With a look toward the upcoming summer selling season, retailers view produce with different eyes.
[Editor’s note: some quotes by retailers were previously published in Jim Prevor’s Perishable Pundit April 13th Edition.]
Business-as-usual is the way the year started. Then, like that first raindrop signals a storm ahead, the COVID-19 virus swept around the world and into the U.S. in pandemic force. Since March, the produce business, especially at retail, has been unusual. In many ways, the conditions have been driven by state and federal mandates that govern how shoppers buy food.
Yet, resilient retailers are not just hunkering down. Instead, they are striving ahead with the task of observing how buying habits change in crises such as these, applying lessons learned to the immediate seasons ahead, and garnering insights instructive in the long-term to future generations of produce executives.
PANDEMIC BUYING & PRODUCE
Mid-March is when shelter-in-place orders kept shoppers and their families home, but supermarkets deemed ‘essential’ remained open, and restaurants were forced to close except for take-out orders, recaps Joe Watson, vice president of membership and engagement for the Eastern USA, for the Produce Marketing Association (PMA), headquartered in Newark, DE.
“Supply didn’t stop, but channels for fresh produce were disrupted, and it caught everyone by surprise,” says Watson, who has produce retailing in his background as former director of produce for Rouses Supermarkets, a 76-store chain based in Thibodaux, LA. “That was when we first saw a big spike in retail sales.”
Fresh produce sales peaked 32.4 % higher than the year prior during the week of March 15, 2020, with fruit sales up 28.4% and vegetable sales up 40.9%, according to total U.S. multi-outlet data for the week ending April 12, 2020, by Chicago, IL-headquartered Information Resources, Inc. (IRI).
Panic buying and stocking up for anticipated long-term cooking at home drove volume, but variety was drastically different in overall shopping baskets. Some items soared in sales, while others plummeted.
“On fruit, instead of specialty apples like SnapDragon, Kanzi, Kiku and Cosmic Crisp, which we had been promoting, it was mainstream bagged apples that customers wanted. Bagged oranges too. It got me thinking we should look into bagged pears this fall, something we have never really carried.”–Jim Weber
“We went from customers’ preference for 1-pound packs of small microwave potatoes to 15-, 20- and, in one of our stores, even 50-pound bags of potatoes,” says Jim Weber, produce supervisor for Tadych’s Econofoods, a six-store chain headquartered in Brillion, WI. “Likewise, 2- and 5-pound bags of table carrots increased a few hundred % in sales over baby carrots to the point where we needed to refill displays up to three times in a night. Our stores are open 24 hours, and we saw quite a few new customers as a result who came in to shop after midnight when it wasn’t crowded.
“This trend continued in other items too,” Weber adds. “Customers wanted whole heads of cauliflower, not bags of florets. They wanted 5-pound bags of onions. On fruit, instead of specialty apples like SnapDragon, Kanzi, Kiku and Cosmic Crisp, which we had been promoting, it was mainstream bagged apples that customers wanted. Bagged oranges too. It got me thinking we should look into bagged pears this fall, something we have never really carried.”
On the downside, “a lot of our grab-and-go items for snacking, such as parfaits, single-serve juices, and small packages, have decreased in sales since people have stopped going to work, gyms, parks, etc.,” says Josue ‘Josh’ Padilla, director of produce for Citarella, Inc., a 10-store gourmet market headquartered in New York, NY.
The good news overall is that two months later — as of mid-May — produce sales remain up. Specifically, fresh produce growth for the week of May 3, compared to the same week in 2019, was 17.2 %, based on IRI data. Fresh vegetables led fruits, but both registered double-digit increases.
THE DOMESTIC SEASON AHEAD
A lessening of COVID-19 sheltering restrictions, combined with the allure of summer seasonal produce, should keep retail sales of fresh fruit and vegetables brisk. Yet, the continued effects of pandemic life will still be apparent and play key roles in retailers’ buying, merchandising, and promotional strategies.
“Crisis or not, as we move into late spring and the summer-type holidays come into play, the sales opportunity is huge for fresh produce,” says Jeff Cady, director of produce and floral for Tops Friendly Markets, a 169-store supermarket chain headquartered in Williamsville, NY. “I think the panic-buying, for lack of a better term, is over. I think we will continue to see strong sales growth, but the fresher type items, like berries and salads, will grow even more, with the hardline items will slow down a bit.
Don’t get me wrong, double-digit growth for the hardline type produce items is expected to continue due to consumers eating at home more often, but the perishable items should outgrow as we move through the end of the crisis. The challenge is harvesting, packing, shipping, etc.”
“I think we will continue to see strong sales growth, but the fresher type items, like berries and salads, will grow even more, with the hardline items will slow down a bit.”–Jeff Cady
Tops Friendly Market
Weather has always been a challenge and will continue to be No. 1, but labor is a huge test because of the physical nature of the produce industry, according to Mark Hendricks, Sr., produce director at Rogersville, MO-headquartered Pyramid Foods, a nearly 50-store retailer whose banners include Price Cutter, Save-A-Lot and Country Mart.
“As long as workers are brought in from different areas and work near each other, the spread of whatever the next pandemic crisis is may become the biggest challenge in the industry during the seasonal harvests,” says Hendricks. “Also, as states adopt different methods of quarantine, the daily process of shipping commodities from area to area could prove to offer a different set of logistical problems. There should also be caution taken in the deals that one is approached with in the short term. Retail buyers should ask the hard questions when it comes to sizes and grades in this new world.”
“This has also been a good time to do category reviews. Items that are not selling at this junction will probably never sell, and it may a good time to discontinue and replace with newer or fast-selling items.”–Josh Padilla
According to Mike Orf, vice president of produce operations for Hy-Vee Inc., a 245-plus store chain headquartered in West Des Moines, IA, “In the coming months, we will be focused on making sure we are meeting the needs of our customers by working closely with our suppliers to secure our orders well in advance.”
Measures to curb the COVID-19 pandemic have led to new sources of supply for retailers. Namely, produce that would have been sold in the foodservice and export sectors.
“With much of the foodservice buying off the radar, we have been able to get better quality, availability and pricing to move product,” says Citarella’s Padilla. “This has also been a good time to do category reviews. Items that are not selling at this junction will probably never sell, and it may a good time to discontinue and replace with newer or fast-selling items. I also believe that this is a good time to add new items. I would recommend growers increase acreage on faster-selling items. Finally, it’s a good time for growers and retail chains to support further localize their local programs to specific stores by going DSD (direct store delivery) than farm to warehouse.
At Gelson’s Markets, a 27-store upscale chain headquartered in Encino, CA, John Savidan, senior director of produce and floral, foresees some great opportunities this summer with more export quality fruit being available in the U.S. “Being a high-end retailer, this will put us in a great position to be able to get our hands on these types of programs. We have reached out to our local suppliers and have told them we’d be interested in any export-quality fruit and to run all of these types of items by us.”
There may be even greater demand for packaged produce moving forward. For example, IRI data shows the share of produce sold in fixed weight packaging rose from 47.1 % during the 52 weeks ending in late January to 51.2 % during the peak of the pandemic.
“We have reached out to our local suppliers and have told them we’d be interested in any export-quality fruit and to run all of these types of items by us.”–John Savidan
“People may switch to more packaged itemization for the mere fact that it could appear safer when the contents are concealed,” says Gelson’s Savidan.
Merchandising could remain as difficult as it was during the peak of the pandemic. For example, limitations on the number of shoppers in a supermarket at any one time and one person per cart rules have created a ‘get in and get out’ mentality, according to the PMA’s Watson. “Some 40 % of sales are impulse, and this could be lost on shoppers who come in, buy what’s on their list, and want to quickly leave the store. This means retailers, as well as grower-shippers, might have to target shoppers with information about their products or promotions before they get to the store.”
The season ahead could be ripe for promotions as a downturn in the economy means less purchasing power for consumers. For example, 45% of 18 to 29-year-olds, and 31% of 31 to 38-year-olds have experienced work reductions due to COVID-19, according to IRI’s May 15-released report, The Changing Shape of the CPG Demand Curve.
“Depending on the commodity, there will undoubtedly be upward pressure applied to the cost of goods with labor, food safety, transportation and many other factors involved in setting market pricing going forward … we need to shy away from 99-cents per pound because it’s always been this.”–Mark Hendricks
“I’m sure we will see some bumps in the road where people will be cutting back on their spending, but I do feel it will be more along the lines of the higher-priced center of the plate items. The fresh produce industry is very fortunate to still have some of the lower-priced items within the store, especially when you compare to some of the other departments,” says Gelson’s Savidan.
With a crunch in the workforce and less expendable income, fresh fruits and vegetables may give way in part to cheaper processed offerings on the grocery side with canned and frozen options, adds Pyramid Foods’ Hendricks. That said, “the industry’s old-school method of pricing may suffer a setback in this new world. Depending on the commodity, there will undoubtedly be upward pressure applied to the cost of goods with labor, food safety, transportation and many other factors involved in setting market pricing going forward. There needs to be a blend of all the elements to arrive at the new market value, and we need to shy away from 99-cents per pound because it’s always been this.”
“It’s a good time for those of us in the fresh produce industry to provide our customers with more information about how to choose and use fresh fruits and vegetables in the dishes they are making.”–Vince Mastromauro
Unlike the 2008 economic downturn, people now have more time and are not just cooking at home, but cooking from scratch, notes Vince Mastromauro, director of produce operations at Sunset Foods, a five-store chain headquartered in Highland Park, IL. “This means shopping patterns have changed. It’s a good time for those of us in the fresh produce industry to provide our customers with more information about how to choose and use fresh fruits and vegetables in the dishes they are making. Fresh produce is healthful, and it’s a selling point especially during this time.”
THE NEW NORMAL – ONLINE SHOPPING
“Instacart orders are up significantly,” says Mike Roberts, director of produce operations for Harps Food Stores Inc., an 86-store chain headquartered in Springdale, AR, of the North American grocery pickup and delivery service.
There has also been an increase in produce items being added to Hy-Vee’s Online grocery orders for both pickup and delivery, according to Orf. Additionally, the chain recently launched its Mealtime to Go website, which lets customers order curbside meals-to-go online. Meals include selections from Asian, Hickory House, sandwiches, breakfast, sushi, and take-and-bake items, many of which include fresh produce items selected directly from the chain’s produce departments.
“We anticipate that many customers will continue to choose online grocery ordering, including their produce selections,” says Orf.
This view is also borne out by research. After shelter-in-place restrictions end, 40% of shoppers using curbside pickup more often plan to get 50% or more of their groceries this way, according to the IRI Consumer Survey fielded among Primary Grocery Shoppers in the National Consumer Panel, March 13 – April 19, 2020. Besides, nearly one-third of those ordering groceries for home delivery more often now plan to also get 50% or more of their groceries by this method.
“This presents an opportunity for retailers to increase their marketing efforts to create impulse purchase behaviors for those shopping online,” says Jonna Parker, IRI’s team lead for fresh. “One way to do this is by linking ingredients like fresh produce to recipes. Also, look at how ingredients are searched. For example, we’re seeing sales of fresh produce escalate as a side dish pairing to a protein. That’s one reason Brussels sprouts sales are up over the same time the year prior. Broccoli, fresh beans, and fresh corn too. Consumers like the experience of fresh and how it elevates eating at home. However, if you search for the words ‘side dish’, you won’t necessarily get fresh broccoli as one of the results.”
A ROADMAP FOR THE FUTURE
What advice does today’s retail produce executives have for colleagues who may come up against a pandemic situation in the future?
First: “Understand that consumers’ expectations change during a crisis, so don’t be too hard on yourself or the supply chain when you aren’t able to react instantaneously to sharp sales increases,” says Tops Friendly Markets’ Cady. “No one can be prepared for the influx in business that was experienced, so do the best you can.”
Second: “Build your business on relationships that stand the test of time,” recommends Pyramid Foods’ Hendricks. “If you have all your eggs in one basket, and have not shown an ability to give as well as take, you could be left out to fend for yourself, which could affect your ability to react when a crisis arrives. Prioritize your opportunities, both good and bad, and keep an eye on the end goal of being of service to those in need.”
Third: “Having your finger on the pulse of your business will help you make sounder decisions,” says Gelson’s Savidan. “I’d also recommend not being afraid to ask for help if you don’t have the answers. Let’s face it we have never had to deal with issues like we have these past few weeks, decisions were made each day from team collaborations and communications. It’s going to be interesting to see how this all changes the face of our business. In the end, the consumers will be telling us what they want, and it will be our job to make it happen for them.”