Perishables Perform for Supermarkets

Fresh foods represent a major opportunity to create a point of competitive difference and foster customer loyalty, but only if retailers evolve in response to ever-changing trends, according to Sherry Frey, vice president of account services for West Dundee, Ill.-based The Perishables Group, speaking at her New Rules for Perishables session here at the 2007 Food Marketing Institute Show last

CHICAGO — Fresh foods represent a major opportunity to create a point of competitive difference and foster customer loyalty, but only if retailers evolve in response to ever-changing trends, according to Sherry Frey, vice president of account services for West Dundee, Ill.-based The Perishables Group, speaking at her “New Rules for Perishables” session here at the 2007 Food Marketing Institute Show last week.

Notably, households are getting smaller, and the Baby Boomer demographic is getting older, richer and more willing to pay extra for convenience and health, she said.

Over 65% of Americans live in one- or two-person households, Frey said.

“It's really changing how they purchase and what they're purchasing. The percentage of prepared foods taken home to eat has increased 70% in the past 20 years.”

Shoppers are also making multiple trips to multiple store formats each week, Frey noted.

“Only one in three households is still making that primary weekly shopping trip,” she said. “There's been a transition, almost to a more European, meal-based shopping behavior.”

Although Frey added that channel blurring continues to pose a challenge to all food retailers, supermarkets are still the preferred format for most shoppers when it comes to perishables. In general, fresh foods growth continued to keep slightly ahead of inflation, but recent data from The Perishables Group indicates that several departments have adapted well to changing shopper demands.

For example, facing ever-increasing competition from supercenters and club stores, as well as quick-service sandwich chains such as Subway and Quiznos, delis suffered a decline in meat and cheese sales. However, the departments made up for the slowdown with an increase in prepared food sales, which now account for half of the industry's sales in the deli category. Chicken — by far the best-selling prepared food item — also experienced a decline in sales that was offset by strong growth in side salads, entrées and sandwiches.

Produce sales increased 4.1% in 2006 compared with 2005, with value-added produce showing the strongest performance in the category. Fresh fruits also outperformed fresh vegetables, a trend Frey attributed to fruit finally recovering from the negative dietary perceptions left over from the low-carb dieting craze.

Perhaps most surprisingly, sales of packaged salads grew 5% during the year, despite the September 2006 E. coli outbreak that drove shoppers away not only from spinach, but from bagged leafy greens in general. Frey said the growth demonstrated very strong performance of fresh convenience foods, especially prior to the outbreak, and noted that “what we're seeing is that consumers are coming back to the category, but they're now trending toward blends.”

Fresh herbs may also be a new hot sub-category for produce departments to watch. “We've seen year-over-year 10% growth, and [herbs, spices and seasonings] now represent 1.5% of overall sales in produce,” she said.

Bakery departments had the strongest dollar growth of all fresh food departments, marked by two divergent trends.

Demand for whole-grain breads and organic baked goods has continued to surge, and shoppers “are definitely looking for healthier options,” she said.

However, the dessert category also continues to be a powerful performer, accounting for almost half of department dollar sales last year.