The whirling winds of our time are driving revolutionary, unprecedented changes for North American retail produce buyers.
Multiple dynamics intertwine to demand produce industry reconsideration of what have been long-standing operating procedures. Few segments of the industry are left that enjoy the status quo of recent years.
Radical change
Given exciting new technological applications throughout the global food industry, produce was rapidly evolving even before the Covid-19 pandemic took hold in early 2020. Suddenly, consumers were driven home to isolation. This devastated retailers, certainly grocers, as shoppers reduced their trips or even cut them out entirely by ordering online.
Prices rose for virtually all aspects of society and the food chain. In the United States in early 2021, fuel costs shot upwards as domestic oil and gas production was halted. The prices of agricultural chemicals and other food industry inputs skyrocketed. Reefer ocean container shipping costs in many cases tripled for exporters, while major seaports jammed in part for a lack of distribution infrastructure.
Playing a key role in this new-found nightmarish entanglement was a lack of labor. Federal U.S. programs paid workers and their companies to isolate themselves from Covid. Society settled into an awkward if easy, comfort — staying home instead of going to their place of employment, or working from home. Now, service to society’s new homebodies has become a business plan for grocery executives and foodservice operators.
As if these challenges weren’t enough, Russia invaded Ukraine in February 2022, disrupting global grain supplies and adding great additional burdens on fuel supplies for many nations. This January, the United Nations’ Food and Agriculture Organization Food Price Index indicated that 2022 global food prices hit an all-time high.
What’s Next?
Among experts tracking these matters is Joe Watson, vice president of retail, foodservice and wholesale for the International Fresh Produce Association (IFPA), based in Newark, DE.
Watson says retailers are sensitive to, and adjusting around, inflation costs. He cites the November national retail sales numbers showing that produce unit volume had been down for 17 straight months. Dollar sales were up, but dollar sales did not rise as much as inflation. “Fresh produce sales volume is down in retail stores,” says Watson. “When net dollar profits fall below the previous year, that will get retailers’ attention and have them work more on getting volume back up again.”
Broadly speaking, in recent years fresh produce supplies took multiple hits for a variety of reasons. Watson expects the domestic deal this spring will boost sales volume. He notes the inflation rate was 8% and food inflation has been 12-14% since the summer of 2022. “Projections are that market conditions will remain high at least through the first quarter of 2023, when more spring crops come on from California,” (prior to the heavy rains hitting the state in mid-January), he says.
Pre-pandemic, generally between 83% and 84% of fruit and vegetable sales were sold fresh. Now, because of inflation, consumers are cautious about where they spend their food dollars. Watson reports that this winter, in all fruit and vegetable sales, 75.7% of dollar sales are fresh. Shelf-stable produce is 15.6% of sales, and 8.7% is frozen fruit and vegetable products.
An in-depth study by consulting firm Deloitte published in September notes: “Shopping stress is rising again, driven this time not by Covid-19 but by the higher cost of food. Inflation affects almost everything for the consumer, from where they shop to what they buy. And that, in turn, is affecting the revenue and profitability of a food industry that is trying to adapt. But, for fresh food producers and grocers looking to compete on more than just price, there may be a bright spot: consistent demand for health and wellness.”
While price is swamping the importance of other purchase drivers, Deloitte reports that 84% of consumers still consider health and wellness when purchasing fresh food. Three in four are actively seeking more personalized nutrition, up 13 percentage points year-on-year. Moreover, 55% of consumers say they are willing to pay a premium for the right foods because they contribute to their health and wellness.
“Saying health and wellness are important is one thing. Putting food to use in preventing and treating specific health needs is another. Information, access and ease of use are currently barriers the food industry should address,” notes the Deloitte report.
It adds that, “Fortunately, food producers and retailers may have an opportunity to help consumers overcome these barriers while improving the top and bottom lines. Many consumers say they trust their grocer and would be willing to share some of their medical data and use technology for personalized nutrition. However, given today’s inflationary environment, the opportunity offered by health and wellness likely cannot be fully understood outside the context of price.”
Consumer Nutrition Education
Food choices and good health relationships recently came to the fore because “the Covid pandemic has shined a bright light on the fact that too many Americans struggle with chronic illness that puts them at risk for complications from this disease,” says Julie Greene, the director of Guiding Stars Licensing Company, LLC, based in Scarborough, ME. The company provides retail customers with nutritional information displayed for consumers to quickly surmise the degree of health benefits of individual foods. Retailers use the rating system to highlight choices in every aisle that meet the standard for earning one, two or three stars.
Greene expects interest to continue to rise. “Consumers are always seeking more information about the food and beverage choices they have. Right now, there is a great deal of interest in plant-based foods. It’s related to concern for environmental and human health. As shoppers wade through a sea of new types of products, Guiding Stars can provide a reliable way to narrow down choices to those with a positive balance of nutrition-related attributes.
“It’s funny,” Greene adds, because “most people know they should eat more and more vegetables, but often turn to more shelf-stable products for consistency, affordability, taste and convenience. However, once you leave the safe confines of the fresh produce department, it’s a challenge to find the foods that meet the needs of the contemporary shopper and support good health.”
The firm’s simple nutrition labeling and signage program is used by retailers including Hannaford, Giant Food, Food Lion and Stop & Shop.
Guiding Stars has science-based, published algorithms that evaluate food and beverage products produced, sold or distributed by its clients. “Some choose to use our trademarked nutrition icons for consumer guidance, which typically appears on shelf price tags, on e-commerce platforms and on packaging.”
While the company’s creation in 2006 preceded today’s pandemic experience, Greene says that it is more relevant today than ever. “The pandemic highlighted the ongoing concern about nutrition-related chronic disease, and consumers, healthcare providers and payers such as employers and insurers are concerned about the cost of healthcare.”
A similar service, says Deloitte, is applied by The Kroger Co., through one of its health interventions, OptUP. This is both simplifying and personalizing nutrition for its customers. It is a nutrition scoring system meant to make choosing healthier food easier. Vision Magazine was unable to reach Kroger to comment on this story, but Deloitte explains that OptUP scores are provided for individual food items as well as in aggregate for consumers, based on their own shopping data tracked over time.
Produce Operations Make Other Steps
At the IFPA’s June 2022 retail conference, Watson heard attendees indicate that despite food inflation, “of the 45 retailers in the room at the time, they had not gone too conservative and were still playing with new products and new packaging. They were not necessarily sizing down on pack sizes.”
Others see this differently. Anthony Totta says that many retailers are combatting produce inflation by downsizing packages. Totta, founder of Kansas City, MO-based Empower Fresh Co., which has developed an app that provides tips on handling produce for grocers, says produce managers have started to sell half a head of napa or a quarter of a cabbage. “Potato and onion packages are smaller so when customers go through the register, they don’t have to take out a second mortgage. I see smaller packs for convenience, and there is also the benefit that consumers don’t waste any product. They buy only what they use.”
This winter, food inflation has dropped but produce prices remain high. Notably, adds Watson, “through the 2022 holiday season, retailers did not make as strong of an effort as usual to promote in print ads. There are still some retailers doing print advertising, but it’s not back to pre-pandemic levels.” He explains that retailers are sensitive about printing prices, which may not leave a positive price perception with consumers and could yield competitive advantages to competitors.
Balls Food Stores in Kansas City is certainly an exception to that rule. Lou Malaponti, director of floral and produce operations, says his 25 independent stores advertise with printed four- or eight-page newspaper flyers every week. The printed material lends the space to educate consumers on nutritional information. This is also a basis for tie-ins with weekly and monthly promotions. Beyond print, Balls also uses social media to promote its fruits and vegetables.
Digital Retail Sales
Watson notes that digital sales merit increasing attention from the produce industry. In the IFPA’s December Town Hall meeting, the consulting firm IRI indicated that pre-pandemic digital sales accounted for 1.8% of total food dollars. By December, that number had tripled to 5.5%.
Watson says sales numbers aren’t entirely reliable when talking with produce executives about digital versus brick-and-mortar sales, because retailers don’t always precisely know sales methods beyond what volumes leave the distribution center.
The industry does know that historically 40% of produce sales move on impulse. “So now, how much do you lose on impulse sales when people shop digitally? There is not much opportunity for impulse purchases when buying produce online,” notes Watson.
Watson credits frozen foods for maintaining sales in the freezer section through recent years by doing a “fantastic job promoting meals with their products. I give them credit. Fresh needs to get better at creating serving suggestions in produce departments.”
Overcoming Waste Concerns
Watson says the fresh industry needs to overcome the fruit basket’s lost market share. Consumers are trying to stretch their dollars as much as they can. They look at waste at home. “We’ve got to show the value and quality of fresh and give information to manage minimizing waste at home and not lose sales. Consumers hear that fresh costs more now. What about later? We as an industry need to understand why fresh ultimately is the best value when you consider health and wellness.”
Produce industry consultant Totta credits many retailers for moving to meal solutions and providing “how-to’s” for preparing foods to create an appetite for the item.
Totta says it’s significant that grocers’ prepped food sections are a merger of restaurants and grocery under one roof. It is there that astute retailers show the fixings for foods that may be purchased from the prepared food sections.
He notes the Seed to Table store in Naples, FL, which is operated by Oakes Farm, “to me is the best of both. They mass merchandise product, while offering everything from fresh sushi to pizza. The parking lot is full if you go at either lunch or dinner time. People go to the store like they do to a restaurant. It’s experiential stopping at that place.”
That said, Totta concedes that other consumers “want what they want when they want it. It’s not about price. Consumer-shoppers today are not Depression children anymore. Some stores don’t run ads anymore,” but still succeed because some people are uninterested in what they pay for groceries.
Industry Communication Needed
Another need for the industry, says Watson, is that “it’s incumbent upon produce buyers, growers and shippers to discuss farm-production cost inflation in the food chain. If there are X acres and the return on the acreage is not great enough, if there is not a customer to sell to who will pay a reasonable return, what is the future?”
Excluding tree crops, which are, of course, rooted for the long term, growers who have options for planting springtime specialty crops need to have conversations with retailers to address spring and summer supplies. “Retailers are certainly on the clock in terms of where they’ve been for 18 months facing volume erosion,” he adds.
Totta notes that nationwide in recent years, growers have shown philosophical changes in production planning. Historically, growers unabashedly planted, aiming for high volumes. Behind the plan was the expectation of a competitor’s crop failure. “The industry delivered on overproduction of fresh produce and supply exceeded demand which suppressed prices. Wholesalers and retailers in the past didn’t need contracts.”
Today, a reduction of growing areas on the agronomy side and improved planning have the growers now shooting to meet the demand “more than grow what they want to grow when they want to grow it and hope to sell. Now, retail chains are increasingly agreeing to contractual pricing, which takes the peaks and valleys out of pricing.” Beyond more consistent pricing comes the additional edge of a hedge on inflation, says Totta.
Help Wanted: Produce Talent
Watson notes that another “huge struggle” for retailers is overcoming the push for talent. “How to mitigate that? At IFPA we have had more outreach from retailers in the past year asking how to attract and keep entry-level folks.”
Retailers have raised their own minimum wages and performance plans. This is important, not only for an entire retail chain, but certainly for fresh produce departments.
By answering consumer questions about individual commodities, “informed produce clerks are very important for increasing sales,” he says. “Unanswered questions may not so much impede banana or potato sales, but with properly trained and knowledgeable staff, the suggestive selling aspect gives retailers the ability to sell what consumers are not expecting to purchase such as specialty items.” He adds the retail labor shortage connects to food trade and certainly the produce industry.
One regional grocery chain offering a solution to labor problems is Schnuck Markets Inc., based in St. Louis. This January, the chain announced that following a successful launch in the St. Louis area, it is expanding its “Flexforce” employment option to additional locations in Illinois, Indiana and Missouri. Schnucks Flexforce teammates can select shifts and store locations that fit their schedules while creating opportunities for growth and learning at a pace determined by the teammate.
Evolution
Our world, our country and our industry never cease evolving. Problems, once unimaginable, become realities. Adjusting is an option only if we choose to cease to exist. As the industry changes, it grows stronger. Now, we apply techniques that work well and which we never would have otherwise imagined.