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THE PRECUT CONSENSUS 1996-02-19
Precuts are putting a new twist on the value equation in produce.Continual advancements in cutting and packaging technology, and in new product development, are helping the value-added produce business to expand. But how far can it expand, and at what price? What is the retailer's role in identifying and responding to what "value-added" really means to consumers?A half-dozen retail produce experts
Stephen Dowdell
February 19, 1996
10 Min Read
STEPHEN DOWDELL
Precuts are putting a new twist on the value equation in produce.
Continual advancements in cutting and packaging technology, and in new product development, are helping the value-added produce business to expand. But how far can it expand, and at what price? What is the retailer's role in identifying and responding to what "value-added" really means to consumers?
A half-dozen retail produce experts tackled such questions during an SN roundtable discussion on the future of precut produce.
Last week, SN published highlights from the talk that focused on new product trends, such as salad meal kits, that are cause for both excitement and worry among retailers. They also traded ideas on how to deal with the challenge of keeping the cold chain intact.
This week, the experts address what puts the value in "value-added," particularly in a fast-growing precut market threatened by oversaturation both of products and brands.
SN: Beyond salad kits with meat and so on, are there other product trends with vegetables that bear watching?
ALSTON: I think there are more ways to go. There is definitely a need out there for a potato product at some point; that has not been solved yet, although a lot of people have tried it.
The value of a precut vegetable, to me, is saving the consumer's time of not having to peel it, cut it up and so on, all the things she still has to do if she wants mashed potatoes. We have to get around to that at some point, if we are going to have 100% convenience.
TERRY: But Harold, what do you think the value of that is? There is a tremendous amount of product out there in precut vegetables, and you can buy this label's product, or that label's product. But when is it a value and when isn't it a value?
ALSTON: It's a value if the person's time is cut.
TERRY: But putting a dollar amount to that is another issue.
ALSTON: I don't think the dollar amount is always the issue -- it's the time that they want to spend preparing the product. The demographics are different in different areas, but we've got people in our part of the country whose time is precious to them -- working couples, small families -- and we have found out they are willing to pay.
LANNERS: It's the value perceived by the consumer. There are so many opportunities out there for different vegetable combinations. Look in a cook book at all the different recipes for preparing vegetables. You could carry a precut type of item for each one of those different recipes.
And it is going to have to be adapted to different areas differently. Boston is the only area that I've ever seen in the country that has peeled butternut squash, for example. The amounts that they move are just phenomenal.
ALSTON: We move it by the truckload.
LANNERS: And then some.
ALSTON: You are talking about an item you can buy for 19 to 29 cents a pound, and you turn around and say, "Now, we're charging you $1.49 a pound for the same item," and they can't get enough of it.
SCHROEDER: Demographics do enter into the appeal of convenience. What some retailers move by the truckload we move by the basketful. Squash is just not that kind of an item in California.
LANNERS: But if you peeled it and cut it for them, maybe that would represent a value, if you coupled it with recipes.
SCHROEDER: If it tripled my volume, it would still be nothing to shout about.
TERRY: I still want to question this idea of perceived value. I think it's difficult to say, "I'm going to give you broccoli cut up with cheese sauce and I'll charge you $3 to $3.50 for that; or you can go over here and buy 3 pounds of broccoli for that." Maybe my customers are not under the same time constraints that your customers are under.
ALSTON: I think I heard everyone say that they are having success with broccoli cut up and cauliflower cut up. I'd guess you are in the $1.99 range a package. Well, you can buy a whole bunch of broccoli for 79 cents. It is the same relationship.
TERRY: What I am referring to specifically is the complete packages.
ALSTON: OK. Well, I don't believe in including the sauces at all; you limit your customer too much.
SCHROEDER: That's right. Here's a good example of that. I think all of us saw T&A's Broccoli Fettucini mix. It looked like it was going to be a marvelous item. Quite frankly, I thought, "Wow, I'd buy this." We tried them in the store, and that was one that did not work. It looked like it would; it seemed logical to add that, as quick and easy as it was. The price point was high, but not exceptionally high for a meal, and yet that one didn't work, so I think it's a matter of testing different things.
BERGAN: You know, that item, for us, has been doing respectably well and we're talking a $3.99 price point. We've had good success with it, but I think we went out with the attitude that we wanted to make it successful, and sampled it -- and, as they say, we gave way until it sold.
SN: So are you saying that price points are not of real importance?
SCHROEDER: I don't think you could say that price does not matter. I think the value of the package is important. You are not going to sell a $7 bag of lettuce at this point.
SN: Is that the ceiling?
ALSTON: If you go into a restaurant today and order a mesclun salad, they will charge you six bucks for a half-ounce serving.
Certain customers expect it to be fairly expensive in the store. It relates to who the customer is. Is there a limit on price? Well, we could get $7 a pound for mesclun salad. In some stores we do, and in some stores we don't even try to sell it.
SN: So the answer is, it depends.
SCHROEDER: That is very true, especially when a chain like us has stores at opposite ends in terms of demographics. I can do a lot of things in upscale Malibu that I will not do in Victorville.
ALSTON: I visited the specialty store, Balducci's, in New York, and Steve Balducci told me the No. 1 item he sells is mesclun salad, at $8 a pound.
TERRY: So what does that translate to per serving? We talk about people gladly paying $6 in a restaurant, but if you pay $8 a pound you are coming out ahead. It goes back to convincing the consumer about the value.
JOLLEY: You can go to a restaurant and pay that $6 every time, but customers are not going to pay that kind of price in your stores. There's got to be a point where the customer says no.
TERRY: I agree there's got to be a point, but part of it is getting across what the cost is per serving.
ALSTON: That is why I think the loose mesclun is taking off better than the packaged.
CHANCE: I would agree with that. I struck up a conversation with a lady who was buying a big sack of it one day. She said, "I realize that this is high-priced at $7.99 a pound, but my family eats a lot of salad and I mix it with other salads." I am sure other customers do the same thing, to get the base cost down.
ALSTON: Let's say you buy a head of lettuce for $1.49, and a cucumber and some other items, and now you've already spent $7 for a salad. But a half a pound of this will cost you $4.
CHANCE: When you talk to customers, especially younger working families, they just think the packaged salad is the greatest thing there is. We have promoted it a lot, and usually we do two-fors on it -- two-for-$4, two-for-$5 on the completes. That has really worked well.
BERGAN: I am still waiting for someone to come out with "hamburger leaves."
LANNERS: Part of the value equation is enabling the customer to buy smaller quantities of individual things, so she's got product that she will not waste. That's savings.
TERRY: That is a question I have for all of us. Has anybody found a salad for one that works?
ALSTON: We have had pretty good luck with the 6-ounce package, but I think the salad bar is where that business is going.
SN: What about households where folks don't necessarily eat home every night, and where that packaged salad is still going bad in the fridge before it is eaten? What is out there for them?
SCHROEDER: Maybe the solution there is the resealable bag, where the integrity of the package can be maintained and the shelf life kept intact for five days.
JOLLEY: All you guys have to do is ask for it; it's out there.
SCHROEDER: Quite frankly, the technology is there, but they are not doing it. That leaves it to us to lean on them to start doing it.
JOLLEY: The cheese people got around it in a hurry, once the convenience factor became well known. And you can do it for less than a nickel per bag, probably more like two cents.
SN: Is there a saturation point yet to be reached in the market or in your stores?
BERGAN: One thing that is going to control that is the market; a lot of it has to do with crop conditions. When lettuce is cheap, you have everyone in the world out there, but when it gets high or whatever, and the crops are short, the ones that are doing a good job are the ones who are going to be there next year.
SCHROEDER: You asked if there was a limit. I think there has to be. My boss is only going to give me so much space for the produce department to add. And I'm only going to give so much space to the precuts inside the space I have. I am still in the bulk produce business.
When you reach that point, and the case is full and a new item is available, then something leaves.
ALSTON: Most produce departments aren't expandable. Let's face it. We can do some things by adding shelving unit space into it and adding vertical space, and that's about it.
TERRY: Roger, you mentioned that you're starting to evaluate all the salads you are carrying to see which ones are actually going to hold water.
SCHROEDER: It is based on scan data; what items go in, what kind of money you're going to spend on promotion, how much time you are going to give each item, how much space you are going to give -- it is a type of category management.
I am finding that not only the lowest sales but the highest shrink is in these complete kits, just because you've really narrowed down the appeal. When you are talking about a Raspberry Romaine Salad, well, you better like Raspberry dressing.
More highlights from the precut roundtable will appear next week.
Joining in the Discussion
SN's roundtable discussion on the future of precut produce included six retailers and a packaging supplier representative.
