Trends in U.S. Fresh Produce
Marketing
DR. ROBERTA COOK
Dept. of Ag and Resource Economics
University of California Davis
Fresh Produce and Floral Council Luncheon
September 2004
TOTAL 2003 U.S. FOOD* SYSTEM:
$943.3 BILLION
 $498.3 billion food retailing (excluding
non-food grocery store sales)
 53% of total
 $445 billion food service (including
$17.8B foodservice sales made by food
retailers)
 47% of total
 around 844,000 outlets
*Excludes alcoholic beverages and
other grocery
Sources: ERS/USDA and The Food
Institute
U.S. FOOD EXPENDITURES as a SHARE
of DISPOSABLE PERSONAL INCOME, 1970-2003
13.8
3.6
13.4
At-home
12.0 11.8 11.7 11.5 11.5 11.6 11.6
11.2 11.1 11.3 11.0 10.8 11.1 11.0
4.3
4.3 4.3 4.3
10.2
9.1
70
Away-from-home
4.3 4.3 4.3 4.2 4.2
4.3 4.4 4.3 4.2 4.4 4.4
10.3 10.1 10.2 10.1 10.1
4.1
7.7 7.5 7.4 7.2 7.2 7.3 7.4 7.0
6.8 6.9 6.7 6.6 6.7 6.6 6.2
85
93
87
89
Source: ERS/USDA
91
95
97
99
4.7 4.7 4.7 4.7
5.4 5.5 5.4 5.4
2001
2003
U.S. Grocery Industry New Product
Introductions, 1988-2003
Nonfood
Food
25,000
22,572
20,076
20,000
13,244
11,574
9,632
9,699
9,417
9,814
11,131
12,503
13,266
16,863
12,893
10,301
8,183
12,398
10,000
15,006
10,558
5,000
23,181
19,458
19,572
19,331
18,043
16,695
16,562
17,566
16,143
15,000
22,374
0
1988 1990 1991 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: The Food Institute Report, 2-2-04; Column totals in white represent combined
food and nonfood new product introductions.
Trends in US Food Expenditures
1990-2000
CAGR
5%
4%
3%
2%
1%
0%
2001-2010
4.6% 4.3%
3.2% 3.4%
Food At Home Food Away
From Home
3.8% 3.9%
Total
US Foodservice Segment Shares, 2003
8%
6%
4%
3%
1%
36%
4%
Full-Service
Restaurant
Fast-Food
37%
Fast-food
Full-Service Restaurant
Retail store
Other Commercial
Education
Recreation
Other Noncommercial
Hotel/motel
Source:
ERS/USDA
2004
FOODSERVICE OPPORTUNITIES FOR
FRESH PRODUCE
 Since 1992 consumer spending at
restaurants is up 56%
 Consumers are trading up, contributing to
higher sales in full service restaurants and
fast casual (like Baja Fresh, Chipotle, Panera)
 Consumers search for VALUE, 62% say they
are “willing to spend more time and money
for better quality food.”
 91% of consumers say “It’s worth it to wait a
little for food customized to my liking.”
 Foodservice fresh produce and fresh-cut
demand rising.
Sources of Takeout* Food in the US,
Supermarkets Gaining!
1996
4%
1%
3%
6%
Source: FMI
Trends in the
Supermarket
2003, 2004
2004
10%
5% 1%
48%
Fast-food rest.
12% 25%
Restaurant
Supermarket
Fast-food rest.
1%
27%
Supermarket
Supermarket
Gourmet/specialty store
Don't know
Fast-food
rest. 35%
18%
Restaurant
Restaurant
Other *Takeout only, not all foodservice
C-Store
US Estimated Fresh-cut Produce Sales,
All Marketing Channels, $ Billion
$ billion
16
14
12
10
8
6
4
2
0
3.3
7.1
6.0
9.0
11.8
15.0
$4 plus
at retail
1994 1997 1998 1999 2003 2005
Source:
Over Dole
60% estimated to be sold via foodservice channels
Sources: IFPA and IRI
U.S. Fresh Fruit and Vegetable Value Chain,
2002 Estimated Billions of Dollars
institutional
wholesalers
$5.9
imports
produce and
general-line
wholesalers
$40.0
food service
establishments
$39.7
supermarkets
$81
farms shippers
and other
consumers
integrated
retail outlets
$19.2
wholesale$3.4
retailers
farm & public
exports
markets
Source: Estimated by Dr. Roberta Cook, UC Davis, based on
$1.3
numerous public and private sources
U.S. SUPERMARKET FRESH-CUT
SALAD SALES, Million $
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
197
415
981
831
716
2,453
2,030
1,671
1,477
1,328
1,169
Source: IRI
US Fresh-Cut Vegetable Facts
• Fresh-cut veggies represented 31% of all
pre-packaged produce retail sales in
2003.
• Carrots were about half the $1.3 billion
fresh-cut veggie category, followed by
spinach ($108 million), potatoes ($87
million), celery ($85 million) and mixed
vegetables ($69 million)
• 77% of consumers purchase fresh-cut
veggies, but on average, only once every
9 weeks
Source: IRI
US Fresh-Cut Fruit Facts
• Fresh-cut fruit is still a small share of total freshcut sales, retail sales were estimated by IRI at
$238 million in 2002, with total fresh-cut sales (incl.
foodservice) estimated at at least $600 million.
Forecast by IRI to reach $1 billion by 2008.
Household penetration of only 17% in 2003.
• Great potential for fruit in both retail and
foodservice channels
• McDonald’s offering apple slices as alternative to
French Fries in Happy Meals
• Quick-service restaurants and fast casual segment
keep adding fresh produce, including fresh-cut
Supermarket Trips Per US Household
Per Year
100
85
83
78
75
73
80
72
60
40
20
0
1998 1999
2000 2001 2002 2003
Source: Coca-Cola Retailing Research Council of N. America 2004
US Supermarket Share Continues to
Decline for Key Grocery Categories
(% Shoppers Who Generally Buy That Item at the Supermarket)
Nonprescription
drug
Paper Products
Cereal
2004
23%
2001
33%
31%
2004
54%
62%
2001
2004
81%
2001
Source: FMI Trends in the US, Consumer Attitudes and the Supermarket,
2004
Top Factors in US Consumer Selection
of Primary Supermarkets, 2004
Items on sale or specials
Store layout
Fast Checkout
Personal safety outside the store
Accurate shelf tags
Use-before/sell-by-date marked
Convenient location
Courteous/friendly employees
Low prices
High-quality meat
High-quality fruit/veg.
Clean, neat store
Source: FMI Trends 2004
62%
65%
65%
66%
68%
72%
73%
74%
79%
80%
85%
88%
Quality of Shopping Experience by
Channel, TRI*M Index (Differences of
3 or more are signficant)
Limited-Assortment, 106
Warehouse Club, 101
Dollar Store, 100
Mass Merchandiser, 93
Supercenter, 93
Supermarket, 91
Drug Store, 87
C-Store, 80
Source: Coca-Cola Retailing Research Council of N. America 2004
Quality of Shopping Experience by
SUPERMARKET TYPE, TRI*M Index
(Differences of 3 or more are signficant)
Total Supermarkets, 91
Natural/Organic, 109
Upscale, 100
Price-Oriented, 96
Main-Tier, 89
Source: Coca-Cola Retailing Research Council of N. America 2004
US Store Format Growth Trends and
2003 Sales*
Traditional
Nontraditional
Total C-Stores
GRAND TOTAL
2003 Sales
$Million
2003 #
Stores
$422,791
$235,100
$93,518
$754,408
41,530
40,721
129,000
213,981
2003 $ 2008 $
% Share % Share
56.3
31.3
12.4
100.0
48.3
39.7
12.0
100.0
•Grocery sales only, excludes electronics, prescription drugs, toys, jewelry,
sporting goods, gas, clothing, footwear, knickknacks, and hardlines
Source: Competitive Edge, June 2004
US Store Format Growth Trends and 2003 Sales*
Traditional Grocery Channel
2003 Sales
$Million
Total Traditional
Conventional
Superstore
Food/Drug Combo
Limited Assortment
Super Warehouse
Other (Small
Grocery)
2003 #
Stores
2003 $ 2008 $
% Share % Share
$422,791
$97,110
$164,268
$114,400
$16,107
$14,331
41,530
12,450
8,100
5,000
3,150
530
56.3
12.9
21.9
15.2
2.1
1.9
48.3
11.6
18.5
13.1
2.1
1.6
$16,575
12,500
2.2
1.5
* Grocery sales only, excludes electronics, prescription drugs, toys, jewelry, sporting goods, etc.
Source: Competitive Edge, June 2004
US Store Format Growth Trends and 2003 Sales*
Traditional Grocery Channel
Total Store
Area
Average
Total SKUs
Total Traditional
Average
Weekly
Sales $
Grocery &
Consumables
% of Sales
195,777
100
Conventional
25,800
22,000
150,000
100
Superstore
51,200
30,000
390,000
100
Food/Drug Combo
55,700
52,000
440,000
100
Limited Assortment
11,200
1,900
98,333
100
Super Warehouse
59,500
33,000
520,000
100
9,000
3,000
25,500
100
Other (Small Grocery)
* Grocery sales only, excludes electronics, prescription drugs, toys, jewelry, sporting goods, etc.
Source: Competitive Edge, June 2004
US Store Format Growth Trends and 2003 Sales*
Nontraditional Grocery Channel
2003 Sales
$Million
Total Nontraditional
$235,100
Wholesale Club
$51,953
Supercenter
$85,155
Dollar Store
$10,686
Drug
$33,189
Mass Merchandise
$49,873
Military
$4,243
2003 # 2003 $ 2008 $
Stores % Share % Share
40,721
31.3
39.7
8.7
1,030
6.9
1,840
11.3
17.0
2.9
15,000
1.4
18,500
4.4
5.2
4,170
6.6
5.3
0.6
181
0.6
* Grocery sales only, excludes electronics, prescription drugs, toys, jewelry, sporting goods, etc.
Source: Competitive Edge, June 2004
US Store Format Growth Trends and 2003 Sales*
Nontraditional Grocery Channel
Total Store
Area
Average
Total SKUs
Total Nontraditional
Average
Weekly
Sales $
Grocery &
Consumables
% of Sales
124,466
Wholesale Club
135,000
5,500
970,000
59**
Supercenter
190,000
125,000
890,000
60**
Dollar Store
8,000
4,000
13,700
66
12,000
20,000
34,500
34
100,000
95,000
230,000
29,400
15,000
450,800
Drug
Mass Merchandise
Military
23**
100
* Grocery sales only, excludes electronics, prescription drugs, toys, jewelry, sporting goods, etc.
** Does not include gasoline sales
Source: Competitive Edge, June 2004
SUPERCENTER INDUSTRY
$26
$16
0 $13
816
708
592
500
305
1,000
419
$34$41
$52
$84
$72
1,573
1,500
1,301
units
2,000
951
1,093
2,500
$98
93 94 95 96 97 98 99 00 01
*forecast
2,987
2,712
2,457
3,000
Sales (billions)
1,777
1,971
Units
2,212
SALES and UNITS, 19932007, (About 35-40% estimated to be grocery-equivalent)
$228
$200
$175
$153
$132
$117
Sales
$250
$200
$150
$100
$50
$0
02 03* 04* 05* 06* 07*
Source: The Food Institute’s Food Industry Review 2003
Domestic and International U.S. Membership
Club Sales and Unit Growth Slowing, 19932007, (61% estimated to be grocery-equivalent)
1,600
1,400
Units
Sales (billions)
1,000
800
886
845
786
822
805
728
600
54
48
400 37 40 41 46
932 989
60
67
1,078
74 80
96
87 91
101
200
0
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
*
20
04
*
20
05
*
20
06
*
20
07
*
units
1,200
1,420
1,370
1,320
1,2101,270
1,148
105
*forecast
Source: The Food Institute’s Food Industry Review 2003
$120
$100
$80
$60
$40
$20
$0
Competing in a Value-Driven Market
• Channel blurring has caused the retail
landscape to be overstored.
• Plus, foodservice channels compete with
all forms of food retailing which tend to
offer ingredients to prepare instead of
meals to eat.
• Retail Home Meal Replacement helping
somewhat and fresh produce value-added
products benefiting.
Competing in a Value-Driven Market
• Grocery retailers have been losing share
to foodservice for decades, now to value
retailers
• Conventional grocery retailers must
identify value propositions they can own
if they are to remain competitive! (fresh
produce can be a point of differentiation)
• Bottom line: more structural change
expected in the US grocery industry and
more pressure on suppliers!
The Revealing Percentages
Conven’l Super Disc. Club
Grocery Center Drug Store
Gross
Oper Exp
25.3
21.8
25.0
17.5
20.0
16.0
11.0
7.5
Net Margin 3.5
7.5
4.0
3.5
(Before taxes)
Source: Glen Terbeek
U.S. FOOD BUSINESS
MERGERS & ACQUISITIONS
1981-2003
666
734
724
658
645
588
583
813
753
652
599
641
556
538
522529
468485
415
516
413415
365
1981
1983
1985
1987
1989
1991
1993
1995
Source: The Food Institute’s Food Industry Review, 2003
1997
1999
2001
2003
U.S. Grocery Retail Concentration*
70
60
Percent
of U.S.
grocery
store
sales
58
47
50
40
30
33
20
Top 4
Top 8
Top 20
10
0
1987
Sources: ERS/USDA;
US Retail Census,
firm annual reports
1993
1995
1997
1999
2001
2003
*Includes grocery-equivalent supercenter sales ONLY. Excludes sales of
c-stores with gas. Excludes the portion of any grocery chain’s sales
corresponding to their drug store, jewelry store or other non-grocery store
sales.
U.S. Fruit and Vegetable Supply-Side
Marketing Structure Becoming Less
Fragmented, 2002
Fruit, berry and nut farms*
26,571
Vegetable and melon farms*
15,355
Number of fresh shippers
5,000
Total chains, grocers, wholesalers 1,079
Retail chains
267
Produce wholesalers
188
*Selling over $50,000/yr.; Total of 107,707 fruit, berry, nut farms and
59,044 total vegetable and melon farms, all sizes – US 2002 Census of Ag
Stock Price Performance, Top 5 US
Grocery Retailers
1/1/99 – 2/23/04
Chain
Wal-Mart
Kroger
% Change
+ 48%
-32%
Safeway
Albertson’s
-61%
-57%
Ahold
Dow
-75%
+15%
Return on Asset Comparison, Top 4 US
Grocery Retailers
ROA = Profit/Sales X Sales/Assets
Wal-Mart
9.04%
3.48%
2.60
Kroger
5.18%
1.96%
2.64
Safeway
1.61%
0.78%
2.06
Albertson’s
4.11%
1.74%
2.36
Conventional Retail Chains Reconsidering their
Models
• The experience from the merger trend of the
late 1990’s has shown that getting bigger
wasn’t enough to meet the new competitive
benchmark imposed by Wal-Mart’s success in
logistics, data management and cost reduction.
• President of Safeway just announced a move to
net, net pricing, moving away from allowances,
following on the Wal-Mart model. But, as
always, fresh produce lags grocery.
Conventional Retail Chains Reconsidering their
Models
• The challenge for retailers is to effectively
utilize scanner, customer loyalty card and
other data in order to identify the right
product mixes at the individual store
level.
• Food retailing is inherently local, and as
retailers get larger and consumers more
diverse, intensive data management is
critical!
The Future
Wal-Mart will be the mainstream retailer for the
foreseeable future but there will also be lots of new
winners.
New price driven retailers will increase competition for
Wal-Mart and Wal-Mart’s growth may slow as it
tackles issues faced with expansion in urban areas
(high land costs, unions, local regulatory policies).
Consumer research conducted by The Hartman Group
indicates that consumers don’t express excitement or
devotion about shopping at Wal-Mart. Many just
view it as a way to save on staples without taking over
their shopping lives. Lukewarm support creates
opportunities for competitors.
The Future
The winners will compete on various
dimensions of value: price, product,
service, and selection.
There are a number of formats successfully defining “white space”
market opportunities. Examples include Trader Joe’s, Whole
Foods, Dollar Stores, and conventional chains like Wegman’s and
HEB, as well as independents.
Retailers can deliver value to consumers at both the high and low
ends of the price spectrum, depending on product selection and
quality levels, and format design, by understanding the needs and
wants of target segments for specific shopping occasions.
The middle, unclearly defined ground – retailers with no clear value
proposition – will be increasingly challenged.
Products Distinguishing Themselves More
Through Aesthetics, Adding Emotional Value to
Practical Use – Food Especially!
• “Quality is yesterday’s news. Today we
focus on the emotional impact of the
product.” (Dilbert comic strip)
• Research from Cornell and U of Colo.
show that income level is positively
associated with experiential over material
possessions. (Van Boven and Gilovich)
• Ego – Starbuck’s – an affordable luxury
for all income levels
Products Distinguishing Themselves More
Through Aesthetics, Adding Emotional Value to
Practical Use – Food Especially!
• Travel; eating out, increasingly in restaurants
providing more memorable experiences; and
differentiated foods purchased at retail are
gaining. “Upscale” positioning may be bundled
with several perceived emotional values organics benefit. Fresh produce is a part of the
trend.
• But, to afford these “extras” people are often
making a greater effort to economize in their
routine grocery purchases, hence, growth in
value retailers.
Consumers are Becoming More Eclectic:
Unabashed Wal-Mart Shopper Speaks
The writer found a brown
stretch top with a ruffle
drizzling down the V- neck,
for about $9, and jeans made
of two-inch-wide strips of
washed corduroy, denim and
a blue lace print, reminiscent
of Dolce & Gabbana, $17.98,
at Wal-Mart. She wore them
with Celine platforms, $420.
Value Propositions and Needs! This also
applies to food. Flavor Density re calories.
EATING OCCASIONS MATTER!
Adapted from Food Marketing Institute 2002
Pounds per capita
US PER CAPITA VEGETABLE CONSUMPTION,
POUNDS, 1976-2004F
438
450
400 359
350
300
250
119
200
76
150
49
100
50
126
115
90
150
46
176
0
1976 1987 1989 1991 1993 1995 1997 1999 2001 2003 ‘04
Source: USDA/ERS, Vegetables and Specialties Outlook, July 2004
Processed
Vegetables
(Excl. potatoes)
Processed
Potatoes
Fresh
Potatoes
Fresh
Vegetables
US PER CAPITA FRUIT CONSUMPTION,
POUNDS 1976-2002
Pounds per capita
300
264
250
283
87
102
200
96
150
78
100
29
50
55
Processed
Noncitrus
Fresh
Citrus
24
76
0
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Source: USDA/ERS, Oct. 2003
Processed
Citrus
Fresh
Noncitrus
Shoppers’ concern about nutritional content
and evaluation of diet
80%
60%
40%
20%
0%
62
45
'96 '97 '98 '99 '00 '02 '03 '04
very concerned about nutritional content
my diet could be healthier
Source: FMI Trends in the US Consumer Attitudes and the Supermarket 2004
Changes for healthier diet
100%
more fruits/
vegetables
80%
less fats/oils
less meats/red
meats
60%
less sugar
40%
more poultry
20%
more fish
0%
'96 '97 '98 '99 '00 '02 '03 '04
Source: FMI US Consumer Trends and the Supermarket 2004
more organic,
natural
U.S. DEMOGRAPHIC
INDICATORS, 2002






111.3 million households
289 million inhabitants
2.6 persons average household size
Average household income of $57,852
Median household income of $42,409
Average household food spending of $5,375
(including $3,099 at-home and $2,276
away-from-home)
Sources: US Bureau of Census; Food Institute Demographics of Consumer
Spending 2004 for food spending only
SEGMENTATION/TARGET MARKETS
• Variables commonly used to categorize consumer
differences to focus marketing activities
– geographic
– demographic
– psychographic--based on attitudes & activities
• STATUS SEEKERS, CHASE & GRABITS,
ENVIRONMENTALISTS
»Mass individualization!
»Problem solving is key!
»Understanding needs and constraints in
individual eating occasions essential!
US Household Composition, 2002
Ave. Household Size: 2.5 People
Other
15%
50%
Husband & Wife
29%
6%
Single
Single
Parent
Husband & Wife
with Children
under 18
19% of Total
Households
Source: Demographics of Consumer Food Spending 2004, The Food Institute
U.S. Per Capita Food Expenditures, 2002,
by household size – Small households
spend more per capita!
Average
One
Two Or
More
Two
Three
Four
$937
$546
$1,108
$754
$1,244
$876
$1,472
$1,188
$1,199
$855
$1,558
$1,356
$1,240
$910
Food at home Food away from home
Five Or
More
Source: Demographics of Consumer Food Spending 2004, The Food Institute
DISTRIBUTION of US HOUSEHOLDS, SHARE of TOTAL AT
HOME FOOD EXPENDITURES/INCOME LEVEL and FRESH
PRODUCE EXPENDITURES, 2002
$520 /32%
$235 /13%
Share of households
$70,000+
23%
<$15,000
21%
Average fresh produce
expenditures per income group
$
$384 /16%
$50,00069,999
15%
$342/21%
$30,00049,999
22%
$15,00029,999
21%
% of total at home food
expenditures contributed by each
income group
$303 /18%
Source: Demographics of Consumer Food Spending 2004, The Food Institute
Consumer Food Expenditures, by
Household Income Level 2002
$5,000
$4,000
$3,000
$2,000
$1,000
$0
<$15,000
$15,000 - $20,000 - $30,000 - $40,000 - $50,000 $19,999 $29,999 $39,999 $49,999 $69,999
$70,000
Plus
Food At Home:
2,116
$2,483
$2,768
$3,006
$3,241
$3,555
$4,524
Food Away From Home
1,034
$1,286
$1,581
$1,875
$2,261
$2,994
$4,350
Source: Demographics of Consumer Food Spending 2004, The Food Institute
US Fresh Produce Consumption by Race
2002, $ Per Household
Vegetables
Hispanic
Fruits
African- Vegetables
American Fruits
Vegetables
White/Other Fruits
$247
$242
$128
$136
$181
$184
Source: Demographics of Consumer Food Spending 2004, The Food Institute
U.S. Hispanic
Population Projections, Millions
60
40
20
0
38.2
2005
Source:US Bureau of Census
43.7
2010
49.3
2015
Hispanic Population Boom,
2000
(U.S. Census)
52%
72%
2050
(Projected)
1%
1%
4% 12%
11%
Hispanic
African-Amer
Asians
Other
Non-Hisp. Whites
10%
23%
14%
Hispanic
African-Amer
Asians
Other
Non-Hisp. Whites
Conclusions
Streamlining the Distribution Channel
How best practice retailers are
using information:
 Identifying and merchandising
product affinities associated with
popular items.
 Grooming vendor capability to
provide useful insights.
Source:Willard Bishop Consulting, Ltd.
Streamlining the Distribution Channel
New tools using data-mining capabilities
are entering the market to provide:
 Cost-effective consumer-centric
business processes
Customer purchase patterns
Product promotions
Source:Willard Bishop Consulting, Ltd.
SHELF CAPTAINS
• Leading, technologically savvy
vendors—sometimes brokers
• Take category interface
responsibility for section
• May work in retailers’ headquarters
• Recommend shelf sets, product
placement
• Very influential to category
management
Basic Strategies for Shippers
• Low-cost grower/shipper
• Differentiated year-round grower/shipper
marketing a premium product or product with
identifiable preferred characteristics that are
commercially perceived and valued
• First strategy increasingly difficult as buyers
push more demands and services upstream to
suppliers
• Increasingly shippers must add value and at
the lowest cost – need strong core
competencies!
CONCLUSIONS: The Future?
• More and more, large year-round
grower-shippers may become the
sourcing entities for retailers,
procuring volume above and beyond
their own via geographic
diversification, including imports.
• Smaller seasonal players will need to
find niche markets.
Fierce competition places multiple demands on fresh
produce suppliers while product perishability
continues to limit bargaining power... So more
shipper/supplier consolidation to come!
Quality:
• taste!
• freshness
• temperature
• shelf-life
• nutrition
value
• consistency
Flexibility
Quantity
Specific requirements
Costs • packaging
• pallets
• size
• tailor-made
Shippers
Safety: microbial
and pesticides
Tracking and
tracing
On-time delivery
Source: Adapted from Rabobank Mexico
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