Private companies, though, play an important role in increasing consumption and so here at the Pundit we thought we would mention three examples of products that have helped us personally boost consumption and also raise concerns with another type of presentation that has the potential to depress consumption.
During late hours producing this Pundit, we snack more than we should. But instead of pretzels we now keep a package of sweet mini peppers shipped by Bionova Produce under the Masters Touch label — or, as the label also says, presumably with Quebec in mind, Doux Sur la Plante Piments Miniatures.
Perhaps other companies make a similar product; this is the one we mostly see sold at both Costco and Publix near Pundit headquarters in Boca Raton, Florida. It is a great example of how supply creates demand. The mere existence of this little snack pack has more than doubled our weekly consumption of peppers.
We are also big fans of mango and, though cutting mangos is fine at home, in our office fridge we prefer something peeled and cut. Publix sells a fresh sliced mango product under the “Incredible Fresh” brand. This product is produced by Fruit Dynamics LLC which does business as Incredible Fresh. The mango is neat and easy to eat. Sure, at home we might select a softer, juicier, riper mango than works in this fresh-cut operation, but it is tasty and consistently delivers the same product, and the convenience has easily caused us to double mango consumption.
We also always keep a bag of “Fresh Trimmed Brussels Sprouts” in the office refrigerator. The label explains they are packaged in state-of-the-art, stay-fresh microbags and are distributed by the Los Angeles Salad Company — the same company we wrote about in less happy times here. You cut a corner of the 8-ounce bag, put it in the microwave for 3-1/2 minutes and it is ready to eat. A nutritious and to us, at least, delicious, snack.
Once in a while we order Brussels Sprouts at a restaurant and, in fact, it seems that they are a hot item right now in trendy foodservice establishments. Yet we never once purchased them to cook at home. Now this quick and convenient package has caused us to easily increase ten-fold the quantity of Brussels Sprouts we consume in a year.
Of course, not all packaging and processing boosts consumption. Sometimes it can have the opposite effect.
Publix sells bowls of fresh-cut melon, typically cantaloupe, honeydew and watermelon. Now it is always difficult to select a sweet whole melon from the shelves and, doubtless, this inability to ensure a tasty experience each and every time depresses melon sales. Still, as a sealed product of nature, we tend to cut our local supermarket some slack.
However, when we buy the fresh-cut honeydew, for example, and it is sweet one day and tasteless the next, we suspect consumers tend to blame the store. After all, this product was cut open, it could have been tested for brix levels or tasted by a melon El Exigente. It seems to us that a strong argument can be made that every one of these fresh-cut melon bowls should consistently provide tasty fruit.
Food manufacturers just don’t put bad tasting food in their packaging — it is not 100% clear that produce processors should either. If we sell tasteless produce we will never build up the consumer perception that consumers can rely on a brand or store’s fresh-cut melon.
At very least, if we want to keep availability year-round but the flavor profile at certain times won’t meet sweet standards, we should, surely, advise consumers of what they are getting.
Dole introduced recently a line of fresh-cut salads and one of its innovations was to include on the packaging a guide that advises the consumer where that particular salad ranks on a range of textures and a range of flavors.
If we are going to sell products that are variable in sweetness throughout the year, we ought to try to advise consumers of what they are getting. In the short term, this may reduce sales but it would increase consumer satisfaction and that will lead to higher sales.
We’ve been focused on issues of flavor for a long time. At one point, we even mentioned Wal-Mart by name and urged Wal-Mart to take the lead in presenting consistently good-tasting produce. That was back in the Bruce Peterson days and he had the Pundit fly down to Bentonville to discuss it — but it was always just a little too problematic to implement.
In any case, the point here, one we have made before, is that the industry cannot increase consumption in general without increasing consumption of particular items.
One of the points Rick Antle, CEO at Tanimura & Antle, emphasized during his participation at the “Town Hall” meeting held to discuss the generic promotion proposal during PMA was that when you have widely diversified products that have widely varying margins, uniform promotional efforts are difficult to pull off and may not make much sense.
However, efforts such as those we have recorded here — to market a sweet mini pepper snack pack, a fresh-cut mango, a microwaveable package of Brussels Sprouts and, perhaps, to find a way to communicate to consumers the sweetness of the melon chunks — all point to how wildly divergent efforts can all boost consumption.
Now we didn’t do a study of consumption-boosting products, and we are sure that there are many more out there. It is also probable that others around the country are producing similar products to some of those we highlighted and we just happened to mention brands and shippers whose product is being sold at Publix near Pundit headquarters.
We think that the industry role in boosting consumption is likely to come from innovative products and concept such as we have discussed in this piece.
To encourage the industry in this direction the Pundit is going to give out an annual prize for product innovation that is likely to boost consumption.
We think it appropriate to name this award after our friend, Joe Nucci, who died at age 40 as President and CEO of Mann Packing. Joe, as we wrote here, was on vacation with his family and the Pundit and his family at Walt Disney World when he passed away.
Joe was secretary-treasurer at PMA and on the rotation to become Chairman. He was also known as an industry innovator and as the “father” of broccoli coleslaw.
So each year we will present the “Joe Nucci Award for Product Innovation in Service of Expanding Consumption of Fresh Fruits & Vegetables” to the product judged to be most likely to increase consumption of a given item through product, packaging and marketing innovation.
Entries for the 2009 award will be accepted through February 1, 2010, but if you are ready, you can download the entry form here.
Target is a quandary when it comes to food. Its “Cheap Chic” approach that led it to be characterized by shoppers across America as “Tarjey” in a mock French pronunciation was extraordinarily successful right up to the current recession. It was not, however, instantly obvious how such a positioning could be applied to food and certainly not fresh produce or perishables.
Sure Target could hire famed architect Michael Graves to design a line of stylish houseware items that would look stylish and still sell for a discount price, but how would that strategy translate to selling bananas?
And, of course, although Target has Supercenters and, as we mentioned here, has dipped its toe into building the infrastructure that might one day lead to self-distribution, it has been notably slow in converting discount stores to supercenters and, in general, slow to build the supercenter division.
Target Corp. plans to expand 350 stores in 2010 to accommodate its new “PFresh” grocery concept, the discount retailer announced as part of Tuesday’s third-quarter earnings announcement.
The Minneapolis-based retailer first tested the new format last year at its stores in downtown Minneapolis and Minnetonka. It now has 108 “PFresh” stores.
Target has long maintained sizable groceries at its SuperTarget stores, but the latest effort revolves around its smaller, general-merchandise stores.
The “PFresh” stores carry 50 to 200 percent more food products than traditional general-merchandise stores, including more produce, meats and bakery items. Those stores have roughly 1,500 square feet of retail space dedicated to fresh food, still substantially less than at the company’s SuperTarget stores.
Moving forward, Target said it will introduce new PFresh locations to existing stores in “high-priority markets.” The company didn’t specify those markets.
The retailer said it plans to invest $1 billion in the widespread rollout of PFresh, and in the construction of 12 new stores. In addition to the 350 PFresh operations to debut next year, Target will add an unspecified number of the fresh-grocery amenities in 2011 and possibly 2012.
The “P” in PFresh stands for prototype and some are claiming that these stores will carry 60% of the food SKU count and 90% of the food categories of a Target supercenter.
We think the article is wrong when it talks about expanding the stores, it is just the food section in the stores that is being expanded. In any case Target executives obviously felt the results at the first 108 stores were encouraging enough to expand the program and, ultimately, these executives talk about running the program in many more Target discount stores.
How significant is this effort — for Target and for the broader industry? Well, we quickly got input from three well known retailers. One questioned Target’s very commitment to food:
Essentially, I have always felt, and continue to feel, that Target has yet to determine a “food strategy”. The “P-Fresh” format is said to have about 65% to 80% of the assortment that is in a Super Target, which is a bit of a stretch given that they devote limited space to this in a discount store.
But then again, the assortment in a Super Target is not very robust in the first place.
Essentially, I view this as being similar to the old “Pantry” format in a Wal-Mart Discount Store. But the difference is that Wal-Mart committed itself to food, and essentially, over time, remade any Wal-Mart store of any significance a Supercenter.
Target has yet to determine what it wants to be with regards to food. And keep in mind that they don’t self-distribute, so they are challenged right off the bat with being competitive in price and assortment.
That said, even a small food revenue stream in 350 stores adds up. And certainly a limited assortment that lacks any depth won’t put a strain on their inventory costs.
I don’t think it will appreciably add “frequency of visits” to their units nor will it put much pressure on their margins. It should add somewhat to their average ticket, but that’s about it.
Bottom line, in my view, remains that top executives at Target do not really want to be in the food business but were forced to move in that direction by their shareholders when Wal-Mart made its aggressive move into food. Even their Super Targets are weak as they are “caught in the middle” in trying to be more “upscale” and at the same time, represent a “value proposition”. “Target-chic” never panned out in food and still doesn’t in this roll out.
Another well respected retailer saw more upside for Target in the rollout:
The effort is a good interim attempt at grocery while they continue to expand their super center concept. It will help in their DC expansion to have some mass until the super center network is fully in place.
As I understand it, these are somewhat similar to smaller format stores such as Tesco’s Fresh & Easy, and Wal-Mart’s Marketside concepts but placed in the confines of a traditional “big box” discount store.
With Wal-Mart having slowed down its supercenter expansion and Tesco electing not to enter the market with super centers, the mega-retailers seem to have come to the conclusion that a grocery store inside the bigger box may not be hitting the mark on sales and profit. But the results that they have experienced seem to be enticing them to try a different tack.
One effort was to try these “small format” stores. Yet as we have seen in Phoenix, simply offering a smaller store (Fresh & Easy or Marketside) does not necessarily equate to a flood of business — and certainly not a flood of profits.
Smaller stores require a completely different strategy than do big box concepts. In a smaller store you actually have to (gasp…) interact with customers and offer the correct value equation for that particular market. So the metrics of the entire P&L will be different than those of the big box. The smaller stores will need to be supplied more often, culled more often, cleaned better, etc, etc.
This “Corner Store” mindset may not be immediately embraced by the strategists at Corporate, and certainly the General Merchandise mindset may be the immediate downfall of the program.
Consumers who are upset by something at a new concept store will probably be more likely to return to their old shopping habits pretty quickly. So there will really need to be something offered that is unique… or as Jay Abraham and the other marketing gurus call it… a “USP” — [unique selling proposition]. Simply offering a price, a “me too” or being linked to Wal-Mart or Tesco or, for that matter, Target, most likely will not be enough.
So since super centers are more and more difficult to site in locations where they will generate a sufficient return on investment, and since “small format” stores are too difficult for the corporate mentality to make work — Target is trying an in-between tack
Target is an innovative retailer that seems to be pretty adaptive. There is word out that Target intends to open a small format store.
In a large city like New York or San Francisco, where consumers can live with no cars, it may work if they can get things executed properly. In a city that has mobile consumers and a supermarket on every corner (like Denver, Phoenix, Orlando, Dallas, Los Angeles, etc.) it will be a more difficult concept to sell.
In my mind, nobody has executed on these small format stores very well so far except a few independent grocery retailers. Smart/local entrepreneurs will run circles around centrally controlled mega-retailers every day of the week.
As far as putting small grocery and perishable sections in discount stores, they will sell some volume just because any sales times 350 starts to add up. But the volume will be small enough to not depress overall store margins very much and they will not likely be a food destination in many places, not with all the competitors out there.
The numbers don’t lie but there may be a question of how they are being interpreted. The very fact that Target executives propose to increase the number of units equipped with this concept indicates they think it is a success. We have our doubts that, properly figured, it is really a winner.
Target has a lot of customers and so anything they put out will sell a lot. That is not a sufficient reason to add a food section. If McDonald’s added hot dogs to its menu tomorrow, then tomorrow McDonald’s would become the biggest seller of hot dogs in the world.
Yet the issue is more complex. Each item adds to menu complexity and slows down service. Will hot dogs attract a new customer? If hot dog sales cannibalize hamburger sales, will profits drop? All these questions and more must be considered. The fact that McDonald’s does not sell hot dogs gives us some insight as to how these assessments have worked out.
Discount stores always sold some food; whether selling perishables makes a lot of sense is unclear.
Will consumers visit a discount store more frequently because it sells a few perishable items? We have our doubts.
Will the food category generate higher margins than general merchandise? Typically not.
Will the perishables and, especially, the fresh produce be maintained in manner that it will always enhance the reputation of the store for cleanliness and freshness? We have severe doubts.
For the produce industry, it is, at least theoretically, desirable to have produce in more venues, although we need to be wary of weakening the venues that are more likely to support new products, do innovative merchandising, etc.
Still, another venue means another opportunity for an impulse sale. So for producers, this means more sales venues, more customers — this is all good.
For Target, though, unless the goal is to build up food volume to ease transition to a self-distribution model off of which many more super centers will be built — as one of our retail commentators suggests — the move to open small superettes inside a discount store doesn’t seem likely to either attract more customer visits or enhance profits, which means it is not clear it is the best strategy.
Still, we wish the folks at Target good luck and are glad the industry has an expanded venue to sell to.
Take a look at these two pictorial representations of job losses during the current recession.
This one, from a privately held Austin-based economic development consulting firm, is an animated map that “provides a striking visual of employment trends over the last business cycle using net changes in jobs from the U.S. Bureau of Labor Statistics on a rolling 12-month basis.”
You can see it here (make sure you press the arrow button above the map to watch the map change over time).
Mrs. Pundit attended law school at American University, and its graduate journalism program publishes a magazine known as the American Observer. It presents a graphic that enables you to, on a county-by-county basis, “Watch the deteriorating transformation of the U.S. economy from January 2007 — approximately one year before the start of the recession — to the most recent unemployment data available today.”
A hat tip to Chris Puentes, President at Interfresh, Inc., for sending us this photo of a truck parked in front of the Fresh & Easy store a block away from his office. It demonstrates the lengths Tesco’s Fresh & Easy is going to communicate its positioning as a low price leader:
Chris has been busy lately. First he sent out a notice that Interfresh had hired Doug Stewart in Los Angeles. Although the cover story was that he would help with new business development for fresh citrus — he had previously worked with Pro Citrus Network — we suspect the deal included much needed work on Chris’ golf game — as Doug had been a golf pro for two years and a golf teaching instructor at the Visalia Country Club.
…Interfresh will work to expand distribution of Naturipe Farms’ complete line of fresh berries into areas where Naturipe Farms has identified growth opportunities. “As our grower base continues to expand their production due to new acreage and maturation of the existing plantings, alliances with strategic wholesalers such as Interfresh, create an opportunity for expansion into new markets,” said Robert Verloop, Senior Vice President of Sales & Marketing.
So busy with forays into citrus and berries, Chris is especially appreciated for taking time to be a Perishable Pundit cub photographer.
Wal-Mart putting more pressure on suppliers is nothing really new! All the chains stores do it! The mere fact that there are hundreds of suppliers selling (or trying to sell) produce to only a few buyers puts the big chain stores in control of the prices.
— Alan C. Fitzgerald Chairman Tri-Pak Machinery, Inc Harlingen, Texas
The idea that big chain stores are “in control” of produce prices reminds us of an important quote related to the stock market:
“In the short run, the market is a voting machine, but in the long run it is a weighing machine.”
— Benjamin Graham, The Intelligent Investor
So with produce, yes, in the short run, big buyers can obviously dictate the price. The produce is grown and packed and producers have to take what they can get. In the long run, though, things are more complicated.
1) Buyers are constricted by their own formats
There was a big contretemps a couple years ago when Bonita Banana/Pacific Fruit tried to raise prices on Costco. It was a big miscalculation because Costco simply did without bananas for awhile as it did without spinach for a long time after the spinach crisis of 2006. Recently Costco just discontinued Coca-Cola products because of a pricing dispute.
Most supermarkets and supercenters, however, do not have the luxury of doing without important items, so they can only drive what they are willing to pay down so far without creating a supply response.
2) Big buyers need big suppliers.
Although there may be “hundreds of suppliers” trying to sell retailers, there are not hundreds of suppliers capable of supplying Wal-Mart with any appreciable proportion of its needs for any given produce item.
One reason Wal-Mart’s aggressive organic efforts largely failed in fresh produce is because you wound up having Wal-Mart buyers chasing tiny producers in order to stock stores. The efforts were time consuming and, ultimately, quixotic.
Few retailers are staffed to deal with more than a handful of suppliers at one time in one category.
3) All product and all vendors are not created equal.
We have known many retail produce directors and all had different philosophies but, none, not one, thought it didn’t matter who they bought from. Some were persuaded by the studies produced by particular brands of produce, others found through their own experience that certain varieties or brands turned more quickly with lower shrink, etc.
Even if the product was considered very similar, the service, reliability and consistency of different suppliers certainly made a difference.
The reality is that these factors and others significantly constrain the flexibility of large retailers.
In fact large suppliers and large buyers need each other. The philosophy changed but it was not all that long ago that Lee Scott, who served as Wal-Mart’s CEO before Mike Duke took over, was often heard saying that Wal-Mart needed its suppliers more than its suppliers needed Wal-Mart.
More fundamentally, although growers can lose money on a particular crop, if they lose too much, too consistently, they will be unable to raise capital to plant again and will go out of business. This will constrain supplies, alter the power mix between buyers and sellers and lead to higher prices.
So there is an inherent limitation on the degree to which retailers can, in fact, push prices down because, in the long run, suppliers who do not make money go out of business.
Oftentimes producers don’t experience the business this way, but that is typically because they are concentrated on one item.
Although vendors must be profitable over time, no individual item must be sold at prices that produce profits. So a vendor who only grows, say, cucumbers, will be vulnerable to a competitor who sells cucumbers and tomatoes and various types of pepper. This competitor may well adopt a policy of selling cucumbers at a loss as part of a strategy to secure orders for a broader array of items.
Note though that this is not a case of retailers beating up on producers; it is a case of two producers having different marketing strategies.
In general the trend of retailers asking vendors to submit a bid on a fixed price for a few months is increasing risk in the produce industry because many producers only sell one item — say onions or potatoes — and, in a particular season, only from one place. So , as a result, they are taking a big risk when they submit a bid to say, Safeway, because they have not diversified their risk. So a crop failure or reduction in yield can bankrupt them. If they were to supply a hundred items, grown in a hundred places, the risk would be far less.
Alan’s point that Wal-Mart is merely becoming more like other chain stores is true. Of course, Wal-Mart is by far the most successful retail story of the last two decades, so why it would think that adopting the practices of other retailers would be a big win is not clear.
We thank Alan C. Fitzgerald and Tri-Pak Machinery, Inc., for weighing in on this important matter.