Unique In Approach, FMI Research Answers Questions For Retailers And Producers With New Disclosures At Amsterdam Produce Show And Conference
Jim Prevor’s Perishable Pundit, October 17, 2017
We don’t look at geography when selecting speakers for our events; in our quest for the best content, we will travel to the ends of the earth for the most insightful. And the Food Marketing Institute happens to do some of the most intriguing research relevant to fresh produce on the face of the globe.
What makes this research compelling? Most research is done by surveying consumers, which tell us what answers people want to give to questions when asked – not what they actually do. Some research is drawn off shopper spending data, which tells us what consumers actually do – but not why they do it. FMI, almost uniquely, does research that combines both.
We asked Pundit Investigator and Special Projects Editor Mira Slott to get a sneak preview of what revelations the FMI research provides for attendees at The Amsterdam Produce Show and Conference.
Vice President, Fresh Foods
Food Marketing Institute
Q: We’re excited you’ll be presenting FMI’s newest research findings at our Amsterdam Produce Show & Conference in November. This “sneak preview” Q&A pivots off a parallel Q&A we did back in 2015, where you unveiled the baseline results of FMI’s unique, ongoing consumer-centric study, "The Power of Produce: An in-depth look at produce through the shopper’s eyes.”
Your report provides enlightening data on shifting consumer behavior and shopping patterns before, during, and after purchase to help industry executives prosper in a vigorous retail environment. How do the latest findings compare and contrast to baseline results? Can you assess impacts of proliferating alternative shopping channels and changing demographics, as well as emerging trends and growth drivers?
A: Yes. I can certainly do that. There is much to discuss on all those fronts… I’ll be presenting the topline results, and Anne-Marie Roerink, principal and founder of 210 Analytics Company, will delve into the numbers. We have a novel of insights to accelerate retail sales and profits and increase produce consumption. In addition, we can outline competitive strategies gleaned from the report.
Q: That should pique attendees’ interest. To refresh people’s memories on the background for this report, and for those who are learning about this research for the first time, you’ve noted two important aspects of the Power of Produce study.
• First, it merges and analyzes both scientific and empirical data to alleviate inaccuracies with what consumers say and do.
• Second, the study is designed to address retailer-directed issues, using input from FMI’s Fresh Executive Council (FEC), which is made up of leading retail executives in the fresh foods arena. Why is this distinctive, and how does this influence the direction and value of the study?
A: To put this in context, I joined FMI three years ago. We were already doing an industry benchmark standard report called, The Power of Meat. It had become one of the most useful tools amongst our retail members, every year looking into new insights.
In addition to meat, the biggest department you always want to have information on is produce. Produce is such an important determination in where consumers shop. What I loved about the research is that it was a combination of asking consumers questions about purchase behavior, but then we coupled that with data from IRI and Nielsen. We all know when you ask consumers questions on a survey they respond one way, but that may not be totally indicative of their behavior. When you take their responses and you couple those with scientific data, it really tells a robust story.
I went to my fresh foods executive committee, a group of retailers basically representing all of Fresh, covering the whole perimeter; it’s the senior vice presidents of fresh. We asked them specifically, what are you interested in finding out, as opposed to just conducting general consumer surveys. We wanted our retail executives to steer the questions and the study’s strategic focus. They were in the driver’s seat… we want to know this, we want to know that, and that’s how we came up with the inaugural 2015 Power of Produce survey.
We then did the same survey in 2016, and now again in 2017. What we like to say is that in 2015 we created a dot, in 2016 we created a line, and in 2017 we now have a trend. The first year you do a survey, you just get the information and have no point of reference; the second year you can compare results, and by the third year you can start to see trends.
Q: Did you keep all the same survey questions, did you add new questions?
A: What we try to do is the old 80/20 rule. In order to have good trend information, you want about 80 percent of the questions to be the same, but each year new topics and new discussions need to be introduced, because of the changing dynamics of the industry.
Q: What were the areas you targeted for year-over-year trending?
A: The consumer survey explores the entire produce path-to-purchase, including:
• the influence of promotions when buying produce and the kinds of media vehicles used by shoppers
• channel choice for groceries in general, and for conventional and organic produce, specifically
• trends in organic, value-added and locally-sourced produce
Q: What new questions did you add for the 2017 report?
A: Retailers wanted us to delve further into the following:
• The influence of merchandising on impulse purchases
• Reasons for produce channel switching
• Prompting shoppers to buy new/unfamiliar items to expand their comfort zone
• The interest in produce butchers, packaging innovations, non-GMO, sustainability grown and other transparency attributes
• Deep dives into areas of growth: value-added, local, brands and organic
• A greater understanding of the specific health attributes associated with fresh produce
Q: How are the dots connecting?
A: This year one of the big findings that resonated most with us we’re calling, “The eyes decide.” Consumers clearly indicate in their pre-shopping determination that price drives them to the location; looking at circular ads but more and more to digital promotions, trying to figure out where they’re going to shop. Price is the predominate reason they pick. However, when they actually arrive at the store, it’s the condition and appearance of the product that influences their purchase.
So those stores that do a good job of merchandising — culling, draping, and making sure their product is the freshest and most appealing —not only capture the pre-planned sale, but stimulate incremental sales. Actually consumers will not only buy what’s on their list, but if they’re in a robust produce department, they consistently told us how they add on to their purchase of unplanned items. Price may drive where consumers go, but once at the store, the eyes decide. That’s the ultimate decision-maker in filling the basket.
Q: Do most consumers prepare shopping lists of produce items before heading to the supermarket?
A: Our study shows produce is a well-researched purchase with three-quarters of shoppers listing out their produce needs pre-trip.
Q: But then they arrive at the store and all bets are off?
A: Yes, that’s correct. Price is the driver to get them there, but once in the store, if you don’t have quality and freshness, shoppers not only won’t buy what’s on their list, they’ll forego the produce department. Say you want to buy peaches on sale, but when you get to the store display, you see some of them are gray, and way too soft and fruit flies are hovering; not only will you avoid peaches, it creates a halo effect around the whole department, and you’re reluctant to buy any produce.
Q: Maybe that’s the last time you’ll go to that store? On the other hand, could a consistent quality department create a customer loyalty that redefines their pre-shopping, price-focused tendency?
A: Not necessarily, but on that trip, where the peaches were unappealing, the consumers will clearly decrease their produce purchase. A key takeaway: Produce has a household penetration of 99.7 percent, so how do you grow your business? The big ‘ah ha’ out of this is that in a very high penetration category, it’s not that you will sell new consumers produce. You need to get those same consumers to put more items in their shopping basket, and to consume more produce, more often.
The data showed us when we asked consumers about their shopping behavior, 50 percent of the consumers buy the same items over and over again. They don’t get out of their comfort zone. If they buy lettuce, tomatoes, apples and oranges, 50 percent of those surveyed will buy those same items on every trip. However, 83 percent of consumers said they’d welcome advice on unfamiliar items and preparation techniques on items outside of their comfort zone. So the key takeaway is if you can be knowledgeable and informative at retail and educate consumers on the products they don’t normally buy, you can increase consumption.
Among habitual buyers, 83 percent say they’ll try new, different products if they are given that information. You have these millennials who don’t understand produce, so if you can help them out they’ll consume more.
Q: How are traditional supermarkets faring as alternative channels for buying produce intensify? Do the same consumers spread out their shopping at various channels for different times and occasions? How much does channel choice vary by demographics, age, household size, income, etc.?
A: If you look at the preponderance of produce sales, supermarkets still dominate as the primary place the majority of people buy produce. When respondents were asked to choose their primary store for produce, 64 percent of shoppers said it was supermarkets (compared to 63 percent in 2016 and 61 percent in 2015); 16 percent at supercenters, 5 percent at club stores, 9 percent at organic stores and 6 percent others.
Millennials over-index in the organic specialty stores. We believe in those smaller stores, consumers are running into more knowledgeable employees who give them information on the products they can buy, whereas maybe the staff is stretched too thin in a regular supermarket. As competition for food dollars increases, retailers must find a way to draw millennials to the store by leveraging the power of produce. Produce’s role in primary shopper conversion and attraction of secondary shoppers will be increasingly important.
Q: So traditional supermarkets still maintain a stronghold as consumers’ primary choice for produce purchases? Are alternative channels just nipping away at their piece of the pie?
A: Primary store shopping percentages haven’t changed significantly from our 2015 baseline numbers. Supermarkets continue to own the produce category. They’re suffering in other parts of the store, but not the perimeter.
There’s obviously a lot of cross shopping; those numbers are for the primary stores. The supermarket may be my primary, but I’m probably also buying produce at a supercenter, an organic specialty store, and a farmer’s market… Amongst the small percentage of people who say organic specialty is their primary store, it’s over-indexed with the millennials as I mentioned.
Q: Is there over-indexing with other shopper demographics too?
A: We see a lot of cross-over shopping at farmers markets, and that’s increasing over the years. We’re now seeing that 37 percent of consumers at some point during the year also shop a farmer’s market. That’s up from the mid-20 percentile when we first did the report. Farmer’s markets continue to be an area of concern for retailers.
Q: Is that related to the locally grown trend?
A: Interest in locally grown has become even stronger, with 54 percent of the consumers saying they are looking for expanded locally grown product. When we did this report in 2015, the percentage was in the mid-40s.
The Number One reason why they say they buy local is their desire to support the local economy. That’s a shift. In the 2015 report, the Number One reason the consumers wanted to buy local was they thought it was fresher and higher quality.
We think, based on a discussion amongst our executives, it’s because we just came out of an election year, the U.S. economy was a huge discussion, and people were focused on the economy. We think the political climate influenced that shift in their reasoning for buying local.
Q: I guess that’s always the case when you’re doing these surveys, the need to take into account significant events or factors that could tilt the results. Have consumers actually changed their perceptions of locally grown? Aren’t there myriad definitions surrounding the concept from both retailers and consumers?
A: Consumers are now defining local as a certain mile radius or within a state, more so than three years ago. In the 2015 report, the definition was broader. Local was more of a region or domestic versus foreign. That circumference has gotten much narrower.
Another interesting area coming out of the report is what’s fueling produce growth. Produce overall is a growing category. Produce is approximately a $63 billion business, and we show it’s up 3.4 percent in dollars, and 4.2 percent in pounds. So it’s growing in both dollars and volume. When you compare that to the overall supermarket growth, which is only up about .8 percent, produce growth is three or four times the growth of the overall supermarket.
Q: That’s good news for the produce industry. What’s driving that growth?
A: It sure is good news, and it’s due to a few things. I’ll throw out a couple of buckets. Organic is driving growth. Organic continues to see double-growth, and is now making up about eight percent of the category and increasing its household penetration.
Our research broke out organic consumers into core and occasional. The core organic consumer is driving most of the growth because there is a larger variety, so they are starting to make all of their purchases organic.
Q: So, some consumers could be purchasing organic replacements for the conventional counterparts they bought before, signaling a realignment of category sales, rather than an increase in total produce department sales overall. At the same time, however, you’re saying the introduction of new organic varieties could spur additional purchases and impulse buys…
A: Another area driving growth is value-added produce. A subset of consumers want convenience, so fresh-cut fruits and vegetables, tray items, etc., are also experiencing double-digit growth.
Q: Is there a dichotomy of sorts, where on one hand you point to this increasing interest in local and farmer’s markets, which are merchandised in loose, unpackaged, natural, wooden-style displays, and on the other hand you have this trend towards packaged, value-added convenience?
A: What we see is the onset of produce butchers, and taking bulk produce items instore to create convenience. It could be local tomatoes but the way they are packaged and presented in the store is for convenience. Local still resonates. Don’t think of the bagged salads as much as the trend toward value-added products and services.
Q: Are there other key points you’d like to bring out in this preview?
A: Yes. Produce consumption is seen as essential to managing one’s own health and wellness. It’s on consumers’ radars, whether they’re eating more or trying to eat more of it, they know produce is healthier for them. So, that is also driving this growth.
Q: If marketers drill down on the health and wellness aspects, is there a risk consumers may think it doesn’t taste as good? Some industry executives think it’s unnecessary to hype the health side because everyone already knows produce is nutritious, so retailers and suppliers should focus on other selling points, such as taste, flavor and value-added features.
A: What we’re seeing from all the studies, the produce industry has done a really good job of educating consumers that the produce aisle is a really healthy choice. I think that’s in contrast to the transparency going on in the center of store, where you now see all the preservatives and additives that are going into shelf-stable products. Consumers are navigating away from the center of the store to the perimeter, because they want foods that have fewer ingredients, and that are more clear and pure.
It isn’t necessarily true that everyone understood the health benefits of produce, in conjunction with the national dietary guidelines. That is emerging, and continues to emerge and it’s getting more and more on people’s radar. Produce is now being associated with specific health benefits from weight loss to heart health and other holistic claims being reported in the media and promoted in-store.
Q: You’ve noted issues and shopping behaviors important to millennials. How do those compare to other groups, such as seniors, baby boomers, Gen X’s and Gen Z’s? Are there demographic indicators that could help retailers strategize their produce departments?
A: We did breakout demographic segments for further analysis in different areas of the report.
For example, we saw that local played a different role in different parts of the U.S. In year-round growing areas, local has a much tighter radius.
Q: You’ll be presenting your U.S. based research in The Netherlands to a diverse global audience. What findings will be most applicable, and will there be some areas harder to translate?
A: Anne-Marie Roerink and I will be discussing that. Anne-Marie is from The Netherlands, so she will have some interesting insights in that respect. In the report, we do a section on the pre-shop that highlights some of the generational issues. For instance, we see big differences between baby boomers and millennials on how they make up their minds on where to shop, which we think is universal. Health and wellness trends have a global reach as well.
We can explain the U.S. nuances in consumer behaviors in the context of how mature the produce category is in the U.S., and the crowd in Amsterdam can pull information that is relevant to their markets and businesses.
I believe for the most part, trends in Europe come to the U.S., but we have a pretty savvy consumer here when it comes to produce. It could be a little bit of both. The European markets could adapt to some of the trends in the U.S. when it comes to produce.
Q: When people come together in the global setting of the Amsterdam Poduce Show, everyone plays off of each other’s ideas and insights. It’s quite a stimulating environment.
A: This is the first time I’ll be at the Amsterdam Show to get a feel for that dynamic interaction.
Q: You’ll definitely bring valuable perspective to the table…
A: In that regard, one other thing I’d like to mention from the report: Produce safety is a big issue. The U.S. just introduced the Food Safety Modernization Act, new produce rules and verifications. We asked consumers, where do they trust food safety? For the most part, this has nothing to do with the actual facts. It’s consumer perception.
Supermarkets rank really high in food safety and so do farmer’s markets and produce stands. Being a veteran of the industry, some of the worst things you can find from a food safety standpoint, in terms of temperature control problems and handling, are at farmer’s markets and produce stands, but consumers think local produce fresh from the field is safer.
The channel that ranked lower in food safety was online shopping for produce.
Q: That could be broadly defined to include a range of online sites, from Amazon Fresh to home meal delivery services to brick & mortar retailers with online ordering options. I live in New York City and Fresh Direct has a loyal following…
A: We believe the consumers interpreted online as produce being sent to them via a delivery service, it wasn’t necessarily click and collect, where you select product online and go to the store and pick it up. It could be Amazon Fresh, Blue Apron and meal kits. Consumers don’t totally trust the food safety. Fresh Direct is a micro-market, and our research was looking more broadly across the U.S. landscape.
Q: Were there any trends that surprised you?
A: One thing that caught me off guard is the role of national brands in produce. We see the private and national brands are really making a statement. The data from IRI was that in 2011, 38 percent of produce sales came from national brands. In 2016 that moved up to 49 percent. So, around half of produce is now branded, and that shocked me. You have all the bagged salads, the cut fruit and vegetables, the juices, the value added items. I didn’t see that coming. Look how much of the produce department is now in self-contained packages. We know that growers are trying to resonate with consumers. With the influence of local, area farmers are trying to brand their products too, as opposed to delivering generic apples.
Q: What are the most important takeaways from this report that retailers can use to gain a competitive edge?
A: If I’m a retailer, I have to strategically think, how do I get consumers coming into my store to buy more produce in a high-penetration category? I really have to make sure my execution is top notch. How can I get expertise into the department to provide knowledge to the consumer? From the research, I’d hire a produce butcher. I really have to create a balance of local, organic, and value-added, and embedded in that mix is the health and wellness. That to me would be the big takeaway from the report for retailers.
The larger proposition is that supermarkets are fraught with competition from every angle with all these channels selling produce. The overall strategy for supermarket executives is to convince consumers, here is why you should come to my store, and a key pillar to that strategy is the produce department. In the 2017 report, consumers ranked the top drivers for where they shop: First is price, second is produce and third is meat. Ten years ago, location was the Number One driver; now it doesn’t even make the top three. It’s the old field of dreams prophecy — build it and they will come.
Q: So if you build a wonderful produce department, you’ll keep consumers in it longer to fill up their carts with additional items. Will that abate those consumers from shopping at other produce venues? What do you think of the supermarkets that are redesigning floor merchandising plans to address the proliferation of alternative channels? For instance, some stores set up a grab and go section at the front of the store for consumers to run in and pick up convenience-type items without having to trek deep into the store and meander through the aisles.
A: It’s a double-edged sword. We used to put the 12 pack of soda for the big football game in the back of the store and sell it dirt cheap. It forced people to walk through the store and pick up a lot of items along the way. But now consumers have so much information at their fingertips and so much access to other places to shop. Retailers have to think of consumer demand for convenience. The risk is if you put the milk in the front of the store, that’s all they’ll buy. On the other hand, if you don’t provide that milk, someone else will. So you have to walk that fine line between convenience and trying to sustain your business model to build your basket. Some are doing a better job than others.
We find the idea that one thing – particularly price — will drive store choice, but another thing — particularly quality — will drive the actual purchase. Over long periods of time, we wonder if it is actually price that drives store selection or, rather, the reputation for being well-priced. Then, is it possible to sustain a reputation for being well-priced if the product gains a reputation for being of poor quality?
We look forward to engaging with Rick and Ann-Marie on these and other subjects and hope you’ll be part of the discussion. We hope you’ll join us at The Amsterdam Produce Show and Conference!
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