COMPLICATING MATTERS

More than ever a star in the store, the retail produce business these days is also grappling with growing pains.

ilers and wholesalers named food safety and in-store labor as among the most acute pressure points -- and both, it could be argued, are by-products of the industry's expansion.

As one produce decision maker from Missouri put it, "Produce has become a complicated business," with interrelated competitive, regulatory and demographic challenges subjecting the old, traditional produce department structure to new strains.

More than a dozen executives from around the country offered their opinions on what critical trends they are counting on most to help their business grow -- and also what potential pitfalls are keeping them up some nights.

On the positive side, most said they expect their sales to continue to increase -- and in line with that expectation, their store operations are enjoying vigorous physical growth and reconfiguration. Among the bright spots:

The locomotive of value-added sales is still on track for growth.

Consumers are hungry for more ways to work different and better tasting produce into their diets, a trend that is injecting vibrancy into sales of categories like mushrooms, tomatoes and tree-ripened fruits.

Information management is slowly but surely helping retailers and wholesalers improve their operations.

These silver linings have their clouds, too, exerting their own kind of influence on the industry's future.

For example, the fresh realization that the produce economy is just as vulnerable to food scares as meat and other foods has shocked -- and is galvanizing -- the industry.

"Food safety is really driving a lot of the decisions that are taking place at the produce executive level today," said Bruce Peterson, vice president for produce merchandising at Wal-Mart Supercenters, Bentonville, Ark.

"I suspect that if there are too many more product-safety-oriented issues, whether they be in produce or not, people are going to start to look at things like organics as a viable alternative," he said. "The globalization of trade is also going to be a huge, huge issue with, again, food-safety ramifications."

Peterson said one food-safety-related reaction entails providing the proper environment for the booming value-added, ready-to-eat produce segment. It's an important consideration, he said, because value-added "is a category with great opportunity to it."

But fresh-cut produce items have gotten dearer to sell, retailers said, requiring not only extra outlays for refrigeration equipment to improve holding power, but also bigger budgets to pay for the personnel needed to give greater attention to proper handling and sanitation practices.

The cost considerations -- some already in place and some with potential ramifications -- facing retailers right now include special employee training, product testing and compliance with governmental health regulations, particularly those associated with the Hazard Analysis Critical Control Point inspection system.

Wholesalers told SN they have been turning produce-processing tasks over to third parties as responsibilities mount for following new food-safety rules.

"This is the first year for our successful precut fruit program," said Bill Cavicchi, produce buyer at James Ferrera & Sons, Canton, Mass., one such wholesaler. "One of the reasons we went to it was that we were able to contract with an outside source that had a complete HACCP program. I feel more comfortable with [that situation] than with not really knowing how product is being handled by individual stores' back rooms."

Retailers like Marvin Lyons, produce merchandiser for bigg's Hyper Shoppes, Cincinnati, are also likely to lean toward third-party sourcing for certain value-added categories in the future.

"Right now, we are cutting fruit in my back rooms," Lyons explained. "I don't want to do that anymore, seeing that may not meet up to the government standards two years from now. So we have to find a cut-fruit program that's done locally and assure our high quality standards."

Meanwhile, Lyons and other retailers said they have stepped up cross merchandising of cut produce, and are also spotting more value-added product among home-meal replacement dishes, in tune with efforts to wrest business from restaurants and food sellers. That trend, they said, is naturally leading their business into the realm of the integrated super-perishables section.

"We are trying to find a niche to grow our business," said Lyons, "so our philosophy this coming year will be to try to integrate the deli, meat and produce departments." That calls for an erosion of the tradition of interdepartmental competition.

Produce is playing a role in similar ground-breaking changes at Houston's upscale-oriented Rice Epicurean Markets. "We've actually taken down the barriers between departments in our 25 Rice Epicurean stores," reported Mark Luchak, director of produce and floral operations.

"If we carry an item anywhere, whether it's a premade fruit salad in our HMR bar or an entree with a side dish of vegetables, we make sure [that clerks] get behind selling that product throughout the store," Luchak said.

However, the more ambitious or innovative the growth plan, the more the need for personnel training and retaining can spin out of control.

"Availability of personnel is the biggest hindrance to growth that we have in this industry," said Dick Perkins, produce director at Consumers Markets, Springfield, Mo. "Surveys I've read indicate that 2% of the American public is unemployable, and unemployment levels aren't too far from that.

"Our industry probably is known for being a little weak in skills and training. And not everybody will want to work in produce or make a good produce person.

"Competition is part of that labor problem," Perkins continued. "Hopefully you've done your homework with a good training program and you will retain a majority of your employees."

To that end, his company is making liberal use of training tapes from the Produce Marketing Association in Newark, Del.

But it is apparently not a monster of a problem for everyone. Natural-food specialty retailer Wild Oats Markets, Boulder, Colo., routinely attracts the kind of highly motivated, well-educated produce "diamonds" conventional supermarkets hanker after, according to Kenny Meyer, national produce director. And the operator's store count has shot from one to more than 50 in little over a decade.

Labor challenges aside, many retailers reported healthy growth for the produce business.

"Our prototypes have larger produce departments, and our remodels all include them," said Steve Junqueiro, director of produce and floral for Save Mart Supermarkets, Modesto, Calif. "We've expanded the department from about 2,200 square feet on average to over 4,000 square feet. Our SKU count is up 10% to 15% over the past three years."

Junqueiro said it's an ongoing process. The upgrades usually include an expansion of merchandising for premade salads and the like, in towering cold cases that are changing the produce department's skyline, but not necessarily taking up additional floor space.

Reconfigured departments are increasingly being seen at locations like those operated by Brookshire Grocery Co., Tyler, Texas, where David Dupree, VP of produce operations, has switched to refrigerated multidecks from traditional double-deck produce racks to accommodate expanded cut produce.

Frank Gillespie, corporate produce director at Roundy's, the Pewaukee, Wis.-based full-line grocery wholesaler, said produce activity has picked up recently.

"We've been doubling the size of our produce departments (at the company's corporately owned Pic N' Save units) for only the last 18 months. We put 24-foot uprights in 50 stores over the past two years for the value-added category, which enhanced our sales and reduced shrink."

At Associated Wholesale Grocers' two-year-old Oklahoma City division, some retail customers have been keeping up with the competition by pressing reconditioned multideck dairy cases into service, according to Dean King, produce director.

King suspects that while value-added would do well in the near future, he doubts whether the vegetable portion of those sales would continue climbing upward at the same blistering rate. Rather, "The [cut] fruit will increase, because it is becoming a new category and more of it is available now," King said.

Meanwhile, Perkins at Consumers said he anticipated blended salads and protein-added salads would be adding sales growth to the premade salad business, "as these become a better value to the customer."

Retailers are also looking beyond fresh-cut for an uptick in their business. Brian Gannon, director of produce and floral at Big Y Supermarkets, Springfield, Mass., said he expects mushrooms, peppers and potatoes to fare significantly better in the near future because these "groups are being used in new, creative ways in restaurants, magazines, and on TV food shows, and that seems to be spurring interest in more usage of more varieties."

For Ken Lanhardt, director of produce and floral operations at Cub Foods' Atlanta division, the candidates for increased sales growth include tree-ripened stone fruits from Washington state and California.

Lanhardt also noted that tree-ripening programs, yielding better-tasting peaches and nectarines, were available for the picking in other regions of the country, too. "We're also looking to buy more conditioned pears," he said.

On the flip side, the movement to merchandise riper fruit with better quality is running up against some difficulties. For example, supermarket buyers and wholesalers are having problems with factors derived from the trend -- such as higher perishability and confusion in distinguishing premium product from regular tree fruit at the front end.

Luchak said that Rice Epicurean, serving an affluent market with an above-average 650-item assortment, follows this philosophy: "If it grows, we aim to carry it." That attitude allows the chain to take chances, he said, and tends to put Rice into a good position for drawing traffic when a low-profile category like organics suddenly explodes.

For example, Luchak said he tried a couple of cases of stalked artichokes, and is now going to carry it as a stock item.

Hearing the artichoke story, Save Mart's Steve Junqueiro agreed that "different looks" for products, such as tomatoes on the vine, have "that eye appeal for being so fresh."

"The tomato category, with more variety and home-grown taste, is going to be a huge job -- but a very definite opportunity for us," he predicted.

While some consumers' tastes -- and among some savvy retailers, produce assortments -- are becoming more sophisticated, so are the nuts and bolts of produce retail operations, which executives said will definitely have an impact on their business next year.

In particular, large and medium retailers are striving for efficiencies through more sophisticated use of information, they said.

"As opposed to category management, the ability to manage information electronically is going to be a huge issue," said Wal-Mart's Peterson. "At Wal-Mart, we have a much more integrated relationship with our vendors than is typical in the produce industry. We allow our vendors to see POS information at their point of access, through integrated systems, and now we are extending that into replenishment."

Consumers' Perkins said that, as a group, the industry "is rapidly moving from being in the retail supermarket industry to being in the information industry."

"We used to make decisions by the old gut feel, but for the last two years, we have had a system whereby we can retrieve actual scanning data from every store weekly. We can now make a concise, accurate evaluation of the situation and determine exactly how important that item or category is to what we're trying to do with produce."

Several of the retailers interviewed, on the other hand, cautioned that the industry should not discount such old-fashioned trends as price-consciousness.

"Price will continue to be just as important with fresh-cut as it is with potatoes, apples and oranges in the bag. We'll run 5-pound bags on BOGO's, and run deep price cuts in 1-pound garden salads," he said.

So some things, at least, aren't changing.