The New York Produce Show and Conference provides an incredibly intense 24-hour commercial opportunity for those in the produce trade. Starting Tuesday night, December 1, the event kicks off with an Opening Cocktail Reception, which is an incredibly great opportunity for networking.
Then, on Wednesday, December 2, we begin with the Perishable Pundit’s “Thought Leaders” Panel at the Opening Keynote Breakfast, and we quickly move into the trade show, with chef demos, student programs, media programs, educational micro-sessions and more. That is 24 hours in which one can learn an incredible amount, meet new and long-time business associations and do business.
The event, though, is much more than 24 hours. There are a variety of co-located conferences that extend the range of The New York Produce Show and Conference. The day before the trade show is the Global Trade Symposium, and the day following the trade show features a range of regional tours and the “Ideation Fresh” Foodservice Forum.
This year, there is a new event held on the Monday before the show (November 30) that extends the event further:
We announced the event here. It is a unique program, specifically designed to fill a gap where there were simply no training resources for associates with less than five years’ experience in the produce trade.
Since the launch of The New York Produce Show and Conference, we have engaged with Cornell University and, especially, its Food industry Management Program, to serve a dual purpose. We wanted to help Cornell pursue its land grant mission to disseminate knowledge by giving it a forum in which it could present the results of its research to the trade, while also allowing the trade to be informed with the most cutting edge information.
Here are some of the Cornell moderated presentations given at previous New York events:
A New Hypothesis On Local: To Boost Sales, Sell It Through Supermarkets … Cornell’s Miguel Gómez Previews His Upcoming Talk At The New York Produce Show And Conference
Cornell’s Brad Rickard To Unveil Generic Produce Promotion Research Done By Cornell And Arizona State University At New York Produce Show And Conference
Cornell Professors To Present At The New York Produce Show And Conference: New Ways of Thinking About Local: Can The East Coast Develop A Broccoli Industry?
What’s In A Name? Professor Brad Rickard Of Cornell Produces New Research That Indicates Shakespeare May Have Been In Error… On Apples At Least
Cornell Professor Miguel Gómez To Speak At New York Produce Show And Conference On Fruit & Vegetable Dispute Resolution Corporation
A Cornell Study On New York Wines Raises A Fresh Question: What Do We Mean When We Ask About Local?
Professor Miguel Gómez Returns To The New York Produce Show And Conference To Unveil A New Study That Points Out A Path For Getting More Produce Into Hospitals
Cornell’s Brad Rickard Returns To The New York Produce Show And Conference: Will 'GMO Free' Be The New Organic?
We also opened the event to students from Cornell, giving them an opportunity to engage with the produce industry… up close and personal.
Ed McLaughlin is the dean of those academics engaged with the produce industry. Our first formal engagement with him was when we wrote a column in Pundit sister publication, PRODUCE BUSINESS, attacking some research on the grounds that it didn’t account for the influence of bribery and corruption in the trade. You can see the piece here.
The retail board of PMA liked the column enough to suggest that Ed and this incipient Pundit do a debate at the annual PMA Convention. Ed believed in his research and enjoyed the intellectual engagement; we did a joint presentation and have been doing many a project since.
So we thought it a great honor that Ed was willing to work with us in this program and to bring his whole team into engagement with the program.
We asked Pundit Investigator and Special Projects Editor Mira Slott to speak to Professor McLaughlin to get a sneak preview of his presentation and the larger program:
Robert G. Tobin Professor of Marketing
Director of the Charles H. Dyson School
of Applied Economics and Management's Undergraduate Program
Director of the Food Industry Management Program
Ithaca, New York
Q: Could you give us more insight into the landmark Foundational Excellence Program making its debut at this year’s New York Produce Show? You and Jim Prevor brain-trusted this unique concept, in which you’ve brought together a team of Cornell superstars: Rod Hawkes, Brad Rickard, Kristen Park, Miguel Gomez and Bill Drake. And, of course, we are honored you will be giving a presentation as well. How unique is the program, what is its scope and value, who should sign up for it, and what will they gain?
A: I’ve got half my staff coming down to do this Foundational Excellence Program, so I can talk a little bit about each person’s segment in the agenda. Then I can talk about my component of the program, The Retailer-Supplier Relationship, which is primarily based on the latest iteration of research Cornell has been doing over a period of 35 years on produce procurement.
I emphasize that this is not an academic study; this is for industry information, facilitating workshops and seminars, and industry dialogue, but the nature of the methodology and the purposive sampling, really prohibits academic unbiased statistical research. I only point that out because this is not a peer-reviewed journal article but material to inform industry decisions.
How buyers interact with suppliers will form the basis of my part of the Foundational Excellence program. I’ll present lots of data, charts and figures derived from the report, in an easy format for everyone to follow. So, that will form my component, but let’s first talk about the overall program.
There will be five of my colleagues in the Food Industry Management Program at Cornell, and all will play a roll. Between you and me, it’s simply over the top! We wouldn’t normally see six top people from my staff plus Jim Prevor, plus a panel of industry participants, for a one-day program. However, it is a star-studded program, full of people who know a lot about the food and produce industry, so it is a rare opportunity for intense learning.
Q: That’s an understatement!
A: The program will start off with one of our faculty members Rod Hawkes, Senior Extension Associate.
Q: Rod Hawkes did an intense presentation at our London Produce Show.
A: Jim Prevor kept Rod on his toes with that presentation, so he’s still smarting from that! Rod will start off by talking about the consumer perspectives in fresh fruits and vegetables. We like to tell our students studying the market to start with consumers. There are a lot of consumer opinions about health and nutrition, awareness of good eating; the difference it makes in your lifestyle; concerns about organic, local, Fair Trade, genetically modified organisms (GMOs) and all the rest. And produce professionals need to understand those issues because that’s what they’re being asked to respond to. That will be the first segment.
The second segment is also going to be presented by an individual you know, Brad Rickard, Associate Professor.
Q: Brad Rickard has participated in our New York Produce Show since its launch, and he also presented in London this year, drawing standing-room-only crowds for his hot topic sessions.
A: Brad is going to talk about other concerns in the produce system, like consumer attitudes toward GMOs, food waste and produce waste. He’ll talk about the effects of Five A Day-type generic advertising programs, how certain public policies can affect the price and availability of specific products, how various public policies can impact pricing and availability of products, and I think that will be very useful for new entrants into the produce system.
It’s an extension of the first presentation, which looks at things from the consumer’s perspective, because Brad is going to talk about consumer perceptions of GMOs, and he’s quite an expert on that topic, as you know.
Then my colleague Kristen Park, Extension Associate, will talk about the U.S. food system and produce’s central role in that system; what functions supply chain practitioners perform up and down the vertical system, growers, processers, wholesalers, retailers, and so on.
And then Miguel Gomez, Associate Professor, a person you know well…
Q: He’s revealed in-depth research on a wide range of topics at both the New York and London shows, not to mention he’s a sweetheart, another person so willing to give of his time to help the industry advance.
A: That’s right, and he really is a sweetheart. He’s going to talk about the global reach of the produce industry. Basically that means the effects imports are having, as well as opportunities for U.S. producers to avail themselves of exports. As you probably know, over the past 20 years or so, imports of fresh produce have grown by about four-fold, and exports have more than doubled. Over 50 percent of the fresh fruit we consume is imported, and Miguel is going to give some very important insights into the international trade of produce.
We will then have a working lunch with a panel of industry executives and practitioners facilitated by Jim Prevor, and that will be very interactive and animated.
Q: I can definitely confirm that. What’s next on the agenda?
A: After lunch, another Cornell faculty member, who I don’t think you’ve met yet, is Bill Drake, Senior Extension Associate. His presentation is Career Development: Key Success Factors in the Produce Industry. He’ll talk about some of the principle models of leadership and how leadership is not something you inherit or are born with intrinsically, but is something that can be learned, and skills measured, developed and improved.
Then I’m on deck to talk about the retailer/supplier relationship. I will draw heavily from two things: the fairly significant corpus of procurement research we’ve collected from Cornell for 35 years, and particularly the latest findings, the produce procurement study we completed earlier this year in 2015.
Q: Could you give us a preview of key issues you will be discussing?
A: Let me step back a bit to what the study did. We talked to 145 produce buyers; 34 of those were retail produce buyers, the rest were produce wholesalers, people on the terminal market or distributors, those who sell produce to the retail market. They are all produce buyers. This is a wholesale/retail produce study. We didn’t include foodservice operators in this study, though some of the buyers at the wholesale and distribution level do sell into the foodservice market.
Those buyers came from all 50 states, some of the largest companies and also some of the smallest companies that buy produce in the U.S. So we got a very representative sample that accounted for an enormous amount of buying of all produce procured in the U.S.
Q: What were you looking to discover?
A: I would say this… the produce industry’s change requires greater examination in respect to at least two issues. One is that produce over the past 20 years has occupied a larger and larger percent of retail sales. From 1995 to 2013, produce has gone from 10.3 percent of retail sales to 11.6 percent of sales, according to a Progressive Grocer study. So these are not our numbers, but what, in part, motivated our study.
Q: Why? And what were your other motivations?
A: It’s the only department of the retail store that’s grown that much, and at the same time, it has replaced things from grocery, and consumers have shifted shopping patterns to fresh and particularly to produce.
Another thing that’s changed, which also triggered our study, is that retailing and produce retailing, specifically, have become much more competitive in recent years. There’s been continued consolidation of retailers. In the past couple years, we’ve seen companies like Bi-Lo merge with Winn Dixie, Albertson’s combination with Safeway, and Delhaize and Ahold will merge, if it’s approved by the FTC, which it’s likely to be. All this results in a concentration of retailers -- where there used to be three buyers, now there are only two.
Yet despite this consolidation, gross margins of produce, according to Progressive Grocer, declined from 36 percent to 33 percent, or by 220 basis points over the past 10 years.
In net margins, they declined even more, from 21.9 percent to 17.4 percent, or by 470 basis points in that timeframe. Those are fairly substantial declines. What that means is retailers are not able to pass on price increases to consumers the way they once could have, because we are actually seeing increasing competition, despite consolidation.
Q: On one hand you’re saying there’s consolidation and on the other you’re saying there’s increased competition. Are you talking about competition traditional supermarkets are facing from other channels?
A: The retailers are competing with each other fiercely, and they’re not able to raise prices because their competitors are not raising prices. Those competitors can be traditional supermarkets or other types of retail operations — supercenters, warehouse club stores, small store discounters, online delivery services, etc.
The consolidation, though, has its impact on their interaction with their suppliers. There are fewer buyers, and suppliers have fewer buyers to sell to, so there has been a shift in the power and control in favor of the retail sector. There are 20,000 commercial vegetable growers in the U.S. and only something like 100 major supermarket produce buyers.
Q: What about all the other places you can buy produce now? How is that dynamic influencing your analysis? Isn’t that phenomenon important to consider?
A: It is, and I’ll be discussing that during the presentation. The numbers I just quoted for gross margin are for supermarket retailers, so that does not include other places where you’re starting to see produce, like convenience stores or dollar stores.
If you take a look at the produce department at retail level over the past 15 years or so, we considered two primary job positions in the produce department at headquarters, not the store level; category managers and produce buyers. If you add those two job titles together, you get the total number of produce professionals in the produce department, and those numbers for large retailers (we define over $2 billion or more in sales) have gone from 26.6 in 1999 (category managers plus produce buyers) in the average produce department for the large retailer, to today, where we now have 23.4. So it’s down about 10 percent.
At the same time, couple that trend of fewer buyers with this next trend, more and more products. In 1994, there were 370 SKUs in supermarket produce departments. Today, according to Nielsen Perishables Group and Cornell research, that number has climbed to 753. What we see, then, is fewer buyers and category managers per firm and twice as many products, so each buyer is responsible for way more products than they were a decade or two ago, but there are still only 24 hours in a day.
Q: Besides the additional workload, is consolidation leading to buyers who are less familiar with the produce industry?
A: Buyers now in a retail organization are rotating assignments among many more areas of the store than in the past. Last year, I may have been buying lawn mowers; now I’m buying tomatoes. The problem for the suppliers is they have to continually educate probably a very smart professional, who understands analytical measures, but maybe doesn’t understand the highly perishable, fast moving industry of produce because of lack of experience in produce. This is pretty much the same problem for both produce buyers and category managers.
Now, one implication is huge pressure for efficiency. Let me give you one analytical indicator of that. The order transmission in 1997 -- how the produce order was transmitted from the retailer to the grower shipper -- was made by phone or fax 75 percent of the time. Today, 79 percent of the time the order is transmitted electronically. The telephone use fell from 75 percent to 20 percent. Of course, that reflects better technology, but it also reflects, more importantly, the need buyers have to be superefficient.
On the one hand, that’s a positive change because we’ve introduced increased efficiency into the system. On the other hand, information quality that used to be transmitted by phone may be lost today with the rapidly changing quality and conditions at the grower-shipper level. What information might be lost because it can’t be communicated very well electronically?
Q: You would have the same issue with a fax transmission; in fact, it probably would be less nuanced than what you could do by email, or other sophisticated electronic systems, for example.
A: That’s true. Many retailers will be quick to point out, and I want to be quick to point out, that just because orders are transmitted electronically doesn’t mean the buyer and supplier don’t have phone conversations. Of course they do. But they don’t have the number and the quality they once had.
Let me elaborate on two of the things. One is the criteria buyers use to evaluate suppliers. Here’s what the buyers told us: The most important criteria were the quality and freshness of their department -- inventory turns, the shrink level, and delivering on budget, that is to say, hitting the sales and gross margin targets.
When probed how do you measure quality and freshness, they told us some fairly unprecise measurements. A lot had to do with retail executives’ observations in the stores; it may be at the receiving docks, when the product comes into the retail distribution center, shopper feedback on quality and freshness.
The next question: What attributes do buyers look for from suppliers? There are three key things, in this order:
First, they want suppliers who are willing to form a true partnership and alignment with the retail customer’s goals. That means… you have the product when I need it, and you find me the product when the market is short. I don’t want to hear you don’t have the product.
Second is innovation. Buyers want suppliers to come to them with new ideas, and that means varieties with taste and flavor, as well as processing, packaging and branding options. Different produce items, especially during certain times of the year, don’t taste good or good enough. The retail industry is finally starting to say -- and this not a new idea, you’ve heard it for decades – that there is a willingness to pay more if the flavor delivers.
Third is communication. Retail buyers want to know when conditions are changing, when the quality is going to be different, how the season is progressing, is it early or late, when shorts are coming so they can prepare, and they want information from suppliers on effective merchandising programs , which the supplier has engaged in in different places.
Incidentally, going back to our methodology, we interviewed buyers all across the country. The 34 retailers we talked to were via personal conversations using phone surveys, while the other 111 interviews involved quantitative surveys.
So we used two different interview techniques and we asked buyers on what criteria are you evaluated by your superiors.
What I didn’t mention in my review of what buyers desire is price, quality, food safety, traceability or integrity.
Q: Is that just because it’s assumed or a given to do business?
A: That’s exactly right. No one says, “Oh, I look for a company that has integrity" — because those are the stakes to be at the table, and it’s the same for food quality and safety. Once the supplier is certified to be a safe supplier, then you can start the conversation. Those are the table stakes to get you in the door to get you in the poker game. But those don’t make a difference on a weekly basis because integrity doesn’t change week to week.
There was one other key item – call it the fourth attribute buyers are focused on when evaluating suppliers – and it is one that might surprise some people as a key criterion in assessing produce vendors, and that is transportation. A lot of retail buyers told us on average transportation accounts for 25 percent to 30 percent of the total produce cost. And that doesn’t count the transport from the retail distribution center to the store. That’s just on-the-road, long distance transport.
Why is that? Three reasons. One I mentioned earlier. Twenty percent of all vegetables and 50 percent of all fruit we consume in the U.S. is now imported. It costs a lot of money to get that produce here from Chile, Australia and South Africa. Second, we now have 52-week demand for most produce items. It wasn’t too many years ago where the local blueberry crop, strawberry crop or peach crop was over and then you didn’t have them for another 6 to 8 months. Well now you can have items like that 365 days a year because they come from all over the world.
And finally, transportation cost has gone up because of the scarcity of reliable trucks and drivers.
This is an amazing statistic: despite all the new forms of transportation, the truck as a form of total shipments has grown over the past 30 years. In 1982, 87 percent of all produce shipments were carried by refrigerated trailer. In 1992, that went from 87 percent to 91 percent. Today it’s 94 percent.
So if you look at all these other modes of transportation, rail and air shipments and others, they only account for 5 percent of the total.
Q: Why is that?
A: Despite fuel costs going up dramatically over that 30-year period, the truck offers so much more flexibility; it’s usage has actually grown despite there existing what could arguably be more efficient modes of transport.
Q: But those high fuel costs reversed course. Haven’t oil prices dropped significantly in recent times?
A: The most recent data we have is from USDA Agricultural Marketing Service 2013. But in 2014, the price of petroleum plummeted. Last summer, June of 2014, a barrel of oil was $106. Today it’s $46. All this growth in truck transportation took place with high prices of oil. When the next data comes out, I think it’s fair to say, with oil dropping more than 50 percent, it is a plausible guess that truck transportation will increase even more.
Q: Even when so much produce is imported?
A: The produce still has to be trucked once it gets here. The produce arrives into Philadelphia or Los Angeles on a ship, but it still needs to be transported from Los Angeles to Denver in a truck. And the biggest exporter of produce to the U.S. is Mexico, and all that product comes by truck.
Q: Of course, with the huge spike in the number of produce SKUs lining produce departments, the need to navigate reliable trucks and drivers to transport them would be magnified…
A: A real supplier eye-opener is this idea that the number of SKUs of produce has doubled in 20 years, but the number of buyers has declined. So the buyer is now figuring out how to handle twice as many commodities. And the poor supplier is being asked to provide more information, more innovation and more high quality, but is being relegated to electronic communication too often, and there’s a bottleneck where the supplier can’t really get access to the gatekeepers of these produce shelves.
Q: And making matters more challenging, you point out that a lot of these buyers are not savvy in produce…
A: Part of that is related to a question you asked earlier… some of these buyers come from new channels. Now there are produce buyers at Dollar General and Aldi, which didn’t even have produce a decade and a half ago, and a lot of dollar stores still don’t. There are all these people buying party goods and canned foods, and, oh by the way, some produce. They are not the seasoned produce buyer the produce industry got to deal with a generation ago.
Q: How does this connect back to the broader implications of the Foundational Excellence program?
A: The Foundation Excellence program is intended to appeal to a new entrant to the industry. Cornell has had a long history of research in the produce industry. We’re a public university, so we partner democratically. We partner with research and executive education with United, PMA and virtually every other food organization. We work with FMI, NGA, NACS... So this is a program and opportunity where there wasn’t currently an offering; for new people to the industry, who in one single day want to get jumpstarted in how the industry operates and what some key and exciting issues are.
Q: Is there a way for program participants to follow up with you and your colleagues on issues after the day concludes? As they absorb this plethora of information, how can they maximize their learning and continue to build on it?
A: It’s safe to say, you can’t learn everything in the industry in one day. We recognize that, but we will provide the participants with information on how they can follow up to learn more about some of these things once they go back to the job site and have more questions and encounter new issues.
And, of course, Jim Prevor, PRODUCE BUSINESS magazine, the online PerishablePundit.com and PerishableNews.com, they are a big part of this program with many resources that can be accessed year round. In fact, the registration includes free subscriptions. In addition, the registration for the program includes an ALL ACCESS PASS to The New York Produce Show and Conference, including the Global Trade Symposium, the Ideation Fresh Foodservice Forum, educational micro sessions and regional tours.
So there is a lot of learning that can be done after the one-day program.
Q: Who should be signing up for this one-day event?
A: New junior staff from any produce company, buyer or seller, distributor or wholesaler; someone a company wants to jumpstart into a more productive career. We’re going to provide them the context of the industry, operating practices, standard procurement practices, some of the issues they need to be familiar with to operate effectively in this unique, fast-paced and exciting industry.
We hadn’t expected it originally, but we also have begun to see registrations from some more senior people – but people who are new to the produce industry. For example, a senior marketing person who has only worked in Consumer Packaged Goods (CPG) but has just joined a produce firm.
Q: What would you say are key misperceptions about the industry or things that might surprise participants?
A: This is not a new idea, but if you’re new to the industry, it’s hard to imagine how important perishability is. That’s one of the reasons why the rotation of buyers in the supermarket can be problematic. Every company is getting more analytical refinement today, and that’s required, but you can’t manage the ripening melon in Central America and weather-impacted tree fruit from South America, and an elaborate berry program based on some algorithm.
Yet some buyers are attempting to do that. And unless you’re familiar with how rapidly produce quality changes because of weather conditions or pests or perishability, you don’t realize how fast the industry moves, not just compared to other industries, but to most other departments in the supermarket.
It’s also an industry characterized, as you know, by a great deal of fragmentation. There are many big retail companies and a few big supply companies, but the supply companies have nowhere near the scale their retailers do. Many of the finest suppliers we have in the U.S. are small- to medium-size family companies. They’re innovative; they’re high quality; but you can’t supply 1,000 stores based on a small- or medium-size family farm. You’ve got trouble because of a lot more variables, changing supply conditions, changing geographies, and changing small and medium size groups.
Q: Industry executives often say it’s hard to convince young people to come into the industry, when there are all these other options pulling them away… it takes a serious commitment and passion to join the produce industry. Can you speak to that?
A: I agree whole heartedly, it requires a lot of hours, whether you’re on the buying or selling side. But you know, I work with university students every day, and they’re not afraid of hard work. What they’re looking for is an industry that has a challenge, movement, is a gratifying experience, is exciting, and fast paced and dynamic, and the produce industry has all those things.
Now there are things students are not very excited about. You might have to get up at 3 o’clock in the morning. Saturdays probably aren’t your own to go to local football games, at least not every Saturday. There are always challenges whether you’re a retailer, grower or shipper or wholesaler. But salaries have become more competitive with other sectors of the economy in recent years.
A lot of our students report to us they love the culture and the humanity. Compared to other sectors, even at the supermarket, just contrasted to the dry grocery business, there’s a much greater degree of informality and congeniality between buyers and sellers than there is in the grocery industry, which tends to be a little bit more formal and more rigid than the produce industry.
There’s very little arrogance in produce, and no one is wearing fancy suits and power shoes everywhere they go, because it’s an industry that’s not concerned with what might be regarded as the accoutrements of other industries. There are many characteristics that can attract students into the produce industry.
It is also true that many wash out in the first few years. For some, it probably was just never meant to be, but it is also true that very few produce companies have the kind of training infrastructure that can quickly bring new hires to a point where they are working to their potential. With this program, we hope to fill that gap. This way, employees are happier because they more quickly do more important and productive work and employers are happy because their new hires can start contributing more, sooner.
Happy and productive employees, contributing to profitable and growing companies – that is a win for the industry, and we are proud to play a role in moving the industry in this direction.
The program will be terrific. If you would like to attend or if you think you would like to send one of your employees please contact us here so we can make sure the program is the right one for you or your associates.
You can register to attend The New York Produce Show and Conference right here.
Hotel reservations can be made here
And travel discounts are available right here.
We look forward to seeing you in New York!
The produce industry is focused on the idea of marketing to kids — and thus, hopefully, building a growing adult consumer base as the children get older. The latest of many efforts in this regard is PMA’s effort to encourage the industry to use Sesame Street characters, which we discussed in pieces including IMAGINE-NATION: Will First Lady’s Sesame Street Campaign Reduce Produce Consumption? and When Elmo Is Crying – Will The Sesame Street Brand Be Used To Market Sub-standard Product? Is The Legal Minimum An Acceptable Food Safety Standard When Promoting To Children?
What about Foodservice? In Pundit sister publication PRODUCE BUSINESS we discussed what appears to be an abandoned initiative to double consumption in fruits and vegetables in pieces such as Is NRA Really Serious About Doubling Produce Usage?, Two Cheers for Bacon and Five New Priorities For Increased Foodservice Sales. Is there a possibility of using restaurant offers to children as a way to grow produce consumption?
NPD, a global market research and business solutions company, has released a study focused on the question of what drives families with children to frequent restaurants. We asked Pundit Investigator and Special Projects Editor Mira Slott to find out more:
Restaurant Industry Analyst
Port Washington, New York
Q: What does NPD’s latest foodservice market research reveal that could be strategically helpful to the produce industry? Our interest was sparked by your news release, Families with Kids: A Lost Opportunity for the Restaurant Industry. You point out that restaurants are leaving money on the table by not capturing more families-with-kids’ visits.
How much money are we talking about? [Editor’s note: NPD’s report, “Parties with Kids: Motivating More Visits”, uses an in-depth custom online survey with a completed sample of 4,352 families with kids aged 2-12. Most respondents visited a quick serve or full serve restaurant in the past 3 months].
A: The losses have been significant. Parties with kids (those including children under age 13) made slightly over one billion fewer visits to U.S. restaurants over the past six years [2008-2014]. Families with kids represent 32 percent of U.S. households and $83.7 billion of total restaurant sales. No restaurant segment was left unscathed.
Seventy percent of all traffic declines stemmed from full service restaurants. Many visits shifted from full service to traditional QSR and fast casual. Visits dropped across all meal periods, with half of all visit losses occurring at dinner.
Q: Why have declines continued year over year through 2014? Hasn’t the economy gradually improved? Wouldn’t visits gradually increase in tandem?
A: It has been a very slow recovery and the restaurant industry has had continued declines from families with kids. While we have almost recovered total industry losses it has come from adult only parties, mostly boomers. Millennials 25-34 with kids have yet to increase visits to restaurants.
Millennials got hit particularly during the recession and have learned to do without. Many are cooking at home and saying they love or like it. So one of the bigger challenges the restaurant will face will be getting them out of the home and back into restaurants, especially when they believe that preparing food at home is better than restaurant foods from a healthy perspective.
Q: Despite these declines, you say there are solid tactics that operators can employ, with the help of manufacturers and producers, in attracting families back to the restaurant dining table. Could you delineate these tactics in the context of opportunities for the produce industry?
Is there a way to reverse the trend with produce-related solutions — for instance, reinventing menus to include more fresh fruits and vegetables, and produce-inspired cuisines? What kinds of marketing strategies and restaurant venues have the best chance of success? How do parents define value? Do parents value healthier, nutritious choices on the menu for their children?
A: I’m going to focus on the healthy and customizable part of our research. How can operators improve kids’ menus? What types of menu items will have the biggest impact on attracting parties with kids? Families want more flexibility in what they order from the menu, and not just the kids’ menu. The younger kids are fine with the kids’ meal. However, once past the age of five, kids start to think they’re all grown up and soon want to order from the adult menu.
Parents desire healthier choices and more choices for their kids. At the very top, 63 percent of respondents wanted healthier options; 57 percent said that instead of a restricted kids’ meal, they preferred customizable menu items. They also wanted more side options available, and more than just French fries, a selection of healthier items. In addition, they were looking for less expensive menu options, and more entree options.
Q: How does the age of the child come into play?
A: Kids start ordering for themselves at the age of 5 so operators, with the help of manufacturers, must also focus on creating a kid-friendly menu. Once past 6, 7, 8 years old, kids want to eat from the main menu. Children’s palates change as they get older as well, desiring more flavorful “adult-type” menu items.
Q: Isn’t there a substantial price jump switching over from the kids’ menu to the adult menu?
A: What’s happening is a family of four comes into the restaurant with kids that want to order entrées from the regular menu. That gets very expensive for families. Parents are looking for something in between the size of an adult menu portion and a kids’ menu portion.
Here there is an opportunity for operators to offer a smaller type entrée with accompanying price. In addition, there is a need for better value items. Some want larger portions for their kids because for kids 11 or 12 years old, portions are too small on the kids menu. Also, they would like nutritional information shown.
Q: In the end, does nutritional information help or scare off restaurant patrons?
A: You bring up a very important point. We did an earlier concept taste test among NPD online panelists to evaluate the appeal, believability and the importance of “healthful” attributes. We introduced a breakfast sandwich described in the regular way, and then as healthier, using a range of words such as natural, hormone-free, organic, locally sourced, etc., and what came back to us right away was they just didn’t think the healthful option would taste good.
Despite the fact that the sandwiches were virtually the same, far fewer selected “tasty” as an adjective to describe the sandwich with “healthful” attributes. The expected taste and being a satisfying sandwich that is filling and hearty are challenges for the “healthful” breakfast sandwich. Our concept test showed that without having tasted the sandwich, far fewer consumers thought the healthier sandwich would be “tasty.”
Beyond convenience, taste often is one of the strongest influencers in consumer preferences. Healthy menu introductions will need to address this perception to build adequate trial.
Q: Was there any discussion about calories, fat, sugar, salt, etc.?
A: Surprisingly, without any mentions of calories, fat content, or health claims, a greater percentage of consumers thought the “healthful” sandwich was healthy, nutritious and of high quality. In this regard, healthy menu items have high potential for earning halo benefits around health and diet concerns, but also for high quality.
Q: Did you ask participants what they mean by healthy?
A: When consumers define healthy when going out to eat, it’s not as much about fat and calories, which is a concern when cooking at home. Although that comes into play, they’re a bit more indulgent when they go out to eat, looking for freshness, quality, prep methods, grilled rather than fried, and food that’s good tasting. If restaurants use too many words that describe something as good for you, kids and even adults think it won’t taste good. Operators have to position how to verbalize it.
Q: How does this information translate to the different restaurant channels — fast food, fast casual, full service, etc.? What types of venues offer the most promise for the produce industry?
A: These findings apply to different types of venues. The issues cross all types, not just full service. Parents also are looking for more customizable choices and more healthy options for their kids from fast food operators.
Q: How does this connect back to the value/price equation? Are parents willing to pay more for that flexibility and the healthy alternatives?
A: The other issue of contention: consumers say restaurants put healthier menu items on the menu but charge more for them, so how operators price healthier menu items is critical.
Q: Do you consider discrepancies on what survey participants say they want on the menu and what they actually end up ordering? Especially when people speak about eating healthy, even the best of intentions don’t necessarily correlate to actual eating behavior; hence the obesity problem...
A: As we all know, we don’t always do what we say we are going to do. Many consumers have the best intentions when going out to eat but then change their mind. Most items on menus, especially fast foods that are considered healthy options, have very low order incidence. I have a few charts of a report I did on healthy eating and how consumers describe what they are looking for in terms of healthy eating when they go out to eat. It is definitely very different from what they do at home. How Consumers Define Healthy Eating at Foodservice Channels When They Go Out to Eat; p.2, p.3., p.4.
Q: What about the supply and demand argument: if customers at restaurants were ordering and demanding healthier, more nutritious items, and shunning the high-caloric, sugar- and fat-laden choices, operators would accommodate? Could you provide more feedback on this?
A: Operators have accommodated but, as I said, order incidence is very low on what would be considered “healthy options”. I really believe they think they are not going to taste good. We need to get that mindset changed and prove that healthy options can really taste good and are not any more expensive than other menu items. Then we will make progress.
Q: In doing this research, were there any results that surprised you or that were different than what you expected?
A: I was not really surprised. Back in the 80’s when we had the low fat craze and we had these low fat items on menus, they did not taste good. So consumers remember and have the mindset that if it is healthy, it is not going to taste good. In general, consumers eat healthier when they are at home; they want to indulge a bit more when they go out to eat.
Q: In addition to the in-depth custom online surveys, does your research also involve restaurant visits/observations, speaking with foodservice operators, etc.?
A: We do not speak to restaurant operators. However, we have on-going tracking of consumer behavior as it relates to restaurants. We have been tracking the restaurant industry since 1976 via consumer panel. Currently, we go out to 3,000 consumers every day, asking them about their restaurant experience yesterday. So we know everything about what consumers do when they go out to eat. The custom studies get at the “why”.
This discussion touches on several important points:
1) We now have extensive evidence that highlighting specific dishes as “healthy” or having a separate “healthy” menu is pretty much the kiss of death in a restaurant environment. This is not because people do not want healthy foods; it is because the translation that consumers hear when they read these things is something like this: “Here is the menu of items that do not taste good enough to be placed on our regular menu.”
2) Since this not new, the interesting question is why restaurants continue to do it, to promote items as healthy and to have separate “healthy” menus/sections and menu pages? There seems to be three explanations:
a. Many restaurants do it for political and reputational reasons. They have plenty of business off their normal menu. But if ever challenged — by the media or at a Congressional hearing — that its breaded chicken cutlet, covered with cheese and served on a pound of spaghetti along with a loaf of garlic bread, means the restaurant chain is contributing to America’s obesity problem, the chain can quickly whip out its “healthy menu” or its 10 highlighted “healthy options” and switch the conversation. Now it is not that the restaurant chain is on the side of the devil in getting Americans fat; it is that consumers are making bad choices.
b. The healthy options help with the “veto factor” — when Dad and the boys want chicken fried steak with onion rings and Mom says no because she is on a diet — the guys can remind her of the “healthy” options available and avoid Mom vetoing the trip to their preferred restaurant.
c. Finally, restaurants do it because they haven’t figured out how to square the circle. Although Bonnie Riggs acknowledges the industry has to be careful how it “verbalizes” the healthy aspect of foods, it may be a more serious problem, specifically that the healthy options are, in fact, not as tasty or satiating as the standard fare. We ran a piece titled Food “To Die For” May Do Just That… Seminal Study Encouraging The Eating Of Bitter Vegetables For Health To Be Unveiled At New York Produce Show And Conference by an Italian professor, who also made a presentation at the New York Produce Show’s IDEATION FRESH Foodservice Forum, that the only solution is to change taste perception and that this has to start with young children… maybe even en utero!
3) The issue of pricing healthier items is important and with special relevance to the produce industry. The produce trade has always focused on the fact that produce is generally cheaper than protein as a selling point in persuading the foodservice industry that it ought to feature more produce. There is truth here, but there are complications. First, many foodservice operators prefer to use frozen or canned items — these may come from producers in China and are almost a completely separate industry. Second, although produce is less expensive than protein, it is more expensive than starch. So the cheapest way to satiate the customers is to load them up with a mountain of mashed potatoes, rice or a big bowl of pasta.
We are not certain that the issue of families with kids eating out less has much to do with restaurant offers. NPD is comparing 2008 to 2014. The more recent set of years corresponds with the “Great Recession,” and the pattern NPD notes — trading down from Full Service to Fast Casual and Quick Service and trading down from restaurants to eating at home — are precisely the patterns we would expect if unemployment rises, meaning that family incomes shrink and adults try to save money by shopping and cooking themselves.
We do think parents want restaurants to offer kids healthy options. Many children enjoy carrots, peas, green beans and other vegetables, and quite a number enjoy fruit and melons as appetizer or dessert. Certainly the day is past when offering chicken fingers and French fries, a hot dog and French fries and a burger and fries is doing a good job with a children’s menu.
Yet in our personal experience, most restaurants have plenty of items children will eat. The issue is more flexibility in the kitchen. Can they do things without sauces, etc.? It is also an issue of menu clarity — selling without explaining that the vegetables will be served drenched in butter etc.
Price is a big issue for many families and a difficult one for restaurants. Parents hate to pay to buy food when their seven-year-old will eat two bites. Yet smaller portions don’t fully solve the problem.
Bottom line… that little child is taking up a seat in the restaurant and someone has to pay that seat’s share of the rent, staff, insurance, etc. If the restaurant serves one scrambled egg or two ounces of pasta and charges for all the atmospheric and service elements, it will be seen as a rip-off joint. But these costs must be covered. So many restaurants feel it is better to give eight ounces of pasta. The added food cost is minimal — but the total bill looks more proportionate.
One issue is that as America grows more ethnically diverse and as travel becomes more common, restaurants that focus on “kids meals” can pass up a lot of business. One of the most interesting parts of the interview is the point that kids don’t like to feel like little kids and want to order from the adult menu at a young age. Grandma Pundit took the Junior Pundit Segundo, aka Matthew, out for his last birthday and he ordered two of his favorites, escargot and mushrooms – he was just turning 12!. His then 13 year old brother, Jr. Pundit primo, aka William, ordered a burger — kids fare you might say, but he ordered it topped with Manchego cheese!
So kids are people too with diverse tastes and interests. The real issue is whether kids’ menus are best used as a kind of loss-leader to draw parents into the restaurant or are they supposed to be profitable all on their own. That depends more on the nature of the restaurant than the nature of children… or their parents.
Many thanks to NPD’s Bonnie Riggs for sharing this study with the industry.