Some segments see triple-digit increases

Fresh produce as a whole is a growing market, but the fresh-cut segment is outperforming the category. Produce as a whole is a $70 billion industry, and fresh-cuts account for about $12 billion. That’s a $1 billion, or 8 percent, increase from 2001. The fresh-cut industry is growing across the board, but the retail portion is showing a significant trend upward. Retail sales have increased to about $3.1 billion, with new products driving the growth.

“Fresh-cut is one of the fastest growing segments of the retail chain as people are more drawn for convenience,” said Steve Lutz, executive vice president for the Perishables Group, a consulting and research firm that has been contracted by the Produce Marketing Association to study the retail market for fruits and vegetables.

Convenience is the biggest factor in increasing sales at retail. According to the Perishables Group research, 68 percent of trips to the supermarket are quick trips for goods that are consumed within 24 to 48 hours. Only 14 percent of consumer trips were considered large or extra large, where they would stock up on products that wouldn’t be used for a week or more. The conclusion drawn from this data is that consumers don’t have time to devote to shopping, and they’re not planning meals out more than a day ahead.

The research found that shoppers were buying more fresh-cut fruits and vegetables and that the products were generally more available to them. Some products saw gains because of increased distribution, others by increased sales and others because of both increased availability and interest.

“Fresh-cut is growing because people are buying more and they’re available at more stores,” Lutz said.

Produce sales as a whole grew by 4.6 percent, but were outpaced by the fresh-cut segment that grew by 5.6 percent. Most of that growth was from fresh-cut fruit, which grew by almost 8 percent compared to fresh-cut vegetables, which grew by almost 4 percent. Every product in the fresh-cut segment increased in sales, according to the Perishables Group report. Shoppers who bought fresh-cut fruits and vegetables reported that they used them primarily for snacks or as side dishes – indicating that fresh-cut items are becoming a fresh alternative to frozen vegetables for convenient side dishes.

“It’s the niche items that are really going to provide vitality to that fresh-cut segment,” Lutz said.

Growth in Vegetables

Carrots dominate the vegetable side of fresh-cuts. About 45 percent of fresh-cut sales at retail outlets were for carrots, followed by mixed vegetables at 19 percent. Mushrooms account for 18 percent at retail, peapods for 6 percent, broccoli 3 percent, onions 3 percent, celery 2 percent and all other vegetables account for 4 percent of fresh-cut sales at retail. The segment is somewhat mature, so new products will be needed to reinvigorate fresh-cut vegetable sales, and some of that was seen in 2007. If mushrooms and carrots are removed from the data, the fresh-cut vegetable category showed 11 percent growth, which shows the segment has found new ways to grow.

Fresh-cut green beans outperformed any other vegetables in terms of growth in 2007. Product sales increased 155 percent over 2006 even though distribution remained about the same – found at only 14 percent of supermarkets, an increase of less than 1 percent over the previous year.
Vegetable medley products are available in about 97 percent of stores nationwide, but the category saw a 10 percent increase in sales. That result is “clearly driven by consumers buying more in the existing retail store,” Lutz said.

Onion availability increased by 8 percent in 2007 to 77 percent, and sales of the product increased by 16 percent. Peppers and corn also saw double-digit growth in 2007, at 18 percent and 21 percent, respectively.

Growth in Fruit

Fresh-cut fruit items increased in both sales and volume in 2007. Every fruit product increased in dollar sales in 2007, ranging from 7 percent to 54 percent growth. Not including melons, the fruit segment showed 14 percent growth, again indicating new avenues of growth.

The fruit market is more evenly distributed than the vegetable segment, but mixed fruit products dominate with 35 percent of the total dollar sales, but only 21 percent of total volume. Watermelon accounts for 23 percent of dollar sales, but nearly half of total volume, and pineapple accounts for 14 percent of dollar sales and 9 percent of volume. In dollar sales, cantaloupe (5 percent), other melons (5 percent), apples (5 percent), grapefruit (3 percent), strawberries (2 percent) and all other fresh-cut fruits (7 percent) round out the category.

Citrus fruits did the best this year in terms of growth. Fresh-cut orange slices are now available in 78 percent of stores nationwide, an increase in distribution of 18 percent. The products increased in dollar sales by 53 percent, the best performance in the fresh-cut fruit category.

Mango distribution increased only slightly (4 percent) to 54 percent of stores, but the dollar sales increased by 32 percent, indicating that consumer awareness was increasing and repeat and new sales were occurring at stores already carrying mango items.

Apples had the second-highest growth in the fresh-cut fruit category for 2007. A number of new products or line extensions have been added to the fresh-cut apple category, and customers have responded. Dollar sales increased 38 percent over the previous year, and distribution increased by 10 percent. Fresh-cut apple products can now be found in about 70 percent of stores.

Regional Pricing

In a positive sign for the industry, prices rose for fresh-cut products from a year ago. The average retail price increased $0.12 to $2.30. Promotional discounts were lower as well, with the average promotional price rising from $1.67 to $1.84. The average discount was about 25 percent off ($0.59) this year, compared to a 29 percent discount a year ago ($0.69).

There were regional differences in the pricing that varied almost $0.50 on average. The lowest average price for fresh-cut products could be found in the eastern United States, which was also the area with the poorest performance, according to the Perishables Group study. Products there averaged $2.10 per item, an increase of less than 2 percent over a year ago, and volume actually decreased by slightly more than 2 percent. The East was the only region to see a decline in fresh-cut volume. The market is considered mature, with fresh-cut watermelon dominating sales. The top three items in terms of dollar value and volume in the East were overwrapped watermelons, which accounted for two-thirds of all sales. Mixed vegetable products sales dropped in the East, the only region to see a decrease.

The southern states saw an average sale price of fresh-cut products around $2.26 an item, the largest increase in dollar growth at nearly 15 percent. Volume grew by 3.5 percent in the South, driven by “retailers who are getting it right,” Lutz said. Fresh-cut fruit sales were strong as a result of multi-variety packs. Vegetable products trailed because of a large number of unbranded products, Lutz said.

The western United States had the highest average price for fresh-cut items, at $2.66. The West had the largest increase in volume, surpassing even the increase in dollar sales. Volume growth was at just over 11 percent, and dollar growth came in just under 11 percent. New products, including new vegetable products, organic items and fresh-cut apples, drove the growth.

Branding Trends

The fresh-cut segment is bifurcated in terms of branding between fruit and vegetable products. Nearly 70 percent of fresh-cut fruit sales went toward unbranded products, mostly melon products. Only one in four fresh-cut fruit items sold was branded, and about 3.5 percent were private label brands.

Brands and private labels, on the other hand, dominate fresh-cut vegetables. Only 23 percent of vegetable products are unbranded, while 43 percent are. Private labels make the remaining 34 percent of fresh-cut vegetable product sales.

Private labels are gaining ground. In fruit, sales of private label fresh-cuts jumped more than 40 percent over a year ago, while branded sales declined about 1 percent and unbranded dropped almost 5 percent. Vegetables saw a slight trend toward private labels, with sales increasing slightly. Branded fresh-cut vegetable products dropped almost 2 percent over one year ago, and unbranded products dropped 10.5 percent.

In a survey of fresh-cut buyers, 68 percent responded that they had no preference for branded products. Only 4 percent preferred the store brand, while 13 percent preferred the branded product but would not pay more for it. What should encourage distributors of national or regional brands was the finding that 15 percent of the surveyed consumers preferred the branded product and would be willing to pay more for it.

For those consumers that prefer the brand name (28 percent of those surveyed), most said they felt “comfortable” buying the brand. A little less than half said they thought the quality of branded products was better, about a third referenced higher food safety standards, about 30 percent thought branded items were fresher and about 16 percent said the selection of branded products was better in their retail supermarket. Light users of fresh-cut fruits and vegetables tended to prefer the brand-name items more than heavy users of fresh-cuts.

Fresh-Cut Users

There is still plenty of room to grow the fresh-cut market further. Of 3,000 shoppers surveyed, 38 percent had purchased fresh-cut fruit within the last 60 days and 55 percent had purchased fresh-cut vegetables in that same time.

The biggest barrier to buying fresh-cuts was price, with 65 percent of the respondents citing the high cost as their reason for not buying the products. Other responses were a preference for canned or frozen produce (48 percent), belief that fresh-cuts weren’t as fresh as whole produce (34 percent) or poor quality, appearance or taste (18 percent). Only 12 percent of the respondents said they did not buy fresh-cut produce because of a concern over food safety, which may indicate that consumers are moving past some of the recent recalls of fresh-cut products.

Those consumers that do buy fresh-cuts are in desirable demographics, according to the Perishables Group. The heaviest consumers of fresh-cut vegetables were between the ages of 25 and 34, and that trend is seen in fruit as well. Buyers tend to be affluent, Caucasian and live in the suburbs, and those with young children tend to buy more fresh-cuts.

“That really shows up in the sales that those are the heavy buyers,” Lutz said.

But once children in the family pass the age of 6, that buyer leaves the market, he said. The key is knowing your customers and how to best reach them.

“There is no one-size-fits-all for this category,” said Jonna Parker, senior account manager with the Perishables Group.

The supermarket or grocery store is still the key point of sale for fresh-cut fruits and vegetables. More than half of consumers that buy fresh-cuts once a week or more do so in a grocery store or supermarket. There has been some growth in club stores, but only 21 percent of fresh-cut buyers purchase items there a few times a year, while 52 percent responded that they never buy fresh-cuts at club stores.

The research by the Perishables Group was supported by Mann’s Packing, Crunch Pak, Ready Pac and Del Monte. For a summary of the report, visit www.perishablesgroup.com.



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