BrainTrust Query: How Can Supermarkets Hold Off Fresh Food Rivals?
Through a special arrangement, presented here for discussion is a summary of a current article from the Mark Heckman Consulting blog.
A recent study conducted by the Nielsen Perishables Group details how fresh categories are transitioning from a reliance on commodity markets and seasonal strategies to more of a packaged goods approach, imperiling one of the traditional supermarket’s long-standing advantages over its supercenter competition.
"Suppliers and retailers are slowly but surely transitioning to the consumer packaged goods style of category management based on the knowledge of both consumer and performance data to better understand how various consumer groups purchase fresh foods differently, at which stores, and at what price points," wrote Bruce Axtman, president of the Nielsen Perishables Group, in Why Retailers Are Keeping It Fresh.
Mr. Axtman’s comments are significant. Previously sold as predominantly bulk products, pre-packaged and sealed meat, deli and produce items are now taking on the personalities of sister departments like grocery, general merchandise and health & beauty care. That implies that fresh departments are now subject to category management principles, pricing models and even supply chain functions that resemble non-fresh departments, all of which can provide efficiencies for grocery retailers, both traditional and big box formats.
Clearly, however, the consumer acceptance of pre-packaged meats, produce, deli, and seafood product plays right into the hands of the volume-oriented big boxes that lack the expertise and the business model to support more traditional open market-type fresh presentations. Their models favor the labor savings inherent with pre-packaged perishables.
Indeed, the Nielsen study predicts warehouse stores will gain two percent share of the fresh business and supercenters will gain one percent over the next three years, while traditional supermarkets will lose two percent. By 2016, grocery will control only 64 percent of fresh dollar market share at retail; while mass/supercenters will have16 percent; and warehouse clubs, 12 percent.
So what does this mean for the business?
Once again, traditional grocers will need to re-invent their fresh departments and services in order to defend this very critical and profitable part of their business. It’s a daunting task given consumers’ growing acceptance of packaged fresh product and the resources of the big box stores to provide an ever-improving alternative to bulk produce and the service meat, deli, and seafood cases.
Discussion Questions
How big a threat do you see the acceptance of packaged fresh product over bulk to the traditional grocery store model? How should traditional grocers respond?
How worried should they be if they are projected to lose 2% over 3 years? That’s forecasting error, so we can assume no change. And didn’t many of us agree that lack of acceptance of pre-packaged produce was killing stores like Fresh & Easy? We’d need to see a lot more data that tells us whether consumer acceptance of pre-packaged is real or not before declaring that traditional grocers are in trouble and need to do anything in response.
Every contemporary trend when promoted aggressively to “tomorrow’s majority audience” is a threat to the traditional grocery store and its future. But I am not certain we have sufficient evidence to prove packaged fresh product has taken over from bulk yet.
Nothing is more appealing, at least to me, than fresh bulk produce bountifully, colorful and imaginatively displayed. Packaging, as enhancing as it is, is not really the fresh product. That, of course, is becoming the challenge and it should be addressed.
Traditional grocers, if that’s a proper description, should capitalize on their ability and flexibility to create an animated natural environment of perishable products that is in tune with the desires of “tomorrow’s majority audience.” A challenge—yes!
Packaged fresh foods are increasing their quality and value quickly these days. With foodborne illness still at alarming rates across the globe, I believe all CPG and retailers will continue to trend toward prepak fresh foods for the foreseeable future.
This is my area of expertise, and it is a subject all independents need to be aware of. The first thing is that the pre-packaged meat and deli products are very expensive. Just look at Walmart Supercenter’s prices on all of their meats. They are higher anywhere from $1-$3 per pound more than me, and the quality is not even close to mine. Pre-packaged lunch meats are the same way, quite expensive, and not as tasty as fresh sliced.
This in no way diminishes the fact that the big stores want all the business that is out there, But I can beat them every day on these items, and make sure that the advertising is geared toward the perishables, as I have stated a million times before. People still want a custom cut meat store, and the product must be trimmed exceptionally well, and value priced to meet the needs of the public. The deli is an even bigger opportunity to stand out vs. the pre-packed salads, and entrees the big stores sell.
We read here all the time about the successes of the fancy food stores, and the unique, high-end baked goods they are selling very well. Some customers will trade off to the pre-pack to save time, and the big box stores will gain some sales, but in my mind, it won’t hurt us too bad as there are no butchers, no dieticians, no one else to help sell the product quite like a well-run independent can.
It is another battle that we actually can win, as the grocery manufacturers have not been kind to us, so keep the pedal to the metal, and reinforce your image in the store, as THE place to buy perishables, and you’ll win the battle, if and only if you do it well, and offer VALUE!!!
In my estimation, the ability to sell fresh foods that the shopper can touch, smell, see in all of the vibrancy that is available when it is NOT pre-packed is a key differentiator. No way I would suggest changing that!
I spent my early years behind the meat counter of my father’s store. To this day I still believe fresh sliced meat products are a far greater value than pre-sliced. Not even close.
Packaged produce is growing and here to stay. A few years back I was talking with a produce manager and he best described what was happening this way. He used to buy 125 cases of lettuce a week for this store and today he buys only 25 cases. The balance is in bagged lettuce products.
On the good side, the increase in packaging has provided for an increase in SKUs offered. On the bad side it means many other retailers can now get into the business of selling produce.
Supermarkets need to rethink the department. Produce sales growth has not corresponded to an increase in store square feet. Not all consumers want the packaged product as the quantity could be too small or large for the household. I would like to see more mixing of bulk and package in the same area, not separated as most store do today.
Talk about an insider blind to the reality of the retail food industry of today. With only 1602 new grocery stores since 2005 and the SANP program at record highs, category managers have proved their time has come and gone. To even begin to suggest that category management should extend into fresh, ready-to-eat foods is absurd.
The retail food consumer is dynamic, not static, and category management continuous category management and their ilk have driven a once thriving grocery industry to the brink of consumer relevance.
The grocerant niche filled with ready-to-eat and heat-‘n-eat fresh prepared food is driving success in every sector of retail foodservice today.
“Pre-packaged produce items … can provide efficiencies for both traditional and big box formats.” The “Third Wave of Retailing,” is all about “efficiency AND CONVENIENCE.” It is not just the plummeting cost attendant on pre-packaged, but greatly increased efficiency for the shopper. The faster you sell to the shopper, the more you will sell, period. “Shopper Efficiency vs. Total Store Sales.”
Do not evaluate every retailing advance from the retail industry’s perspective. Only when what works for the retailer—efficiency-wise—ALSO works for the shopper, efficiency wise, will genuine sea changes occur. Based on these principles, clearly, pre-packaged produce is working—and will continue to drive growth in the category.
In all of this discussion of how marketing of produce is evolving to being more like CPG/FMCG, we ought to note the current advantages retailers give to fresh produce: large, spacious displays with minimum item choice, at the entrance of the store that nearly all shoppers quite naturally traverse, whether they are buying produce or not.
NOW. Think about how this style of merchandising would/could impact CPG. Giving a tightly focused selection of CPG (top sellers) the same merchandising advantages as prepackaged produce, on the path that nearly ALL shoppers take, WILL lead to closer to the optimized store.
Note that branding in produce has been a very long struggle, with only a few widely recognizable brands making it to the front rank of recognition: Chiquita, Dole, Fresh Express (a Chiquita brand,) Calavo and a few others. However, multiples of these brands/items consistently perform in the top 50 of the store, along with non-nationally branded items of the “same” produce. Bananas are OFTEN the #1 selling item, even in a Walmart supercenter.
Note also, that the branding in produce typically stays closer to the original concept of brand—as in cattle branding. It is a small mark of assurance, often simply a sticker, that vouches for the TLC provided by a major branding powerhouse to assure the VERY best quality practical for the market. THIS is what true branding is all about.
This type of branding is the right kind of branding, compared to the common “shouting and mumbling” conducted by the ostensible brand experts of the world. Tsk, tsk!
I want to endorse, also, everything Tony Orlando says here. The small independent has tremendous advantages over the huge efficiency engines that chain retailers represent. Being a small entrepreneur myself, for 40 years, I learned that us mice could do very well in a dance among the elephants. But we had to keep our wits about us! I got clipped a time or two, but in practice, it was never fatal! On, ON, Tony.
More fresh alternatives are sprouting up in our area—farmer’s markets, community supported agriculture (CSA) shares delivered to convenient spots, and our neighborhood traditional grocer has added lots of fresh veggies, locally-grown, and displayed to encourage trying new things.
Where? I visit several supermarkets regularly and I haven’t seen a significant move to packaged fresh produce. Mentioning packaged meat, deli, and seafood to validate some “movement” is silly, since those items have been packaged for decades.
In fact, years ago some supermarkets put bananas, tree fruit, and other produce items in trays, and customers rejected that practice by simply breaking open the packages and choosing what they wanted. Bagged onions, potatoes, apples, and grapes have been around forever, hardly qualifying as a trend. And berries have almost always been sold in containers, just as lettuce has nearly always been wrapped and some carrots and celery are bagged. You can buy ears of corn in packages, but it doesn’t compare in sales to fresh ears.
In real world practice, I’m not seeing any increase in packaging fresh produce items in the stores I visit.
It is important to note here that warehouse and many superstores have a “fresh” bakery, butcher, etc. Go into any Costco and you will see their bakers and butchers working to prepare and package products “fresh” for their customers. This is just another model that is not easily defined, so it tends to be improperly defined. Perhaps widening, or changing the definition of what “fresh” product really is, would better apply here, since the old definitions are clearly not good enough.