By The Nielsen Perishables Group
Multiple changes in consumer shopping behaviors occurred as a result of the economic turmoil of the past four years. Generally speaking, consumers initially put a heavy emphasis on deep discounts, and retailers obliged by offering attention-grabbing deals to pull consumers into their stores. More recently, some consumers remain focused on low prices, while others focus on the price/benefit ratio; this has created a polarization of consumers and their purchase decisions.
The produce department has the advantage of appealing to consumers on both ends of the spectrum through bargain products, such as bulk potatoes, and higher-priced items, such as niche varieties and value-added options. The produce department’s advantage is apparent in the fact that the department has grown sales four of the past five years, despite its higher price points compared to canned or frozen alternatives.
On one end of the polarization, consumers feel the continued pressure of economic turmoil. These price-focused consumers are taking advantage of more money-saving options than ever, including coupons, group discount deals, bargain items and shopping club or dollar retail channels.
On the other end of the polarization, consumers no longer feel the pressure of the recession and base their purchases on value rather than price. These consumers are drawn to produce items that appeal to a variety of consumer values including convenience, unique flavors, and organics.
The Convenience Factor
Value-added produce continues to drive produce department growth. Dollar and volume sales of many value-added fruits and vegetables are rising, despite their higher price points compared to traditional offerings.
Packaged salad, widely considered the founding convenience produce item, declined when the financial crisis hit in 2008 and during most of the next two years. In the latest 52 weeks ending Dec. 31, 2011, however, packaged salad volume sales increased slightly, despite a 2.2 percent increase in retail price. Moreover, the percentage of volume sold on promotion declined nearly 3 percent, indicating consumers were willing to pay full price.
Packaged salads’ future looks bright, as young consumers drive the category. An April 2011 consumer survey from Nielsen Perishables Group revealed that 63 percent of consumers ages 24 or younger reported purchasing a packaged salad at least monthly; this was the highest rate of any age group. Even for organic packaged salads, 60 percent of this consumer group purchased monthly or more often, illustrating the demographic’s willingness to pay for fresh foods that align with their priorities.
Unique Flavors Are Bankable
There are consistently more and more items competing for space on produce department shelves. The goal that’s often associated with product innovation is to “be the next Honeycrisp,” and it’s no wonder; despite its 60 percent price premium compared to the more traditional Red Delicious apple, the number of U.S. households purchasing Honeycrisp apples grew 2.5 percent in the past year, while its volume velocity increased 16.1 percent. During the same period, Red Delicious apples suffered a 4.9 percent decline in household penetration and 16.4 percent decline in volume velocity, according to FreshFacts Shopper Insights powered by Spire.
A similar story played out in the pepper category. Thanks to the growing popularity of unique pepper varieties, specialty peppers increased volume 8.6 percent, while traditional green peppers increased a more modest 2.4 percent.
Continued Success Of Organics
While organic produce posts an 80 percent price premium over conventional on average, consumers remain loyal to organics. Sales of organics in the produce department increased 10 percent in the latest 52 weeks, outpacing conventional produce’s 3.8 percent growth.
Tomatoes are exemplifying the larger trend toward organics’ success. During the past year, organic tomatoes posted dollar and volume growth of 9.3 percent and 7 percent, respectively, despite being twice the price. Conventional tomatoes declined 0.5 percent in volume and increased dollars 2 percent (indicating the dollar growth was driven by price increases).
Natural (i.e., items with claims such as “naturally grown”) produce also posted near 10 percent growth, proving that consumers will still pay more for products with “natural” claims.
The produce department stands to benefit as additional consumers emerge from the recessionary mindset this year, but it’s essential to consider both ends of the polarized consumer when mapping assortment and pricing strategies. Offering items that appeal to the value-minded consumer (i.e. items with higher price points) will help grow overall purchase size in the department, but communicating low-priced, bargain options for the consumer base still pinching pennies can help maintain loyalty and bring additional consumers to the department.