Fresh victims of the price war: why commodity fruit and vegetables are going bananas

Professor David Hughes and Miguel Flavián
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David Hughes, Emeritus Professor of Food Marketing at Imperial College London, and Miguel Flavián, who works for several Spanish organisations and companies via GM&Co to help them understand and respond to developments on the British grocery market, write and publish a regular blog called supermarketsinyourpocket.com that focuses on food retailing. In this post, they discuss how retailers can make the most of well-known fresh fruit and vegetable value items and sell more volume without lowering prices

It’s tough out there in the grocery retail trenches and commodity fruit and veg is slap-bang in the firing line like so much cannon fodder. We blame bananas and milk ably aided and abetted by the hard discounters! We’re training shoppers to believe that KVIs (known value items) are “free goods” like air and water! 

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Aldi Super 6: promotions on fresh products to attract shoppers

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89p per four pints of milk! Cheaper than water!

So what’s the story?

Fresh produce positively shrieks goodness – all-natural, no nasties, chock-full of nutrients, fibre, and antioxidants that Jamie Oliver and governments exhort us to eat more of, and yet we give it away! Kantar Worldpanel calculates that ferocious retail competition ripped £570 million (US$810 million) out of the UK fruit and vegetable retail market in 2015.

Were we compensated with higher volumes of sales at these low, low prices? Well, not by much and, in fact, in most categories it was the higher-priced value-added items (e.g. trimmed, snack pots, ready-to-eat) that saw sales tick up. Households are eating less commodity produce and the nation does not race to the supermarket for more white cabbage when prices halve. Savvy shoppers know that great deals on fresh foods can result in over-purchasing, lettuce lingering in the fridge and guilt-laden waste.

But not only is fresh produce vital for our health, it’s also vital for retailers in establishing their credentials on fresh food quality overall. After all, it’s the first department shoppers see when they enter the store (not chocolates or sparkling wine).

So why is it so tough for produce?

  • Products such as bananas, apples, onions, broccoli are routine, frequently purchased items and shoppers have some idea about their price. Thus, the retailers’ notion of the KVI and their sharp focus on the price of these items explains why bog standard bananas are 68p a kg. (US$1) and iceberg lettuce costs 50p a head across the High Street (and milk cheaper than bottled water);

  • Produce is generally not branded (and when it is, often, there’s no discernible visible difference between branded and own label). In a static market environment, retailers can and do squeeze suppliers. Yet, the few outstanding branded produce items – e.g. Pink Lady, Florette, Tenderstem – have shown excellent resilience in the face of harsh market pressure;

tenderstem-benefits

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Tenderstem and Pink Lady: making sure shoppers know where the differences lie

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Florette: they keep their position because they launch continuously relevant new products to the markets

  • Produce categories are often poorly category-managed – e.g. a wall of seemingly identical citrus varieties, a bewildering range of onions with confusing price points – where product differences are not explained so, to save time, shoppers simply select the cheapest on offer;

  • Frequently, the produce item being purchased is creating a meal problem for the shopper and not a meal solution. Think of poor mum – “I must buy fruit and veg or I’m not a good mum. But, I’m short of time and how can I sneak it into the children’s food? Give me convenient, stealth vegetables!”;

  • Fresh fruit and vegetables may have a substantial health and well-being halo, but market experience shows that convenience (to prepare/consume, etc.) trumps health every time.

How can you escape the margin pain of being a KVI?

  • If persevering with the commodity (e.g. iceberg lettuce), dominate the category and, through scale, good management and technology ensure you are the lowest cost and most efficient producer (Shropshire’s et al come to mind);

  • Go better than bog standard and seek varieties with interesting features/attributes for consumers (e.g. on premium taste, colour, shape). Look at how the tomato category has evolved – no longer just the perfectly round, perfectly red, perfectly tasteless Dutchwasserbombe. Now, you have to go to Night School to make some sense of what’s on offer!;

  • Seek exclusivity of ownership of a variety with unique attributes, e.g. note the success of Driscoll’s Maravilla raspberry, but accept that competitive offers will soon emerge as breeders seek to copy success;

  • Tell stories and add provenance – offer fruit and vegetables with adjectives! Remember, an apple is a noun and that smacks of commodity price pressure. The margin is in the adjective, e.g. an exclusive adjective such as Pink Lady or Wilberforce Farms, and/or new season, chemical-free (we like our fresh produce free!);

  • Work exclusively with Waitrose or M&S with specialty products such as white plums from Eastern Europe or sweeter than sweet French pears under the ‘Buyer’s Selection’ banner (although, do advise the Buyer not to add the strapline “selected for flavour” (what else would you select for, shelf life!);

  • Add value through convenience to your product – consumers aren’t lazy, they’re just short of time to prepare and consume. Can you produce a snack version?;

  • Plug into the health and well-being trend and ALWAYS remind consumers that it’s “One of Your 5-a-Day”. It’s still early in the year, so are you keeping up with your New Year’s resolution to eat more healthily?;

  • Does my product fit into an emerging consumer trend? Can you spiralize it (e.g. carrots, courgettes)? Can you juice it? “Daddy, why would you have ever eaten greens when you could have juiced them?!”. For fresh pulses (beans, peas, etc.), shout about their protein content – plant protein is seriously on-trend.

We know the 2016 grocery retailing environment is going to be every bit as tough as in 2015. We don’t see a “Morrison’s Carrots for Farmers” movement coming to save the day! Commodity fruit and veg was, is and will remain very hard work. Your reward is more likely to be in the next life! Do have a successful 2016.

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