FRESH CUT'S QUESTION: IS IT COMMODITY OR VALUE-ADDED?

AMY I. STICKEL

ATLANTA -- It's time for the retailers and processors of fresh-cut produce to choose: Will they market this crucial segment as a value-added product with brand equity, or as a commodity sold purely on price?

A processor raised the issue, and urged the industry to address it now, during a panel discussion at the International Fresh-cut Produce Association's annual convention here.

"I think both the retail industry and we as processors are at a real critical junction," said John Burge, vice president of sales and marketing for Taylor Fresh Foods, Salinas, Calif.

Burge acknowledged that retailers doubtless enjoy keeping their options open, so they can tailor the category's marketing to their needs. However, he added, too many price-oriented ploys threaten to relegate fresh cut permanently to a commodity status akin to raw lettuce.

"We need to decide as an industry, and working with retailers, whether we want this promoted as a packaged good, or is it going to be purely a price game," he said.

"The real question here is, will the consumer pay for a branded-type product, or will value-added produce become a commodity and be sold to retailers the way head lettuce is sold, on more of a pure price basis?

"I think most of the processors in this room hope the value-added doesn't become a commodity."

The issue is becoming more critical, since processors have finally caught up with the

demand for the product in the last 18 months, Burge said. "For the three years prior to that, it was a race to see who could fill capacity fast enough and stay ahead of demand."

Burge noted that he sees the industry using two methods to sell value-added produce -- one is high-low pricing, and the second is EDLP, or every day low pricing.

He estimated about 90% of retailers are on a high-low pricing program, which allows for deep discounts of product every six weeks or so. Those retailers using EDLP believe that putting product out at a low price every week drives volume, Burge said.

Processors, however, need to avoid getting caught up in a "schizophrenic" retailer mindset, Burge warned. Retailers, he said, find the cheapest prices attractive; but at the same time, retailers love for processors to spend money on promoting brand names through vehicles such as television ads, billboards and coupons.

Burge said that one of the best ways to reduce the price pressure is for more retailers and processors to form partnerships.

"It will be a salvation from commodity pricing," he said.

In a separate workshop, a retail executive agreed. "Price should not be, and cannot be, the sole procurement motivation as we go forward into the future," warned Wally Stauffer, vice president for Shurfine International, Northlake, Ill.

"I'm flat against some of the initiatives that are going on in the precut industry right now," he said. Stauffer said the initiatives are not needed, since consumers have already proven that they will pay for produce with added value.

"Deals just to get the sales in this game don't necessarily generate loyalty and repeat business," Stauffer said.

For one retailer, at least, the brand names in the fresh-cut category are proving an important element to success.

"Name brands and packaged goods are really being recognized, because they're sold in their displays exactly as they came in," Frank Padilla, senior buyer for Price/Costco, the warehouse club operator based in Kirkland, Wash.. He was another speaker on the same panel as Burge. Padilla said precut has not had a long history in Price/Costco's format, which originally didn't carry any perishables at all.

In 1989, fresh cuts represented about 10% of the chain's overall produce business. That number grew to about 15% the next year, then dipped in 1993-94. The dip represented the increasing volume Price-Costco was doing with apples and oranges, rather than any decreasing demand for precuts, he said.

Padilla said the percentage of precuts as part of the chain's total produce volume is beginning to pick up again. "I genuinely feel this is going to take off in a bigger and bigger way," he said.

Padilla also predicted huge potential for fresh-cut fruits. "Look at the success that vegetables alone have had. Fruit could match that, and exceed the fresh-cut vegetables."