THE PRODUCE MARKET IS RIPE AT RETAIL.
Consumers' interest in flavor, health and sustainability are burgeoning, driving them to the type of organic, exotic and locally grown produce that has been traditionally found at specialty, health and ethnic supermarkets as well as at farmers' markets.
By taking advantage of worldwide sourcing, many mainline, traditional supermarkets can now offer seasonal produce year round. In RIS News' 2007 Grocery Trends Study, 75 percent of respondents said they are growing the size of their produce departments. Some now offer as many as 1,200 SKUs.
All this comes at a price. After the grand re-opening, banners come down. Grocers must maintain these larger departments and sustain their role as a customer draw. Doubling the SKU count with organics and adding low-turn, high maintenance exotic products represent a whole new operational challenge that is threatening already-thin margins. The commodity nature of produce means trade promotion programs have been scant, leaving it to retailers to create market excitement around their produce arrays.
Large retailers have long turned to technology to replicate the management prowess and customer intimacy that occurs naturally in smaller stores and specialty chains. Technology, combined with re-engineered business processes, may well be what it takes to sustain supersized produce operations. But so far, analysts say mainline grocers and their produce suppliers have barely scratched the surface. "There is a lot of opportunity just sitting there waiting to be taken," says Kevin Price, president of The Market Performance Group.
Signs indicate that produce suppliers and retailers are awakening to at least some of the implications. Already, produce suppliers are packaging more goods and doing more trimming, cutting and rewrapping before produce hits the store. This enhances safety, preserves shelf-life, lowers store labor costs and eases handling. "Incremental changes in equipment, planning and development, harvests, washing and so on increase the speed to retail as well as quality and shelf life," says Bil Goldfield, communications manager for Dole Fresh Fruit Company.
Produce suppliers also are extending traceability. Historically, traceability options have been limited. "We have elaborate systems already in place to track product from the field to a specific harvest crew to a packaging plant to a lot," said Bryan Silbermann, president of the Produce Marketing Association, at the association's recent Fresh Summit. "Then the information flow stops."
A new produce traceability initiative will standardize processes and close the gaps. It will most likely require tracking and record-keeping of cases and items out to the floor. The handheld computers already used in most stores to monitor inventory can also be used to record this tracking data.
Some produce suppliers say they already have controls in place. Dionysios Christou, VP of marketing at Del Monte Fresh Produce, says his company's "comprehensive system" includes lot coding from fields and fresh cut facilities. "This ensures control and traceability forward and backward," he adds.
Produce suppliers and supermarkets also are looking at technologies that could maximize turns, margins and overall profitability. Key areas of focus are inventory management, labor productivity and store execution.
Store execution management and task management systems help prioritize and close the loop on to-do lists of store staff. Such solutions seek to maximize staff productivity and labor use, ensure standards and processes are followed and provide visibility into the status of tasks. In the RIS Grocery Study, 35 percent of retailers said they are incorporating work methods, task management and best practices at the store level.
Some solutions are specific to perishables. They help store associates determine what needs to be processed, replenished, marked down, re-set or thrown away. Texas chain United Supermarkets, for example, licensed ADC's P-Cubed Perishable Production Planning system. The system offers forecasting and perpetual inventory management for perishables that reduce guesswork and increase employee efficiency. The solution includes a thin-client wireless handheld web browser and scanner capability, which accesses a central repository for fresh item data. The goal is to reduce shrink and to significantly improve employee efficiency.
A related software category is labor optimization. This technology helps ensure that the right number of people, with the required skills, are scheduled to handle these tasks, while keeping labor hours within budget. Thrifty Foods, a Victoria, B.C. grocer, uses Kronos to set schedules based on 15-minute increments and perform labor forecasting, sales projections and productivity monitoring.
There is an even larger gap between what is happening and what is possible in the area of produce promotions. Produce has long been regarded as a commodity, with many suppliers and product categories represented in stores for only a few weeks. Few brands have attained national recognition or year-round status.
Trade promotion programs have been few and far between. Buyers have selected produce to promote based largely on deals rather than on how those promotions might tie into the chain's overall strategy for the category - if they have one.
"Produce buyers are not used to dealing with marketing companies," says Richard Guha, partner at Max Brand Equity. "Even the packaged goods manufacturers that sell things that go with produce do not understand the produce section. This is a really big issue."
The situation is starting to change. A recent promotion by Green Giant Fresh/The Sholl Group II with a national retailer, for example, spurred a 10-fold sales increase. It was followed by three weeks of residual sales that were up 25 percent over regular sales. The company's trade promotion marketing also includes sampling, coupons, IRCs, cross promotions, ads and special ad programs.
Consultants urge retailers to take a more scientific approach to promoting produce. By mining frequent shopper data, supermarkets can target promotions to high-volume shoppers with an affinity for produce. "Technology allows you to reach target customers in ways you could not do 10 years ago," says Market Performance Group's Price. "But supermarkets have not been putting time and thought into that."
By using in-store promotional tactics, retailers can, to varying degrees, move away from luring consumers with traditional high/low sales strategies.
"In-store shopper marketing will balloon as people try getting away from price as a marketing tool, hitting customers when they're predisposed to buy and adding to the value side of the equation," says Don Stuart, managing director of Cannondale Associates. "The perimeter is a great place to cut back on traditional trade promotions." He adds that retailers are hiring CPG marketers to bolster these efforts.
Pricing technologies can help supermarkets determine what pricing levels will maximize sales. Rather than basing price on landed cost, for example, some specialty markets price lesser-known produce according to what consumers will pay in order to build demand, says Guha.
But the RIS study revealed that only 11 percent of grocers said they were using pricing optimization. Half are testing or evaluating it.
"Pricing software tools and promotion evaluation tools can help segment customers to attract more valuable shoppers," says Stuart.
Digital signage is being used more to promote, up-sell and cross-sell directly to customers. It also is helping to educate them on food handling, unfamiliar exotics and organics and to provide preparation and serving ideas. According to the Produce Marketing Association, 87 percent of consumers will pass by a display if it does not have a sign.
Digital signage can be linked to price checking devices. Advertisements related to scanned items can be played.
When it comes to produce, supermarket operators should be exploring two fronts. They should seek a better understanding of retailers that do well with produce, from specialty stores like Berkeley Bowl to ethnic chains such as Publix Sabor to farmer's markets. Second, they should determine how technology can help replicate these operations. So far, that is not happening much.