Recession Hits Produce Departments

MATTHEW ENIS

ANAHEIM, Calif. — The recession has led to several changes in how consumers are shopping in produce departments, experts agreed during a panel discussion on marketing strategies during a difficult economy, here at the Produce Marketing Association's annual Fresh Summit convention.

Consumer response to the prolonged recession has varied significantly by demographic and circumstance, Steve Lutz, executive vice president of the Perishables Group, West Dundee, Ill., noted during an introduction to the discussion. Many consumers have been fortunate enough to maintain their household income and have made relatively few changes in their shopping habits.

But, by contrast, those who have lost their jobs or have been otherwise impacted, are making “very basic and fundamental changes in how they shop for produce,” Lutz said. This includes more shopping with lists, more buying for immediate needs, rather than stocking up. And more trading down within categories.

Fresh produce, particularly fruits, can be especially vulnerable to substitution. Lutz noted that it appears that many of these shoppers substituted apples for grapes, when the price of grapes was low.

“Consumers shopping stores looking for ways to shift their behavior, still be satisfied, and feel good about the purchase but spend less money,” he said.

Lutz was joined on the panel by Greg Calistro, director of produce for Save Mart Supermarkets, Modesto, Calif.; Roberta Cook, extension marketing economist for the University of California, Davis; and Stacey Larson, founder of Consumer Effects, Rocklin, Calif.

Citing Perishables Group data, Lutz said that during the 52-week period ending in August 2009, retail fruit and vegetable volume declined for most of the year, but dollar sales actually rose, driven by higher prices on 22 of the 25 most popular produce categories. These price increases were driven partly by an increase in the cost of fuel as well as fertilizer and other input costs in 2008, but they hit customers during the worst part of the downturn.

Recently, beginning at the end of the second quarter in 2009, retail produce volume has stabilized and started to grow as retail prices decline.

“So, the situation has changed, retailers are responding, trying to keep those customer transactions,” Lutz said.

Calistro said that the recession has led many consumers to dine out less and eat at home more often, which has presented the supermarket channel with a real opportunity. Still, retailers are monitoring the pricing situation closely, because in an environment where shoppers are always looking for the best value, you have to ensure that your prices remain competitive.

“All retailers are looking at the market situation,” Calistro said. “Once one retailer starts going down, you follow suit, because you want to be competitive.”

And, when retails are down, as they are now in almost all major produce categories, you're trying to figure out how to get more dollars through the till, Calistro added, noting that key suppliers will help retailers maximize category planning during these times.

He also suggested driving dollar sales by cross-merchandising higher-dollar-ring items with related items that have faced declining retails lately — such as avocados with fresh tomatoes.

Suppliers and retailers can also work together to reduce non-value-added costs within the system, through efforts like SKU rationalization, better data sharing and shrink reduction, noted Cook.

“Now that retails are coming down, it's clear that [retailers and suppliers] have to be more efficient,” she said. “Many retailers are attempting to decrease their assortment by about 15%, so as a supplier, you really need to be on top of that and understand where your products fit in.”

Lutz noted that despite the recession some value-added categories have continued to perform well, and he asked Calistro, whose stores serve a variety of different demographic areas, what he thought of the issue.

“In some of the mid- to lower-income areas, those value-added items are off,” Calistro said. “In more affluent areas, they're either flat or they're doing OK. I think it has a lot to do with the extra dollars that people have to spend.”

Calistro added that the company has stepped up its sampling program within produce departments, emphasized better execution with cross-merchandising and worked with other departments to create a Meals for $10 program to boost sales.

Regardless, panelists seemed to agree that these conditions were likely to persist for some time, even if the economy begins to improve next year.

“I think it's irrelevant to talk about permanent change vs. temporary change,” said Lutz. “It's reasonable to conclude that, as the economy improves, consumers will again modify their behavior … the reality is, we're in a tough economic position right now, so we have to fully anticipate that consumers will respond accordingly as long as those conditions persist.”