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Trends in U.S. Fresh Produce Marketing DR. ROBERTA COOK Dept. of Ag and Resource Economics University of California Davis Fresh Produce and Floral Council.

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Presentation on theme: "Trends in U.S. Fresh Produce Marketing DR. ROBERTA COOK Dept. of Ag and Resource Economics University of California Davis Fresh Produce and Floral Council."— Presentation transcript:

1 Trends in U.S. Fresh Produce Marketing DR. ROBERTA COOK Dept. of Ag and Resource Economics University of California Davis Fresh Produce and Floral Council Luncheon September 2004

2  $498.3 billion food retailing (excluding non-food grocery store sales) 53% of total  $445 billion food service (including $17.8B foodservice sales made by food retailers) 47% of total around 844,000 outlets TOTAL 2003 U.S. FOOD* SYSTEM: $943.3 BILLION *Excludes alcoholic beverages and other grocery Sources: ERS/USDA and The Food Institute

3 Source: ERS/USDA At-homeAway-from-home U.S. FOOD EXPENDITURES as a SHARE of DISPOSABLE PERSONAL INCOME,

4 Source: The Food Institute Report, ; Column totals in white represent combined food and nonfood new product introductions. 19,458 16,562 16,695 18,043 19,331 20,076 17,566 16,143 13,244 10,558 19,572 22,572 22,374 U.S. Grocery Industry New Product Introductions, ,181

5 Trends in US Food Expenditures CAGR

6 Source: ERS/USDA 2004 US Foodservice Segment Shares, 2003 Full-Service Restaurant Fast-Food 1%

7  Since 1992 consumer spending at restaurants is up 56%  Consumers are trading up, contributing to higher sales in full service restaurants and fast casual (like Baja Fresh, Chipotle, Panera)  Consumers search for VALUE, 62% say they are “willing to spend more time and money for better quality food.”  91% of consumers say “It’s worth it to wait a little for food customized to my liking.”  Foodservice fresh produce and fresh-cut demand rising. FOODSERVICE OPPORTUNITIES FOR FRESH PRODUCE

8 1996 Source: FMI Trends in the Supermarket 2003, 2004 Sources of Takeout* Food in the US, Supermarkets Gaining! 2004 Fast-food rest. Restaurant Supermarket Super- market *Takeout only, not all foodservice

9 US Estimated Fresh-cut Produce Sales, All Marketing Channels, $ Billion Source: Dole Over 60% estimated to be sold via foodservice channels Sources: IFPA and IRI $ billion $4 plus at retail

10 U.S. Fresh Fruit and Vegetable Value Chain, 2002 Estimated Billions of Dollars institutional wholesalers food service establishments supermarkets and other retail outlets consumers exports farmsshippers integrated wholesale- retailers produce and general-line wholesalers farm & public markets imports $3.4 $19.2 $5.9 $40.0 $81 $39.7 Source: Estimated by Dr. Roberta Cook, UC Davis, based on numerous public and private sources $1.3

11 Source: IRI U.S. S UPERMARKET F RESH- C UT S ALAD S ALES, Million $

12 US Fresh-Cut Vegetable Facts Fresh-cut veggies represented 31% of all pre-packaged produce retail sales in Carrots were about half the $1.3 billion fresh-cut veggie category, followed by spinach ($108 million), potatoes ($87 million), celery ($85 million) and mixed vegetables ($69 million) 77% of consumers purchase fresh-cut veggies, but on average, only once every 9 weeks Source: IRI

13 US Fresh-Cut Fruit Facts Fresh-cut fruit is still a small share of total fresh- cut sales, retail sales were estimated by IRI at $238 million in 2002, with total fresh-cut sales (incl. foodservice) estimated at at least $600 million. Forecast by IRI to reach $1 billion by Household penetration of only 17% in Great potential for fruit in both retail and foodservice channels McDonald’s offering apple slices as alternative to French Fries in Happy Meals Quick-service restaurants and fast casual segment keep adding fresh produce, including fresh-cut

14 Supermarket Trips Per US Household Per Year Source: Coca-Cola Retailing Research Council of N. America 2004

15 US Supermarket Share Continues to Decline for Key Grocery Categories Source: FMI Trends in the US, Consumer Attitudes and the Supermarket, (% Shoppers Who Generally Buy That Item at the Supermarket)

16 Top Factors in US Consumer Selection of Primary Supermarkets, 2004 Source: FMI Trends 2004 Items on sale or specials Store layout Fast Checkout Personal safety outside the store Accurate shelf tags Use-before/sell-by-date marked Convenient location Courteous/friendly employees Low prices High-quality meat High-quality fruit/veg. Clean, neat store

17 Quality of Shopping Experience by Channel, TRI*M Index (Differences of 3 or more are signficant) Source: Coca-Cola Retailing Research Council of N. America 2004

18 Quality of Shopping Experience by SUPERMARKET TYPE, TRI*M Index (Differences of 3 or more are signficant) Source: Coca-Cola Retailing Research Council of N. America 2004

19 US Store Format Growth Trends and 2003 Sales* 2003 Sales $Million 2003 # Stores 2003 $ % Share 2008 $ % Share Traditional$422,79141, Nontraditional$235,10040, Total C-Stores $93,518129, GRAND TOTAL$754,408213, Grocery sales only, excludes electronics, prescription drugs, toys, jewelry, sporting goods, gas, clothing, footwear, knickknacks, and hardlines Source: Competitive Edge, June 2004

20 US Store Format Growth Trends and 2003 Sales* Traditional Grocery Channel 2003 Sales $Million 2003 # Stores 2003 $ % Share 2008 $ % Share Total Traditional $422,79141, Conventional$97,11012, Superstore$164,2688, Food/Drug Combo$114,4005, Limited Assortment$16,1073, Super Warehouse$14, Other (Small Grocery)$16,57512, * Grocery sales only, excludes electronics, prescription drugs, toys, jewelry, sporting goods, etc. Source: Competitive Edge, June 2004

21 US Store Format Growth Trends and 2003 Sales* Traditional Grocery Channel * Grocery sales only, excludes electronics, prescription drugs, toys, jewelry, sporting goods, etc. Source: Competitive Edge, June 2004 Total Store Area Average Total SKUs Average Weekly Sales $ Grocery & Consumables % of Sales Total Traditional195, Conventional25,80022,000150, Superstore51,20030,000390, Food/Drug Combo55,70052,000440, Limited Assortment11,2001,90098, Super Warehouse59,50033,000520, Other (Small Grocery)9,0003,00025,500100

22 US Store Format Growth Trends and 2003 Sales* Nontraditional Grocery Channel 2003 Sales $Million 2003 # Stores 2003 $ % Share 2008 $ % Share Total Nontraditional$235,10040, Wholesale Club$51,9531, Supercenter$85,1551, Dollar Store$10,68615, Drug$33,18918, Mass Merchandise$49,8734, Military$4, * Grocery sales only, excludes electronics, prescription drugs, toys, jewelry, sporting goods, etc. Source: Competitive Edge, June 2004

23 US Store Format Growth Trends and 2003 Sales* Nontraditional Grocery Channel Total Store Area Average Total SKUs Average Weekly Sales $ Grocery & Consumables % of Sales Total Nontraditional124,466 Wholesale Club135,0005,500970,00059** Supercenter190,000125,000890,00060** Dollar Store8,0004,00013,70066 Drug12,00020,00034,50034 Mass Merchandise100,00095,000230,00023** Military29,40015,000450, * Grocery sales only, excludes electronics, prescription drugs, toys, jewelry, sporting goods, etc. ** Does not include gasoline sales Source: Competitive Edge, June 2004

24 S UPERCENTER I NDUSTRY SALES and UNITS, , (About 35-40% estimated to be grocery-equivalent) units Sales *forecast Source: The Food Institute’s Food Industry Review 2003

25 Domestic and International U.S. M embership C lub S ales and U nit Growth Slowing, , (61% estimated to be grocery-equivalent) units Sales in $ billion *forecast Source: The Food Institute’s Food Industry Review 2003

26 Competing in a Value-Driven Market Channel blurring has caused the retail landscape to be overstored. Plus, foodservice channels compete with all forms of food retailing which tend to offer ingredients to prepare instead of meals to eat. Retail Home Meal Replacement helping somewhat and fresh produce value-added products benefiting.

27 Competing in a Value-Driven Market Grocery retailers have been losing share to foodservice for decades, now to value retailers Conventional grocery retailers must identify value propositions they can own if they are to remain competitive! (fresh produce can be a point of differentiation) Bottom line: more structural change expected in the US grocery industry and more pressure on suppliers!

28 The Revealing Percentages Conven’l Super Disc. Club Grocery Center Drug Store Gross Oper Exp Net Margin (Before taxes) Source: Glen Terbeek

29 U.S. F OOD B USINESS M ERGERS & A CQUISITIONS Source: The Food Institute’s Food Industry Review, 2003

30 Percent of U.S. grocery store sales U.S. Grocery Retail Concentration* Source: Phil Kaufman, ERS/USDA; US Retail Census *Includes grocery-equivalent supercenter sales ONLY. Excludes sales of c-stores with gas. Excludes the portion of any grocery chain’s sales corresponding to their drug store, jewelry store or other non-grocery store sales.

31 U.S. Fruit and Vegetable Supply-Side Marketing Structure Becoming Less Fragmented, 2002 Fruit, berry and nut farms* 26,571 Vegetable and melon farms* 15,355 Number of fresh shippers5,000 Total chains, grocers, wholesalers 1,079 Retail chains 267 Produce wholesalers 188 *Selling over $50,000/yr.; Total of 107,707 fruit, berry, nut farms and 59,044 total vegetable and melon farms, all sizes – US 2002 Census of Ag

32 Stock Price Performance, Top 5 US Grocery Retailers 1/1/99 – 2/23/04 Chain% Change Wal-Mart+ 48% Kroger-32% Safeway-61% Albertson’s-57% Ahold-75% Dow+15%

33 Wal-Mart9.04%3.48%2.60 Kroger5.18%1.96%2.64 Safeway1.61%0.78%2.06 Albertson’s4.11%1.74%2.36 Return on Asset Comparison, Top 4 US Grocery Retailers ROA =Profit/Sales X Sales/Assets

34 The experience from the merger trend of the late 1990’s has shown that getting bigger wasn’t enough to meet the new competitive benchmark imposed by Wal-Mart’s success in logistics, data management and cost reduction. President of Safeway just announced a move to net, net pricing, moving away from allowances, following on the Wal-Mart model. But, as always, fresh produce lags grocery. Conventional Retail Chains Reconsidering their Models

35 The challenge for retailers is to effectively utilize scanner, customer loyalty card and other data in order to identify the right product mixes at the individual store level. Food retailing is inherently local, and as retailers get larger and consumers more diverse, intensive data management is critical! Conventional Retail Chains Reconsidering their Models

36 The Future Wal-Mart will be the mainstream retailer for the foreseeable future but there will also be lots of new winners. New price driven retailers will increase competition for Wal-Mart and Wal-Mart’s growth may slow as it tackles issues faced with expansion in urban areas (high land costs, unions, local regulatory policies). Consumer research conducted by The Hartman Group indicates that consumers don’t express excitement or devotion about shopping at Wal-Mart. Many just view it as a way to save on staples without taking over their shopping lives. Lukewarm support creates opportunities for competitors.

37 The Future The winners will compete on various dimensions of value : price, product, service, and selection. There are a number of formats successfully defining “white space” market opportunities. Examples include Trader Joe’s, Whole Foods, Dollar Stores, and conventional chains like Wegman’s and HEB, as well as independents. Retailers can deliver value to consumers at both the high and low ends of the price spectrum, depending on product selection and quality levels, and format design, by understanding the needs and wants of target segments for specific shopping occasions. The middle, unclearly defined ground – retailers with no clear value proposition – will be increasingly challenged.

38 “Quality is yesterday’s news. Today we focus on the emotional impact of the product.” (Dilbert comic strip) Research from Cornell and U of Colo. show that income level is positively associated with experiential over material possessions. (Van Boven and Gilovich) Ego – Starbuck’s – an affordable luxury for all income levels Products Distinguishing Themselves More Through Aesthetics, Adding Emotional Value to Practical Use – Food Especially!

39 Travel; eating out, increasingly in restaurants providing more memorable experiences; and differentiated foods purchased at retail are gaining. “Upscale” positioning may be bundled with several perceived emotional values - organics benefit. Fresh produce is a part of the trend. But, to afford these “extras” people are often making a greater effort to economize in their routine grocery purchases, hence, growth in value retailers. Products Distinguishing Themselves More Through Aesthetics, Adding Emotional Value to Practical Use – Food Especially!

40 Consumers are Becoming More Eclectic: Unabashed Wal-Mart Shopper Speaks The writer found a brown stretch top with a ruffle drizzling down the V- neck, for about $9, and jeans made of two-inch-wide strips of washed corduroy, denim and a blue lace print, reminiscent of Dolce & Gabbana, $17.98, at Wal-Mart. She wore them with Celine platforms, $420. Adapted from Food Marketing Institute 2002 Value Propositions and Needs! This also applies to food. Flavor Density re calories. EATING OCCASIONS MATTER!

41 US P ER C APITA V EGETABLE C ONSUMPTION, P OUNDS, F Source: USDA/ERS, Vegetables and Specialties Outlook, July 2004 Pounds per capita ‘04 (Excl. potatoes)

42 US P ER C APITA F RUIT C ONSUMPTION, P OUNDS Source: USDA/ERS, Oct Pounds per capita

43 Shoppers’ concern about nutritional content and evaluation of diet Source: FMI Trends in the US Consumer Attitudes and the Supermarket 2004

44 Changes for healthier diet Source: FMI US Consumer Trends and the Supermarket 2004

45 U.S. D EMOGRAPHIC I NDICATORS, 2002 Sources: US Bureau of Census; Food Institute Demographics of Consumer Spending 2004 for food spending only  million households  289 million inhabitants  2.6 persons average household size  Average household income of $57,852  Median household income of $42,409  Average household food spending of $5,375 (including $3,099 at-home and $2,276 away-from-home)

46 SEGMENTATION/TARGET MARKETS Variables commonly used to categorize consumer differences to focus marketing activities –geographic –demographic –psychographic--based on attitudes & activities STATUS SEEKERS, CHASE & GRABITS, ENVIRONMENTALISTS »Mass individualization! »Problem solving is key! »Understanding needs and constraints in individual eating occasions essential!

47 US Household Composition, 2002 Ave. Household Size: 2.5 People Source: Demographics of Consumer Food Spending 2004, The Food Institute Husband & Wife Single Parent Single Parent Single Other 50% 6% 29% 15% Husband & Wife with Children under 18 19% of Total Households Husband & Wife with Children under 18 19% of Total Households

48 U.S. Per Capita Food Expenditures, 2002, by household size – Small households spend more per capita! Source: Demographics of Consumer Food Spending 2004, The Food Institute Food at home Food away from home

49 Source: Demographics of Consumer Food Spending 2004, The Food Institute % of total at home food expenditures contributed by each income group Average fresh produce expenditures per income group $ $520 /32% $235 /13% $303 /18% $342/21% $384 /16% D ISTRIBUTION of US H OUSEHOLDS, S HARE of T OTAL AT HOME F OOD E XPENDITURES/ I NCOME L EVEL and F RESH P RODUCE E XPENDITURES, 2002 Share of households

50 Consumer Food Expenditures, by Household Income Level 2002 Source: Demographics of Consumer Food Spending 2004, The Food Institute

51 US Fresh Produce Consumption by Race 2002, $ Per Household Source: Demographics of Consumer Food Spending 2004, The Food Institute Vegetables Fruits Vegetables Fruits

52 U.S. Hispanic Population Projections, Millions Source:US Bureau of Census

53 Hispanic Population Boom, 2000 (U.S. Census) 2050 (Projected)

54 Conclusions

55 Streamlining the Distribution Channel How best practice retailers are using information:  Identifying and merchandising product affinities associated with popular items.  Grooming vendor capability to provide useful insights. Source:Willard Bishop Consulting, Ltd.

56 Streamlining the Distribution Channel New tools using data-mining capabilities are entering the market to provide:  Cost-effective consumer-centric business processes Customer purchase patterns Product promotions Source:Willard Bishop Consulting, Ltd.

57 S HELF C APTAINS Leading, technologically savvy vendors—sometimes brokers Take category interface respon sibility for section May work in retailers’ headquarters Recommend shelf sets, product placement Very influential to category management

58 Basic Strategies for Shippers Low-cost grower/shipper Differentiated year-round grower/shipper marketing a premium product or product with identifiable preferred characteristics that are commercially perceived and valued First strategy increasingly difficult as buyers push more demands and services upstream to suppliers Increasingly shippers must add value and at the lowest cost – need strong core competencies!

59 C ONCLUSIONS: The Future? More and more, large year-round grower-shippers may become the sourcing entities for retailers, procuring volume above and beyond their own via geographic diversification, including imports. Smaller seasonal players will need to find niche markets.

60 60 Quantity Flexibility Costs Tracking and tracing Tracking and tracing Quality: taste! freshness temperature shelf-life nutrition value consistency Quality: taste! freshness temperature shelf-life nutrition value consistency Specific requirements packaging pallets size tailor-made Specific requirements packaging pallets size tailor-made On-time delivery Shippers Safety: microbial and pesticides Safety: microbial and pesticides Fierce competition places multiple demands on fresh produce suppliers while product perishability continues to limit bargaining power... So more shipper/supplier consolidation to come! Source: Adapted from Rabobank Mexico


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