Imagine 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.
After all, if you chum the waters too much, you run out of bait.
Armand Lobato works for the Idaho Potato Commission. His 30 years of experience in the produce business span a range of foodservice and retail positions.
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