State of the Industry

At the start of 2009 in Fresh Cut’s annual state of the industry report, there was little evidence that the small cracks in the economy would grow so large. In fact, the fresh-cut segment was looking up moving into last year, with retail sales of fresh-cut fruits and vegetables increasing and foodservice sales at least level.

But those cracks grew quickly in a cataclysmic year that has seen unprecedented results. Foodservice sales have declined across nearly every segment – hitting the high-end restaurants and independents the hardest. Even quick casual and fast food restaurants have seen sales decline, and the new reality is that retailers and restaurant operators have to offer the same quality and quantity at a lower price point.

“What a world it has become, and what a year it’s been,” Bryan Silbermann, president of the Produce Marketing Association, said during his annual state of the industry address in October. “Who would have thought that the tripling of input costs last year would be the good old days? And who would have thought that we would be saying ‘flat is the new positive’ with such enthusiasm?”

Silbermann said the produce industry is moving into a “brave new world” never before seen, and if and when the market rebounds, it won’t be the same.

The new normal, as he calls it, will have the produce industry facing challenges it never could have anticipated 50 years ago. By 2050, world demand for food will double, with much of the demand coming from the Pacific Rim. Someone will have to grow food for all those people, and do so with less natural resources. In 10 year’s time, it will take 17 percent more water to grow the same amount of food, Silbermann said, and water is already a precious commodity.

“The greatest challenge we have is not using the water we have, but managing the politics of who gets access,” he said. “The politics of water will make the politics of food safety seem easy.”

In the near future, food safety will remain one of the most important issues. Science in increasingly learning about pathogens, and groups like the Center for Produce Safety at the University of California, Davis, are working with researchers to investigate and apply research.

Foodservice

Restaurant operators have reported negative same-store sales every month for the last year and half, according to the National Restaurant Association’s Industry Tracking Survey. Only one in five operators reported an increase in sales between October 2008 and October 2009, while 61 percent reported a decline. Foot traffic also was down, according to the monthly survey – continuing a trend seen over the last 26 months.

While the business sector is practicing “economic optimism” with the belief that the economy has turned the corner, foodservice operators aren’t so sure. Only 29 percent those responding to the survey thought sales would increase in the next six months, and 29 percent thought sales would decline over that time.

There do appear to be opportunities for fresh and fresh-cut produce in the foodservice segment, however. In the National Restaurant Association’s survey of professional chef members of the American Culinary Federation, a number of the Top 20 trends are regarding produce. The No. 1 trend for 2010, according 88 percent of the 1,800 chefs, is the trend toward locally-grown produce. Third on the list was sustainability, the No. 8 spot was the trend toward farm-branded ingredients, No. 12 was organic produce, No. 15 was nutrition and health trends and No. 20 was fruit and vegetables as children’s meal side items.

Chefs also identified exotic fruits, micro-greens and heirloom tomatoes and potatoes as hot trends for produce. Produce appeared in individual categories as well – chefs saw opportunities for fresh fruit in desserts and breakfast items, as well as in appetizer salads and ingredients in center-of-the-plate main dishes.

Retail

Today, the average consumer spends about $8,600 a year on food, but brand loyalty is for sale, Silbermann said. With so many alternative outlets available for produce sales, the future is both large – with warehouse clubs and supermarkets – and small – with local producers and convenience chains. And consumers are increasingly drawn to brands, and brands associated with the store they shop did well in 2009 – increasing 10 percent over the previous year, Silbermann said.

The consumer price index (CPI) for food, which measures the average price consumers pay for food at retail, increased from 2007 to 2008 by 5.5 percent – the largest increase since 1990. But as 2009 wrapped up, the CPI for food was negative for the first time since 1967. CPI for all consumer goods and services also was negative. The last time that occurred was 1955.

Fruit produce prices are down more than 7 percent from 2008 to 2009, according to USDA’s Economic Research Service. Apple prices, fueled by a record crop, decreased more than 18 percent from the previous year, but other fruit products decreased 4 percent to 7 percent.

Vegetable prices also have fallen more than 8 percent over a year’s time. Lettuce products have seen prices decrease nearly 11 percent, potato prices are down more than 17 percent, tomatoes are down 4 percent and all other vegetable product prices are down almost 6 percent.

Prepared food items using fresh-cut produce are becoming more common at retail outlets other than the supermarket. Mass merchandisers, warehouse clubs and convenience stores have increased prepared foods sales.

The deli section of the supermarket has increased sales in the economic downturn, according to data presented by The Perishables Group. The deli segment grew almost 3 percent in 2009, as customers look for fresh meal solutions that are convenient and less expensive than eating out.

Pizzas from the deli led the segment’s growth with a 15 percent increase in sales, followed by sushi with an 8 percent increase. Chicken and sandwiches had moderate increases between 2 percent and 4 percent, and salads – which account for 21 percent of dollars spent in the deli – increased less than 1 percent.

The salad segment of the deli did see growth in some products in 2009, according The Perishables Group. Cole slaw, which accounts for 7 percent of dollars, increased almost 4 percent and the popular potato salad, which accounts for 20 percent of sales dollars, increased almost 3 percent. Lettuce salads decreased 1 percent, and the deli salad bar, where one out of every $5 is spent in the deli, saw sales fall almost 4 percent.

Potatoes also were popular in the side dish section of the supermarket deli. Fresh potato product dollar sales increased almost 6 percent, and the products account for more than half of the side dish sales. Broccoli, which accounts for only 2 percent of category sales, saw an increase of almost 11 percent while products like spinach and other vegetable sides fell 4 percent to 12 percent.

The trend toward healthful eating in foodservice also is a benefit for the retail market. A consumer survey by the Hartman Group found that 77 percent of shoppers decide what’s healthful by reading the nutritional information on the packaging. The second-most popular way was to look at how fresh the product appears in the packaging (64 percent). Only 24 percent said they determined how healthful a product was by seeing how short the ingredient list is.

Quality is expected at both retail and foodservice meal experiences, according to the Hartman Group. When asked to describe the products they consume for special occasions and every day meals, 36 percent of consumers said “distinctive flavors,” 30 percent said “highest quality” and 24 percent said “minimally processed.”

The “brave new world” the produce industry is entering may look uncertain, but there are new opportunities for innovative processors that look for new ways to market fresh-cut product to consumers. People want to connect with the food they eat, and there’s nothing closer to the farm than fresh and fresh-cut produce – customers just need to be reminded of the fact.



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