VALUE-ADDED FRESH GROWTH WILL CONTINUE, STUDY FINDS

STEPHEN DOWDELL

NEW YORK -- Its growth rate may have slowed compared with last year, but the market for value-added fresh produce has still not hit its peak, according to an industry study newly released by FIND/SVP here.

Heavy debates persist over how long the hotly competitive precut-salad business can continue to sustain its historically healthy growth. But in market research firm FIND/SVP's analysis, "The Market for Value-Added Fresh Produce," the precut market -- which encompasses items such as precut vegetables and fruits as well as packaged salads -- will continue to grow in sales at least into the next century, with double-digit increases each year projected through 2003.

However, by the year 2000, the rate of that growth will have peaked at 26.1%, FIND/SVP estimates, with the percentage slipping slowly but steadily after that to 18.1% in 2003.

The FIND/SVP report is based on "extensive interviews with industry participants along with an in-depth review of published sources," according to the company. Its sources included marketing executives of grower/distributor firms, representatives of supermarket chains, food-service buyers and association representatives, it said. Its projections of market trends into the future rely on "expected trends in growth rate and share of total fresh produce sales, segment by segment, according to industry consensus and published expert opinions," FIND/SVP said.

The FIND/SVP report portrays the precut business in particular as still lucrative, with strong opportunities for sales growth, and characterizes it as an industry that will be sustained by the way its products successfully address the needs of consumers looking for easier ways to eat healthy food.

"Important consumer segments for the value-added produce industry include dual-income households, small households and mature households," the report said. "These households' purchase motivations include convenience and/or health. All of these segments are significant in number and are currently growing at rates higher than the average rate of household growth, fueling the growth of the value-added produce industry."

The report also presents a value-added produce business that will continue to grow increasingly more complicated and competitive going into the next century.

The challenges facing the business, it said, include:

A packaged-salad market crowded with even more competitors than ever, some of whom will simply not be able to support the capital demands of necessary equipment related to the rigors of assuring food safety and food preservation.

Continual, and expensively wrought, new product development, particularly in segments of the precut market that are already saturated, such as prepacked salad mixes.

Increasing consumer, and thus retailer, demand for clear and certifiable assurances that the products are safe and offer satisfactory shelf life.

"Food safety is most often cited as the key issue facing the companies competing in this industry," said the report of its research, conducted through industry surveys and interviews. "The importance of reassuring retailers and consumers has been reinforced by a highly publicized series of E. coli and salmonella scares."

Of the retailing side of the value-added produce equation specifically, FIND/SVP said, "Supermarket produce purchasers tend to expect the value-added produce industry to grow (although perhaps at a slower percentage rate). They are satisfied with the products available and hope that technological advances in cut fruit will extend its shelf life. They consider food safety a key issue and dual-income working households an important market segment for value-added produce."

The report identified the best sellers in the precut segment as salad mixes (with garden varieties of chopped iceberg lettuce dominating the volume), vegetable florets of broccoli, chopped carrots, cauliflower and cut-fruit salads including various types of melons.

The innovative assortments, according to FIND/SVP, are ethnic salads such as Southwestern and Asian, home-meal replacement salads (typically containing dressing and a protein source for a full meal), vegetable side dishes and washed, destemmed grapes and strawberries and sliced apples.

"The top-selling, high-growth companies have been introducing new products such as single-serving salads, and extending from basic varieties to full lines," FIND/SVP added. "Cut vegetables and fruits offer an opportunity for increased growth, as these segments are less saturated with competitors and products than the packaged-salad segment." FIND/SVP detailed this opportunity in its market assessment and projections. It said the sales of precut vegetables and fruit hit about $4.5 billion in 1997, representing about 7% of total produce sales for the year and dwarfing sales of salads and coleslaw, which it put at $1.5 billion last year.

Sales of those other precuts are expected to grow at a compound rate of 23.9% annually, exceeding $16 billion by the year 2003. FIND/SVP anticipated that precut fruit will play a big role in that growth in the next few years.

Sales of packaged salads and coleslaw, on the other hand, are expected to grow at a rate of 11.2% annually until 2003. FIND/SVP currently puts growth at an average rate of 39% annually.

At year-end 2003, the total precut business (salads and other precuts combined) will generate $19 billion in sales, constituting a sizable chunk of what is expected to be an $85 billion total fresh-produce market by then, according to the research report. (FIND/SVP based its projections on sales to U.S. consumers through "retailers and distributors.")

The report's broad definition of value-added produce also encompasses organic produce and exotics, and the research firm sees healthy potential in the future growth of organics in particular, following a pattern set through the 1990s. "Total estimated revenues in the organic segment demonstrated a healthy compound annual rate, 32.6%, between 1993 and 1997," it said.

By 2003, FIND/SVP estimated, organics sales should reach almost $4 billion, likely helped along by the ongoing effort of the U.S. Department of Agriculture to set a national standard of certification for organic foods.

"FIND/SVP expects the organic segment to grow to nearly 5% of retail produce sales by the end of 2003, up from less than 2% in 1997," said the report. "For the 1997-2003 forecast period, sales will increase from approximately $1.1 billion to $3.9 billion, or 24% [annually]." What's more, the research firm predicted, by 2003, organic produce's share of total fresh-produce sales will surpass the packaged-salad segment in size.

Such segment-specific activity will continue to alter the character of the overall fresh-produce business in the future. While total produce consumption is expected to grow, a shift in emphasis will occur from non-organic uncut produce in favor of value-added business such as organics and precut.

"FIND/SVP expects the value-added segment to increase its share of the total market for fresh produce, at the expense of the non-value-added segment," said the report. "In 1997, non-organic uncut produce held an estimated 89% share; precut plus organic held the remaining 11%. At the end of 2003, we expect the non-organic uncut segment to hold 73% of the fresh-produce market, with precut and organic produce at a 27% share."

The full report, including more detailed projections and analysis of the forces shaping the value-added business, is available from FIND/SVP.