Why banana ads are few and far between

11/08/2013 09:50:00 AM
Armand Lobato

Armand Lobato, The Produce AisleArmand Lobato, The Produce AisleImagine this set of statements, if you will:

  •  Every chain seeks a marketing edge.

  •  A great produce program is how customers choose where they shop.

  •  The No. 1 volume item in a produce department is bananas.

If you promote the No. 1 item, this should draw more customers, right? So why don’t chains do this more often?

I suspect the answer is that while bananas hold the top volume ranking, frequent promotions don’t necessarily help and can even hurt a chain’s business. I saw a chain pushing bananas recently in a particularly aggressive price market. They had billboards all over town, advertising at only 39 cents per pound.

Let’s think on this: Promoting bananas is a lot like chumming. If you’re not familiar with the term, it’s when a fisherman throws out a lot of bait in an attempt to attract a feeding frenzy, with some of the bait attached to his hooks.

This may work with fishing (and is also illegal), but not so much with bananas.

That’s for a good reason. When a chain advertises red seedless grapes for example, and the normal movement is three loads a week, with a regular price of $1.99 per pound and the gross profit is say, 40%, the gross profit (approximate values) taken to the bank is $94,000. Suppose the ad price is $3 for 2 pounds. The chain then doubles its normal movement, with a gross profit margin of 29%. Whatever is lost in margin percentage difference the chain gains back in volume, and takes $102,000 profit to the bank.

Not so with bananas.

The same chain that normally sells 10 loads a week, on ad will maybe sell 15 loads. If we do the math on this, the chain normally sells bananas at 59 cents per pound at 30% profit margin and takes $68,000 to the bank.

On a 39 cents per pound ad, the chain suffers. With only a 13% profit margin and no appreciable volume lift, this chain will only deposit $30,000 for the week, and because it loses its normal banana profit dollars, it’s actually a negative profit of $38,000 for the week.

The reason for this is simple. Customers can’t stock up on many extra bananas. Bananas don’t have the shelf-life like apples, citrus, potatoes or red grapes. All a chain has accomplished by pushing bananas, economically speaking, is to drive down their margin.

However, bananas being the No. 1 produce item, the price-point item everyone seems to zero in on when doing competition checks, an ad still attracts attention. This isn’t a bad item to promote in principle, but most chains can ill afford to promote bananas more than, say, once per quarter.

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