoes and we oversee the disciplines of the entire program. We felt if we could have the synergies of another grower to bring those items into our camp, you have efficiencies there that can mirror the larger retailers across the country. And the point of sale that has been developed, like the one going into Harps, is real warm and friendly, real individual toward the retailer. We blast the 800 numbers, we provide Harps all the signage and everything that goes with the program to put a signature on the program.

Morrow: The most successful programs we've had have been when the retailer has taken the high road and gone after the premium items and gone for positioning that really reflects quality. Of course, this isn't universal. Retailers who stress value and low pricing might focus on the real basic items -- cole slaw or 1-pound salads, and it would be the wrong approach to take the high road. But for the vast majority of them, the premium approach is more popular.

SN: Marji, between your branded and store-label programs, what's your business mix right now, and what changes have you seen recently as a national packer?

Morrow: We're still much more strongly branded than we are private label, but we have major customers in private label and both sections are growing. We're committed to both.

Rostan: I want to comment on what Marji is talking about. Our company is known to be the price leader in the marketplace. We built our business on packaged goods and we have excellent perishables, and one of the roles we're hoping to play even more than in the past is what we're doing in our perishables departments, as well as our private-label fruits and vegetables. When you wrap your good, quality products and sell it at value, it helps to have consumers recognize the store for being the price leader.

SN: Steve, what's involved in forming these partnerships and backing up your end of the supply deal?

Phipps: I think it's imperative that we pick and choose retailers like Harps, who fit the type of program that we want to do. We didn't want to embrace private label in a low-price situation; we wanted to be an upscale supplier. For example, Terry mentioned his portabellas. He's got baby portabellas, both whole and sliced in clamshell packaging. It's just not something you see everyday -- it's a little bit difficult to pack, but still a very retail-friendly item, and it gives Harps a point of difference. His 4-by-4 tomato program is 100% PLU-stickered, his potato program is 7- to 11-ounce to spec. We have field specialists who walk his stores and write reports that come back in to our quality-control director.

Terry: I think the partnership that's developed between our companies is based on our philosophy. When we start a partnership, whether it's with J-M Farms, Sunkist or whoever, it's a long-term partnership and it's a sharing of responsibilities and duties. It's a partnership built on the premise that both partners have to walk away profitable -- not just at the end, but through the whole process. So we share liability, we share philosophy, we write specs together, we develop programs together, we roll them out together and we share the responsibility of our success.

Knobeloch: I think the premium private-label programs also really turn into an extension of the total-store concept and they can actually elevate the image of the total-store brand with a very strong private-label perishable program.

SN: Is there someone working for the store on the private-label program who makes sure everybody is consistent with the total-store identity?

Terry: I think you're practically in that same position as VP of perishables or vice president of marketing, in that you're working with all departments and making sure there's a certain level of continuity. We have signature items in our bakery and our deli that are also based on continuity. So there is a carryover and there's always someone there to make sure there's continuity and follow through with the specs that we outlined six months ago.

Knobeloch: Part of our commitment to is to have that relationship with a supplier so that, if their raw materials are not right, it's not packed. And that can convey a very powerful message to your customer, that we're sorry we're not able to package our private-label products right now because the raw materials are not up to our standards. That approach actually enhances the relationship that they have with your brand. But you have to be committed to tell your store-level produce managers, "We're not going to have this for the next week or the next month," and that's sometimes difficult to say.

SN: Let's look at safety implications. With private label so closely identified with your store and your store name, does a food-safety incident hit you a lot harder than if it were just a generic product?

Terry: Without a doubt. One of the building blocks in a relationship we developed with J-M Farms is that they have excellent communication between their head and our departments. Prior to any real health problem, we went ahead and did dry-run "recalls," utilizing phone calls and e-mails directly to stores. Our goal was that every store responded within an hour of the decision being made to pull product, and I think we hit that with about 5 minutes to spare. J-M Farms also utilizes independent swab testing. Every wad is held for a specified number of days to ensure that the product is good. All product is tested, and we've had the opportunity to look at their whole sanitation program -- the record keeping, who they utilize as suppliers for our product, and we're very comfortable with the program.

SN: How do you source? Is it a constant search?

Terry: I think it's a constant search until you find the right marriage. I don't think it's appropriate for a retailer, whether large or small, to go in and say "O.K., I'm going to dictate exactly how you're going to do that." There's got to be an agreement there.

Rostan: Over the last couple of years, as we've gotten into our branded products, we've chosen our partners based upon their track record with us, their product, their consistency, their reliability and so forth. The door is always open to someone new coming in, but it's those with a proven track record that have had a better opportunity with us to get in on some of the products that we've gotten into, and those are the folks that we're working with.

Terry: And you can say, "We stand behind all these. Here are the recipes on the back, here are the recipes you can take with you." And once again you have your philosophy on it, your 800 number on it. The only thing you haven't done is taken it home and cooked it.

Terry: I agree with you. I don't consider myself to be a "produce buyer," I consider myself to be the final pipeline, the final say from the grower to the consumer, and I facilitate a good, strong, consistent, quality relationship between the two of them, where the value index is there every day, week after week.

Phipps: I think you're seeing a transition in a lot of supplier lines. In the past, a lot of times, the supplier who was packaging, say, six-pack tomatoes, believed his most important goal was on the buy side of that program and getting a full trigger-load of gas-green six-packs to the retail distribution center. This program here is totally geared toward trying to keep the retailer in a buying-right program to spec, and when we become flexible, it's more leaning toward the consumer than the other direction. There are some flexibilities that are in place because of that type of program, and sometimes there is a cost factor and you have to have a co-packer who is willing to make the investment in premium product, in premium packaging, to see the vision clearly in what the retailer is trying to accomplish, like Harps.

Terry: It's a dramatic change from five years ago when everything was price-driven -- we're going to do this, we're going to get that. It's just an entirely different handle, and for some suppliers, it's a radical change in philosophy, and not always easy to accept.

O'Donnell: Vince made a good point earlier, in that a well-informed consumer is also a terrific partner. Once you send them out the door, you can have all the information on the level, but you have to arm them on how to safely produce and heat the product, maybe even store it after it's cooked. I think that's a big opportunity for everybody at this table. Store-level food safety is great, but maybe the next extension is taking it right into the kitchen.

Morrow: It's important in picking the supplier that you go after premium, and not just say premium on the label, because it's what's inside the package that delivers.

Terry: Take our 1-pound salad -- it's 10% Romaine. We decided to go with Romaine because we wanted to add a little more spice to the package, wanted to have a little more color in the package and a little better texture.

O'Donnell: That's important, but that's a huge angst for the retail community when you're out of product. Yet, it's terrific to say, "If we can't bring you exactly what we've promised, we're not going to do it."

Terry: Mike, I tell our produce managers I don't expect my stores to be diamonds at eight in the morning, but I do expect them to be clean.

O'Donnell: That's terrific, because that's a huge change of philosophy from the last few years.

Terry: In a department that's fully functional, you're going to disappoint your customer if the product isn't there, but you're going to insult them by having less-than-the-best product out there and pretending it's for sale.

O'Donnell: You just hit on another point. District managers used to want their stores standing tall at seven o'clock when they walked in, and that's what they wanted, even though their customers were walking in a full 12 hours later. So as long as it looked good when they got there, that's what they thought was the proper procedure. Now, the shopping pattern is changing and both parents are working and shopping between five and seven. That bagel they picked up is 12 hours old, so there's a huge departure in the retail mentality there.

SN: What about organics? Does it offer added opportunity for private-label product that the store can guarantee to the consumers?

Terry: One of the problems that we have with organics -- though it's a problem that's diminishing -- is there is still an inconsistency in the supply.

O'Donnell: There really isn't a national brand of organics, so the private-label opportunity is huge. If you begin on the right foot, give customers a good product and then tell them why you've taken the steps to safeguard the quality and the genuine, certifiably organic system you have in place, then you've got something powerful because they're never going to be able to reach out to any other customer in your marketplace.

Terry: We'd like to think there are those, in the East and the West particularly, that would absolutely jump at the opportunity to come up with a brand new organic program that is consistent. That would take a tremendous amount of work on the supply side.

Morrow: I think it may be premature for private-label organics, at least in the packaged-salad side of the business. The reason I say that is that the brands play a role in promoting the overall category, and the same goes for education for the consumer and the types of marketing dollars that, on a broad scale, can be applied to the brands. And once the consumers are more educated, there's a better opportunity for private label. We've found in our organic program there are still a lot of questions that consumers have that they're not understanding like, "What is organic? What does it mean?" We look across the country and even to the government, and we don't have the national standards yet. So until things are fully in place, and the standards are there, there could be a lot of investment in packaging and other things that shortly down the road are going to have to change with those standards.

Knobeloch: And the ability to really identify which items are going to work best with a private-label organic program. I tend to agree that the organic market is definitely growing, and there is going to be opportunity for private label down the road, but I don't know if we're at that road yet.

SN: Bruce, since you are Mr. E-commerce here, why don't you bring us up to speed a little bit about this virtually brand new way of doing business, and what it means and what people think about it.

Knobeloch: I think one of the primary opportunities that I've thought a lot about what we're doing in e-commerce and the whole e-commerce application and maybe what it brings, or what it can bring, to a private label, and really what the e-commerce initiative drives, is transactual efficiency and information quality. And one of the real benefits I see from a private-label standpoint is the ability to get the information between the supplier and the buyer, make it real time, make it a data flow that can be analyzed so that better, quicker decisions can be made, and really impact product flow into the stores and, ultimately, cash flow back to both parties. So the e-commerce initiatives that are out there, including our company, can be very powerful tools for any kind of a program, especially a private-label one.

SN: What about the consolidation trend? I know none of you work for companies the size of Kroger or anything like that, but do you see a sameness coming to the industry on account of consolidation?

Terry: I think anytime you look at the consolidations that are occurring or the growth that you're seeing on the market, as a company grows, there's tighter and tighter controls that are put upon departments like perishables -- the use of schematics, greater discipline, micromerchandising. Yes, I see wonderful opportunities ahead. When those guys consolidate, I'll be there to pick up the pieces.

Rostan: I know that the VP of perishables is out there trying to figure out a way of getting a perpetual inventory in his store as far as produce is concerned because there isn't enough training due to the largeness of the chain. To accomplish the type of quality controls he's going to need, he needs to remember that your most important investment is your customer, your second is your associates.

O'Donnell: On the consolidation issue, I've been involved in a lot of panels on this, and we always tease about the United States of Wal-Mart. But they consolidate by either growing internally or buying through acquisition. They lose their differentiation, their ability to neighborhood, to market directly to the consumer. They have these huge marketing platforms that are for large demographics, not individuals or neighborhoods or lifestyles. It will actually come full circle like every other trend. Everything has come under one aircraft-carrier roof in the Wal-Mart supercenter and eventually they may spin back out, and that may actually be the neighborhood supermarket again. Supermarkets may become the norm, and then eventually they'll break out into specialty grocery stores.

Knobeloch: The last decade has been one of consolidation and the next decade may be differentiation, even within the consolidated chains, where they will realize they have gotten huge and need to focus their attention on their divisional areas and really identify what the customer in that area wants from them, as well as regional chains that have always had the mantra of differentiation. It segues into private label as being one of those huge opportunities to differentiate and it bodes very well for private label in the future as well.

Phipps: One of the things that excites me for the independent retailer as the consolidation trend continues is that some of the larger retailers constantly have to look at the performance of each item on the shelf and each SKU. And when those items don't perform because of the lack of training or other things, those items get lost or even find their way off the shelf. I know smaller retailers don't carry only items that were strong performers. And when you put contracts in place with a shipper/grower for a red delicious apple, and your mission statement is to get an 88-count apple, that 56- or 48-count still has to find a home. That's where an independent retailer who's flexible and has the right partnerships with shippers and co-packers can be very successful.

Morrow: I'd like to comment on the other side of consolidation and where private label is. We think there is going to be a lot more private label because of consolidation and among those who are the bigger players because of the demands of the financial community to strengthen the corporate brand name and the role the private label can have in strengthening the corporate brand name. There is still a big opportunity there for private label that should come as more consolidation occurs.

O'Donnell: A day will also come for the blending of marketing efforts, and I think Albertson's is the greatest example of that. They're a great operator, but when you go into Albertson's in Florida and Albertson's in Texas, they're very similar. That's good and bad. You know what you're going to get, but you have to go someplace else to get exotic produce or specialty foods.

SN: Where will private label go? Will it become a store label, will it become the name of the store, or will it become something different?

O'Donnell: It can become the store. We're working with a Super Target group and that's their goal. When they branched out into foods and specifically perishables, they decided to call the store Archer Farms, not Target. On the front side, that's a huge risk because Target is so recognizable. But they're in it for the long haul, and they decided to put a stake in the ground and create an identity from those first models and up the line, and their goal is to make the store a destination.

Morrow: I think it also depends on the retailer. For some retailers their store name means quality and they put enough into it to position the whole produce department, but that's it.

Rostan: The other side of that is that delivering quality product helps to reinforce the name of the store. That's the road we're taking in produce as well as a lot of products.

Terry: We're looking to put as many premiere items out as possible because we really believe our larger competitors are being forced, simply because of control, to go to a more moderate quality statement, more mainstream.

Private-Label Produce Roundtable

1 Frank Rostan, vice president of perishables for Wakefern Food Corp., Elizabeth, N.J., operator of ShopRite Supermarkets.

2 Vince Terry, director of produce operations at Harps Food Stores, Springdale, Ark.

3 Bruce Knobeloch, vice president of retail sales for Buyproduce.com, Irvine, Calif. (formerly director of produce for Schnuck Markets, St. Louis).

4 Steven Phipps, marketing coordinator at J-M Farms, Miami, Okla., supplier of Harps' private-label produce items.

5 Marji Morrow, director of marketing for Ready Pac Produce, Irwindale, Calif., processor of branded and private-label produce items.

6 Mike O'Donnell, vice president of market development at Marketing Management Inc., Forth Worth, Texas.