First quarter shows hint of retail challenges ahead - The Packer

First quarter shows hint of retail challenges ahead

06/26/2009 02:27:44 PM
Tom Karst

(UPDATED June 26) Help for produce department managers may be on the way in the form of a large Northwest bing cherry crop, but department performance in the first quarter was dragged down by deflationary trends and a weak economy, according to the Fresh Facts on Retail report issued by the United Fresh Research & Education Foundation.

Data from West Dundee, Ill.-based Perishables Group reveal first-quarter produce department sales were off 1.4% compared to the same period in 2008. Volume per store was down 3% compared with the first quarter last year and the average retail price was up just 1.7% compared to the same period.

Steve Lutz

Retail produce managers are under pressure to improve their performance, said Steve Lutz, Perishables Group vice president.

“Having deflation in your food dollars while generating less volume — that’s a problem,” he said.

The quarterly report is a joint effort of United Fresh, The Perishables Group and Coral Gables, Fla.-based Del Monte Fresh Produce NA.

The first quarter results continued a trend from 2008 that indicates retailer trouble in boosting volume and sales.

Cherry bump

Lutz said he anticipates retailers will receive a bump in cherry dollars this summer because this year’s crop is expected to be substantially larger than the 2008 crop.

Pears, grapes and berries also will be influential for retail performance this summer, he said.

Full production of cherries in Washington is anticipated by the week of June 29, said Roger Pepperl, marketing director of Stemilt Grower Inc., Wenatchee, Wash.

Roger Pepperl

“Retailers could sell twice as many cherries at 25% less of a retail price possibly but still ring the bell for volume and dollars,” Pepperl said.

Some retailers are moving to 3-pound and 4-pound consumer clamshell packages for cherries, he noted, looking to gain dollars from the larger packs to help boost their overall department sales, Pepperl said.

Deflation and trading down?

Inflation — including higher energy and transportation costs — caused total produce department dollars to rise moderately in 2008, but the first-quarter report said retailers will face challenges because they can’t rely on higher prices in 2009 to boost sales.

“What it looked like was going on throughout Q3 and Q4 was that retailers were taking price increases as a way to offset volume losses, so they were basically maintaining their dollars on a dwindling foundation of volume,”  Lutz said.

Fresh Facts on Retail – First Quarter 2009
First quarter 2009 retail Percent change for the first quarter of 2009 compared to the first quarter of 2008.

All produce
Dollar sales per store: -1.4%
Volume per store: -3%
Average retail price: 1.7%

Vegetables
Dollar sales per store: -1.4%
Volume per store: -3%
Average retail price: 1.7%

Fruits
Dollar sales per store: -1.4%
Volume per store: -2.8%
Average retail price: 1.5%

Top fruits
Berries
Dollar sales per store: 13.4%
Volume per store: 20.2%
Average retail price: -5.6%

Citrus
Dollar sales per store: -6.9%
Volume per store: -12.3%
Average retail price: 6.2%

Apples
Dollar sales per store: -8.5%
Volume per store: -4.9%
Average retail price: -3.8%

Bananas
Dollar sales per store: 10.2%
Volume per store: -2.8%
Average retail price: 13.4%

Grapes
Dollar sales per store: 1.6%
Volume per store: 20.2%
Average retail price: -15.5%

Top vegetables
Packaged salad
Dollar sales per store: -4.7%
Volume per store: -7.5%
Average retail price: 3%

Potatoes
Dollar sales per store: 11.8%
Volume per store: -2%
Average retail price: 14.1%

Tomatoes
Dollar sales per store: -14.1%
Volume per store: -3.1%
Average retail price: -11.4%

Cooking vegetables
Dollar sales per store: -3.2%
Volume per store: -2.9%
Average retail price: -0.4%

Onions
Dollar sales per store: 0.5%
Volume per store: -1.0%
Average retail price: 1.4%

Value-added produce
Value added fruit

Dollar sales per store: -9.4%
Volume per store:-8%
Average retail price: -1.5%

Value-added vegetables
Dollar sales per store: -5.8%
Volume per store: -9.5%
Average retail price: 4.1%

Source: The Perishables Group and United Fresh Facts on Retail 

In the first quarter for 2009, Lutz said that approach proved to be unsustainable.

“Over the long haul, you can’t continue to raise prices as a way to offset volume losses — it’s not going to pencil out,” he said.

At some point, consumers will shift their preferences and priorities, he said.

The report said consumers appear to be trading down from packaged salad to head lettuce. In the first quarter, head lettuce dollar growth was 6.9% and volume growth was 2.2%. head lettuce sales growth was 6.9% and growth in volume sold was 2.2%.In contrast, packaged salad sales at retail during the first quarter were off 4.7% and volume suffered a 7.5% decline.

In fact, Lutz said the Fresh Facts report indicates that nine of the top 10 vegetables were down in volume the first quarter.

“Bulk lettuce was the only category with increased volume in the first quarter,” he said.

“You pay a sizeable premium to have the salad already prepared,” said Dick Spezzano, president of Spezzano Consulting Services, Monrovia, Calif. “You buy a head of lettuce for 99 cents or $1.49 and get enough from that one head for six or eight people,” he said. “You do that in value-added, and it takes you a couple bags at $3 to $4 a piece to get that same volume,” he said.

Likewise, the Fresh Facts report said canned tomatoes sales were up 11.8% in the first quarter, with volume was up 2.2%.  In contrast, fresh tomato sales in the first quarter were off 14% in dollars and 3.1% in volume.

Lutz said a Perishable Group survey of 1,600 consumers in March indicated that significant numbers of consumers haven’t changed their behavior at all, while about 30% of consumers — mostly lower-income — are stressed by the economy and have made substantial changes in their purchase behavior.

“The message is that you have to know your consumers better than ever,” Lutz said.

Lower transportation costs are also contributing to the deflationary price trend.

For example, the U.S. Department of Agriculture reported the average truckloads cost for transportation for California strawberries New York in mid-June was $6,600, down from $8,300 at the same time a year ago. The average cost of a truck for Florida melons to New York City was rated at $2,400 this in mid-June, off from $3,350 at the same time a year ago.

Strategy

Spezzano said he expects aggressive ads by retailers this summer to drive sales, at the same time margins for some items may increase to compensate.

Spezzano said the economy has appeared to change the approach of produce merchandiser by creating more of a “high high low low” strategy.

He said one retailer recently told him that 20% to 22% of that retailer’s produce sales are normally ad features.

Recently, however, that percentage has climbed to 26% to 28%.

Because the percentage sold on ad is higher, the retailer has to make that difference up in regular pricing, Spezzano said.

Lutz said anecdotal evidence indicates the worst of the recession is over.

“From a consumer confidence standpoint, I would hope we would start to see consumers coming back to the department,” he said.

The United Fresh Facts report is available at no charge for United Fresh members and $50 for nonmembers. 



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