PRODUCE PROFITABILITY DEPENDS ON FRESHNESS

Lynne Miller

NEW YORK -It goes without saying that offering fresh fruits and vegetables is essential to the profitability of any supermarket produce department.

Perhaps more than ever before, though, sourcing a wide variety of fresh and ripe produce is absolutely critical. Retailers are working more closely with suppliers and distributors to get the freshest, tastiest fruits and vegetables into stores. Relationships with parties up and down the supply chain have evolved, the objective being to improve distribution, turnaround and quality. Many supermarkets receive produce deliveries almost every day. The goal, after all, is to satisfy sophisticated shoppers who want healthier food they can sink their teeth into today.

"I believe [freshness] is more important that it's ever been," said Richard Draeger, vice president of Draeger's Supermarkets, a Menlo Park, Calif.-based chain of three stores. "Customers have become more and more familiar with farmers' markets. As a result of farmers' markets, and with that exposure, they expect us to provide that [level of freshness]."

Many shoppers stop in Draeger's upscale markets almost daily to pick up fresh fruits and vegetables, sourced from local and far-flung growers. The regular customers expect nothing less than ripe, ready-to-eat produce.

"We've pushed our suppliers harder to deliver ripe product," Draeger said, noting the focus has led to pre-ripening programs with the retailer's distributors. "It's extremely important. You've got to be able to have products that can be consumed the same day."

Averaging 40,000 square feet, Draeger's supermarkets set aside about 20% of selling space to the produce departments, which carry about 300 different items. The stores receive produce deliveries from the San Francisco Market, as well as deliveries from local companies, just about every day.

One positive change Draeger has noticed is better distribution of local products. "There's better availability of distributors of local product than has existed in the past," he said.

"There's more customization going on relative to distribution. We're finding more and more services deliver to niche markets."

The fresh produce departments are vital to the company's image and bottom line. Draeger declined to say how much produce contributes to overall store sales, or how much it offers in gross margins. "It's going to be one of the highest-grossing departments that we represent," he said. "Produce is the No. 1 reason a customer selects a retailer."

Offering an abundant assortment of ripe, ready-to-eat produce in peak condition is Joe Pulicicchio's goal for the Town and Country Markets in the Seattle area. Whether the featured fruit comes from New Zealand or Washington state is not as important as its condition, said Pulicicchio, produce specialist for the chain.

"We go out of our way to offer the right fruit in the right conditions," said Pulicicchio. "We work with specific growers through our wholesaler to target specific varieties. If it's too early, it doesn't belong in the store. We'll see California peaches around the end of April this year. I won't have a peach in my store until June. You'll get the sales, but if it makes people mad ... the key is to provide the right varieties."

The footprint for Town and Country Markets' produce departments ranges from about 2,500 square feet to 10,000 square feet, in stores ranging from 25,000 to 70,000 square feet. Produce departments carry about 800 items, including 500 to 600 fresh items, Pulicicchio said. Depending on the season, produce delivers 17% to 21% of overall store sales. About 30% of produce sales come from organic items, he said.

"Our department is a huge contributor to the financial stability of the company, to the overall bottom line," Pulicicchio said. "We're very successful with profitability."

One strategy Pulicicchio relies on that helps the bottom line is using just four suppliers for organic and conventional produce. Working with four companies gives Town and Country leverage it wouldn't have if it divided its buying among several more companies, Pulicicchio said. On the other hand, having more than one supplier gives the retailer alternatives if there's a quality problem with one company. The retailer also has access to a greater selection than would be available through just one supplier.

"If you work with too many, you divide your purchasing power up," he said. "You have no leverage with anyone. Our purchasing power is higher, and they work harder to get our business. If we're not getting the right quality from our primary suppliers, we go to the other one.

"They're all competing to move the boxes," he said. "I don't want to get robbed to get good quality. This improves quality and helps with the pricing. They compete for cost of goods and service level."

Pulicicchio believes the retailer's relationship with the produce suppliers gives the company an edge.

"These guys are all the best," he said. "We rely on our relationships with suppliers. I don't ever call my suppliers and chew them out. I call them and say we have an issue. We believe in treating suppliers with respect. Our suppliers are our partners. They help us secure product when product is tight. When I need 1,000 cases of asparagus for Christmas, I get them. My suppliers have relationships with the airlines."

Better supply chain relationships were touted recently when Supervalu announced the launch of its new specialty produce company, W. Newell & Co., to be based in Champaign, Ill. W. Newell will employ produce-only account managers, a new position within Supervalu, to work with retailers to make sure their supply needs are being met. In announcing the new company, Gary Gionnette, Supervalu's vice president of produce, who will head W. Newell as its chief operating officer, told SN the company will be able to shave time off deliveries to stores, ensuring fresher product.