Fertile Ground

PG's annual "state of the produce department" survey finds sales trending in a more upbeat mode vs. a year ago, with retailers holding out hope for continued forward motion.

Research by Debra Chanil

While food retailers remain steadfast in their desire to keep their produce prices on par with consumers' stringent expectations for value and quality, discernable overall gains in the average U.S. produce department during the past 12 months were blunted as deflationary trends kicked in alongside consumers' persistent reluctance to loosen the purse straps, as revealed by modest sales gains tracked in Progressive Grocer's 2010 Annual Produce Operations Review.

No doubt, the lingering fragile economy that has given rise to more waste-resistant shoppers in recent years has been no friend to retail produce directors, who keep angling mightily for higher produce rings. Yet many shoppers continued to curtail incremental purchases of more pricey organic fruits and vegetables and ancillary items during the past year's measuring period, in favor of conventional bulk items — particularly when vigorously promoted, according to PG's 2010 Annual Produce Operations Review.

The produce study — whose findings provide a snapshot of the foremost issues the average U.S. retail produce director contends with on a daily basis, inclusive of same-store sales, leading departmental challenges and labor considerations, among other issues — is based on the collective input of a cross-section of participants who were polled in August 2010. As has been the case for roughly 20 years, PG's annual produce benchmarking study asks retail produce officials to share comparable estimates for a variety of areas of their average produce department during 2009 and 2010, while also asking for projections about what they except to unfold in 2011.

Progressive Grocer's 2010 Annual Produce Operations Review includes results of a survey sent to retail executives with authority for the produce category. A breakdown of participants who responded to this year's survey included 39.3 percent, owners, CEOs and presidents; 32 percent, corporate retail headquarters produce directors; 21.5 percent, produce category managers, merchandisers and buyers; and 7.1 percent, store managers.

This year's annual produce study was enhanced with additional retail category data provided by the Perishables Group, a Chicago-based consultancy specializing in fresh food category management and marketing. Data is for the traditional supermarket channel only, representing 63 percent all commodity volume (ACV) and approximately 13,000 stores. It does not include Walmart, club stores, small independent chains and alternative retailers such as Whole Foods and Trader Joe's.

Source: Progressive Grocer Market Research, 2010

Source: Progressive Grocer Market Research, 2010

Among the key highlights of this year's Produce Operations Review survey findings: Year-to-year net produce sales as a composite rose 2.4 percent, which, while not spectacular, is nevertheless trending upward. More encouraging, when asked to estimate the directional change of their produce sales during the past year, 64 percent of survey respondents reported increases during the 12-month period ended August 2010. However, a full 25 percent of this year's produce survey participants reported downward comparable sales during the measuring period, while the remaining 11 percent reported no major losses or gains in either direction vs. the prior year.

When asked to forecast their anticipated outlook on produce sales changes through the end of 2010, this year's retailer respondents seem especially hopeful looking ahead vs. last year, with 57 percent forecasting increases, 11 percent anticipating decreases and 32 percent expecting status quo sales — good for a 3.1 percent comparable net change.

While shoppers continue to safeguard their food dollars and seek out value, the deflationary trend currently confronting retailers will require a delicate balancing act in the coming months as they wrestle with growing sales and potentially elevating prices in select categories without disenfranchising shoppers and/or taking a hit at the bottom line after many have touted rock-bottom produce prices to keep pace with aggressive value-oriented discount players.

Across the board, total produce department sales, which account for an average 12 percent of the total store pie, rang up $49 billion, while weekly estimated sales tabbed $26,623, good for $1.4 million in annual departmental sales for the average store.

In terms of "brass tacks" produce department performance implications, gross margins, at 34 percent, trended upward from last year, although net profits remained at 18 percent. The size of the average produce department this year came in at 2,867 square feet, while the estimated 12 percent of total store selling space devoted to produce remained on par with last year as well. The average produce department's weekly sales-per-square-foot sum of $9.29 is generated by some 350 produce SKUs carried by the average U.S. supermarket — a tally that has gained roughly 25 items compared with the previous year's study.

The in-store labor picture held steady as well, with an average 2.5 full-time produce departmental staff members and three part-timers — good for four full-time equivalents — who collectively work an average of 165 total hours weekly, accounting for $161.35 in estimated weekly sales per employee hour. Produce department labor as a percent of sales, meanwhile, hovers in the 11 percent range.

Although they're aware of the healthy-eating options abounding in the fresh produce department, consumers still need plenty of goading when it comes to spending more on products that often end up discarded if not consumed more quickly than comparatively shelf-stable belly fillers. For that reason, random-weight fruits (32 percent) and vegetables (31.5 percent) again served as the backbone of fresh produce sales during the past year, both continuing to handily pace other fresh produce categories while accounting for almost two-thirds of total department sales.

Perhaps most telling of the shifting consumer inclination to save a buck with more hands-on at-home preparation, sales of value-added packaged salads dipped slightly to 10.7 percent, while specialty produce and organics also slipped to 4.4 percent and 3.7 percent, respectively. Packaged, pre-cut produce, at 3.4 percent, showed the biggest comparative decrease this year as yet another sign that more shoppers are opting to buy bulk and do their own legwork.

Store brand produce was found to be on the rise, with a slightly higher percentage of respondents this year, while fresh-cut fruit managed to hold its own with a base of convenience-seeking "true believers." Refrigerated dressings, juices and floral also edged up a bit in this year's study, indicating that at least some shoppers are beginning to shake off the Great Recession blues with a more relaxed attitude toward "affordable luxuries."

Perusing the problem index, which asks Produce Operations Review participants to rank the most problematic departmental issues on a scale of 1 to 6 (with 1 being not serious and 6 being extremely serious), there's been a few shifts in the rankings in the past year, paramount to which is this year's top-ranked "competition from other supermarkets," which eclipsed "competition from Walmart," which placed on the second rung this year.

In summary, fresh produce prices, albeit a tad higher, are still highly attractive to consumers seeking savings. But until there's a period of consistently positive economic news, consumers will remain skittish, so produce directors need to remain hunkered down to continue weathering the storm and finding innovative ways to grow share without sacrificing dollars.