By Giuseppe Parlato, Research Analyst
Global sales of fresh food products have grown continuously in recent years, driven by increased demand for healthier, unprocessed products. In 2020, the impact of the COVID-19 pandemic and its consequent restrictions on consumer movements led to negative volume growth. Although a greater degree of home seclusion led to increased domestic consumption, this was more than offset by the reduction of sales in the out-of-home space.
But despite the negative circumstances, the concept that healthy eating habits have a positive impact on health has been embraced. A psychological legacy of the pandemic will be an increasing number of consumers seeking fresh food to sustain a healthy lifestyle, which will create opportunities for the industry.
With many economies across the world forced to close entirely or operate under restrictions, 2020 marked a difficult setback for sales of fresh food to foodservice operations. On the one hand, lockdown measures and the closure of foodservice drove negative growth across the world. However, these measures also led to a massive shift in meal occasions that caused retail sales to surge. Restrictions on opening times and the number of guests allowed continue to act as a constraint for foodservice players today, while retail sales continue to rise as meals that were previously consumed outside the home are now bought for domestic consumption.
Source: Euromonitor International, Fresh Food 21ed; Fresh Food includes: Eggs, Fish and Seafood, Fruits, Meat, Nuts, Pulses, Starchy Roots, Sugar and Sweetener, Vegetables.
This increase in domestic consumption is a key driver for the industry. In fact, while restrictions may end, the economic and psychological effects of the pandemic will likely have a longer-lasting impact. Less disposable income will lead to less eating out and more home cooking, and the demand for fresh products to embrace a healthier lifestyle will accelerate. Consumers are also looking for fresh products due to environmental concerns. Plant-based alternatives have received a boost due to concerns over human reliance on animal protein, and fresh products, such as pulses — widely used in the sector as a meat-replacement ingredient — benefit from this. These trends are set to stay in the upcoming years, which will benefit the entire industry as demand increases.
Another consequence of the pandemic that will shape industry performance is the demand for locally-sourced products, which has accelerated throughout the COVID-19 outbreak due to food security considerations. Consumers and industry stakeholders faced liabilities in supply chains, making locally-sourced products not only necessary but also a convenient way to meet demand while supporting the local economy. This trend is expected to be a key motivator of consumer demand, with the potential to affect the entire food sector.
While this opportunity directly benefits fresh products, it is also gaining significant ground with packaged, processed products that highlight the use of local ingredients in their marketing. In recent years, packaging claims highlighting the use of local ingredients — especially if combined with claims such as ‘natural’ and ‘organic’ — have benefitted local players across different markets. Growing competition from private label lines and smaller players — historically characterized by a better value-for-money image — is expected to boost premiumisation as these claims lead to higher price points. Local players have an advantage over multinational companies in this respect, using their local market knowledge and value-chains to address consumer desire for local products.
The shift from out-of-home to home consumption led to greater use of modern grocery retailers’ facilities, but 2020 also accelerated the penetration of the e-commerce channel. Many suppliers have already pivoted to direct-to-consumer and subscription models after their sales to foodservice were reduced as a result of the restrictions, and more players are exploring this space to stand out from the crowd.
Despite the disruption caused by the COVID-19 pandemic, fresh food products are set to increase in demand, and industry stakeholders must be ready to capture the opportunities that are arising. Increased domestic consumption and home cooking amid health concerns and economic limitations, growing demand for locally-sourced products in both fresh and packaged/processed food, and the rising popularity of e-commerce to reach consumers, are key factors with potential to shape the future for the industry.
Euromonitor International is the world’s leading independent provider of strategic market research. We create data and analysis on thousands of products and services around the world. Our network of in-country analysts provides the depth of local business information required in today’s international business environment.
COMMENTS AND ANALYSIS
Opportunity to Focus on Fresh
By Jim Prevor
In the United States, the Produce for Better Health Foundation — promoter of the Have a Plant campaign, which is heir to the original 5-a-Day campaign — finds itself in an interesting place. The Foundation promotes fruit and vegetable consumption in all forms — fresh, canned, jarred, dried, frozen — even juiced when it is a 100% juice product. This broad umbrella is sensible when looked at from a health perspective. After all, there is not much evidence that a diet with lots of canned or frozen fruits or vegetables is going to provide far less nutrients than fresh.
When you consider that these items can be picked and processed at perfect ripeness, and often are less expensive than fresh — plus they pose less risk to consumer budgets that they will spoil due to an unexpected trip or desire to dine out or the children’s sports going into overtime and they must grab a fast food alternative on the way home — it makes perfect sense for an organization built around health to focus on fruit and vegetables served in all possible forms.
Yet this also poses a question for the industry. US producers generally focus on growing for the fresh market. This is because the price is generally higher. Though there are lots of US growers that grow for the canned and frozen vegetable market, this is typically contracted. It is also becoming more common to see items grown outside the US, such as broccoli, where heavy hand-processing costs have encouraged frozen broccoli producers to source product where labor is cheap and available. There is also a large business in things such as jarred mandarin oranges, which are typically imported.
This means the US produce industry is heavily, and increasingly, focused on fresh. Indeed, we can easily imagine an organization such as PBH itself splintering, as the ability to raise money for overall produce promotion is difficult if the people promoting say, fresh mandarins and broccoli, are not the same people promoting their frozen, canned or jarred counterpart.
In his piece, Mr. Parlato raises the notion that “a psychological legacy of the pandemic will be an increasing number of consumers seeking fresh food to sustain a healthy lifestyle, which will create opportunities for the industry.” If true, this would simply imply that industry institutions should focus on the “fresh” element and not so much seek to promote, say, apple juice, most of which is imported from China.
Although this is itself problematic, as significant growth in the industry is starting to develop from treating fresh products — say the Grapple apple, salad kits made with proteins or the Love Beets products made with honey, ginger, chili, vinegar, white wine, balsamic, etc. — it does open the possibility that the fresh industry can act, on its own, to promote its products and their unique attributes rather than promoting a generic commodity that may be grown in different countries.
The same issue raises a red flag on the fresh produce industry endorsing all the new meat replacement products. Though, of course, many of the processed products being sold are made with plants, it is also true that the meat replacement products are not solely replacing meat. It is actually very likely that these artificial burgers are likely to, for example, replace portobello mushrooms as a vegetarian or vegan option to replace beef hamburgers.
The issue of “local” rising during the pandemic is unclear. Trucking prices have gone up by multiples. So it is not easy to know what is the head and what the tail in demand changes. Is it consumer preference due to environmental concerns? Or is it rebellion against higher prices? If new technology reduces the need for drivers and speeds up distant deliveries, it may be reasonable to think that consumers will swing back to more distant sourcing.
One of the big changes in the industry is the growth of discount chains such as Aldi and Lidl, plus the move of “dollar stores” to offer more fresh produce. The dollar stores are likely to focus on selling the 20% of produce items that account for 80% of the sales, and they will do so with a tight focus on offering the best prices. If driverless trucks enable them to get fresh product faster, they will focus on who can provide it at the lower price and will win a big chunk of the business.
When you survey consumers about why they like local, they often respond that it saves transit costs and so is cheaper. How consumers will react when they find less expensive items often coming from further away — as a result of coming from advantaged growing areas and riding efficient supply chains — raises the possibility of a different future.
The industry needs to be careful not to rely on a “safe” future. After World War I and the great flu pandemic ended, people moved on to the Roaring 20’s — the 1920s! Don’t be surprised if people respond to the COVID pandemic — and, having been compelled to eat at home and stay at home — with a new Roaring 20’s — the 2020s! — where people break out of their isolation and seek to engage more, travel more, eat more and enjoy more!
The challenge of the industry may be to find a path to promote the new era of fresh food, consumer indulgence and connect consumers with the idea that eating fresh food is a roaring good time. Perhaps the sequel to the pandemic-imposed quarantine is loads of cocktails made with lots of fresh fruit!
These articles both appeared in the July 2021 issue of Produce Business magazine