IMAGE - AND MONEY

Specialty produce -- all that exotic, high-priced fare that used to languish in anonymity on the rack -- may be in something of a sweet spot, retailers and industry experts told SN.From fresh herbs and heirloom tomatoes to variety mushrooms and lush tropicals, specialty produce may finally be living up to its promise of being more than just a decorative -- and expensive -- centerpiece in the produce

Specialty produce -- all that exotic, high-priced fare that used to languish in anonymity on the rack -- may be in something of a sweet spot, retailers and industry experts told SN.

From fresh herbs and heirloom tomatoes to variety mushrooms and lush tropicals, specialty produce may finally be living up to its promise of being more than just a decorative -- and expensive -- centerpiece in the produce department.

"The strong economy, combined with consumers looking for interesting, and even entertaining, types of things to do with food on the weekends, has helped fuel the interest in some of these non-mainstream produce items," said Ed Odron, a former retail produce executive, now a partner in the marketing consulting group Heintz & Odron 2000, Stockton, Calif.

"Over the years the word 'specialty' was used for those items that you'd use to make cute little displays -- things like baby squash and zucchini, for instance, that did a lot for the store's image, but which you threw away more of than you sold," he said. "Now, however, specialties truly sell and do more than just serve as an image-maker."

Part of that evolution, of course, is due to improved knowledge of what sells and the corresponding transition of items that formerly might have been considered specialties to ones that are almost standard fare. Mangoes, papayas, exotic peppers and even Chinese vegetable items like bok choy, for instance, have shed the specialty tag and graduated to conventional status in some markets, particularly those heavily populated by ethnic consumers.

"What's considered a specialty item in one market may be mainstream somewhere else," concurred Bruce Peterson, vice president of perishables for Wal-Mart Supercenters, Bentonville, Ark. "As a result, specialty merchandising varies from area to area in the country."

Over the years, Wal-Mart has been able to apply some science to the task of developing a more tailored line of specialties for its stores, a plan that takes market demographics into account, Peterson said. The result is creating a store selection angled more toward what items contribute to the bottom line, not just what will make the department appear more cutting-edge.

"It doesn't matter how many you have, as long as you have the right ones," Peterson said. "But while you can't ignore the profit contribution that they make, there are other factors you have to look at, and how you want to portray the store is one. There's an art to produce merchandising, as well as science, and when you get into specialties you do get more into the art side."

The steady growth of specialty produce may be linked in large part to the simple proliferation of variety within standard, familiar commodity lines. While early attempts to play the specialty card saw retailers going out on a limb with highly unusual products -- everything from horned melons to passion fruit to lychees -- retailers have become more focused on carrying product families that don't require such a huge stretch of the consumer's imagination. For example, unusual tomatoes, mushrooms and peppers, and even citrus, fit the bill here.

At a Hy-Vee store in Olathe, Kan., for instance, variety peppers, mushrooms and citrus make up the bulk of what produce manager Mark Johnston calls the store's "limited" selection of specialties.

"I've got a full, 4-foot set of variety mushrooms, as well as 4 feet of specialty peppers," he said. "We sell a ton of portabella mushrooms when they're on ad, for instance, at 99 cents a pound."

And, while he's had some luck moving snow peas, bok choy and napa, efforts to merchandise anything much more exotic have been hit-and-miss, at best. "The shrink is still big, and I end up sitting on a lot of it, but we're supposed to be carrying them," he said.

It's a little different story, though, at Rockville, Md.-based retailer Magruder Inc. The chain relies heavily on specialties and has used them as a point of differentiation in a market dominated by large chains, said Stan Steppa, executive vice president.

"We used to feature off-the-wall items like vine-ripe tomatoes, but when the big chains started getting into them, we had to go to the next level and carry some real oddball items just to survive," he said.

For example, a recent Magruder ad featured figs; more significantly, three varieties. "A lot of retailers couldn't give away a fig," Steppa said. "The only way we stay in business is to go one step further."

While market demographics may allow Magruder to carry more specialties than the average retailer, Steppa said, the chain's success suggests there's a vibrant market for intelligently merchandised specialty produce.

Another specialty category that's been thriving in retail produce departments is fresh herbs. Benefiting from heightened interest in cooking and cuisine, the premium-priced product line is commanding an ever-increasing share of produce-department space.

"Consumers do know more about what to do with them today than they used to," Odron, the consultant, said. "And the significant thing is that they're becoming a year-round item, not just something that would sell in the winter months when people think about doing more cooking. Now they're being used to spice up salads and outdoor barbecue dishes using beef, poultry and fish, which itself is becoming a more mainstream way to cook."

Stores in the Chesterfield, Mo.-based Dierbergs Markets chain carry an average of about two dozen fresh herb stockkeeping units, according to Steve Duello, produce director. Although sales have steadily climbed in recent years, there has been somewhat of a leveling off recently, he said.

"Shrink can be high and we really have to baby the display on a daily basis because they can be temperamental," he said, referring to the various members of the herb family carried by the chain. "The consumer definitely wants them, but I'm still not sure we make a lot of money on them."

As the variety of fresh herbs has been increasing, Steve Husarik, produce manager at a Western Supermarkets store in Mountain Brook, Ala., said retailers should carry at least the standard varieties. In his store, basil outsells all the other choices by about four to one. Stores in the Birmingham, Ala.-based chain usually handle about a dozen varieties. Other leading herbs include oregano, chive, arugula and mint -- all popular in dry form, and potentially popular as fresh fare, he said.

Fresh herbs also have benefited from the growing interest in nutraceuticals, or foods that promote health, Wal-Mart's Peterson noted. Although mainstream varieties like basil account for the bulk of sales, he said, growing health interest in herbal remedies has ignited sales of others, though on a spotty basis.

"Some have a high degree of staying power, while others don't," he said.

Herbs -- and their companion specialty produce -- can also exhibit mystical powers for retailers who dream of total-store selling. These types of premium items can boost cross-merchandising and cross-selling opportunities by enticing the consumer to buy complementary items. For that reason, specialty produce and herbs can play an important role in the total-store strategy.

"What's interesting about specialties, in general, is not just that they're selling themselves, but also that you're selling other items along with them," Peterson said. "That's what makes them so dynamic. Our research has shown that those who buy specialties also buy a lot of other items that can add to a higher average ticket ring. That's one of the elements that make specialties so important to a product mix."

At Dierbergs, Duello said he often cross merchandises basil with tomatoes. The two are often combined with olive oil and thick slices of mozzarella cheese for a summertime appetizer.

Still, for all their recent contribution to revenue and profit, specialty items remain difficult to place in a department where merchandising space is increasingly at a premium. Produce executives must determine how to maximize the assortment, price and placement. According to Odron, these dynamics require even more vigilance in understanding market demographics and keying in on what sells, as opposed to what simply adds to the worldly image of a department.

"Retailers are not going to knock out walls and discontinue gondolas of grocery items to accommodate these things, so we're going to have to scrutinize them better, and those that don't present a real opportunity will be left in the dust," he said.

Peterson agreed that specialty merchandising is likely to remain a tricky and challenging task, even for the most forward-thinking merchandisers. That's because specialty items are by their very nature outside the mainstream, and have to scale a wall of unfamiliarity, high prices and confusion as they are introduced to consumers via cooking shows or culinary classes. Impulse, an important factor in all produce merchandising, is a less likely driver behind specialty purchasing, he cautioned.

"One of the big challenges is that so many of these products require the consumer to make an intellectual decision rather than an emotional one," he said.