Mixed Bag

Facing a deepening recession, many shoppers are closely watching their food budgets dining out less, eating at home more often and planning their shopping trips more carefully. These trends are creating unique opportunities in some fresh food departments. For example, as SN reported last week, meat and poultry wholesale costs have fallen as a consequence of lagging demand from the restaurant industry,

Facing a deepening recession, many shoppers are closely watching their food budgets — dining out less, eating at home more often and planning their shopping trips more carefully. These trends are creating unique opportunities in some fresh food departments. For example, as SN reported last week, meat and poultry wholesale costs have fallen as a consequence of lagging demand from the restaurant industry, even as retail demand has risen.

Unfortunately, this hasn't been the case in produce departments. During the fourth quarter of 2008, average retail prices on produce rose 6.1% compared with the same period a year earlier, according to scan and loyalty card data compiled by The Perishables Group, Chicago. Meanwhile, 26 of the top 30 produce categories saw volumes decline in December, with total volume sales down 4.3%.

Fuel and transportation costs may have fallen steeply since last summer, but retailers report that their wholesale produce costs have not declined as a result. Instead, wholesale costs have remained fairly steady compared with last year.

“Costs are down on transportation a little bit, but not enough that it affects your retails,” said Darvel Kirby, produce director for United Supermarkets, of Lubbock, Texas, which operates United Supermarkets, Market Street and Amigos United formats. Overall, United's wholesale and retail costs have remained fairly flat in 2009, Kirby added.

Maria Brous, spokeswoman for Publix Super Markets, Lakeland, Fla., had the same view.

“Just because fuel prices have decreased, there is not a direct correlation to produce prices decreasing,” she said. “Fuel is only one part of the equation; there are other components which are not able to be controlled, such as the weather,” Brous said.

But with many fresh produce items, supermarkets appear to be lowering prices regardless, through more frequent and aggressive produce promotions in weekly circulars and through coupons, loyalty cards and other promotions.

The U.S. Department of Agriculture's “Fruit and Vegetable Retail Report,” a publication of its Agriculture Marketing Services division, tracks produce prices highlighted in the weekly ads of more than 200 U.S. retailers, and it recently found significant price decreases on a majority of popular fruits and vegetables compared with last year.

For the week of Feb. 27 through March 5, 2009, for example, featured retail prices were significantly lower than the same period a year earlier on many items, including Romaine lettuce, asparagus, baby carrots, celery, corn, bell peppers and tomatoes.

Produce items with some of the steepest price decreases included: Red Delicious apples, falling from $1.27 a pound last year to $1.05 a pound this year; blueberries, declining from $2.44 per 4-ounce package to $2.19; lemons, down 24 cents a pound; and pineapples, falling from $3.59 each to $3 each.

Among vegetables, asparagus saw a price decline from $2.30 to $2.07 a pound; broccoli fell from $1.40 to $1.26 a pound; and green bell peppers declined from $1.50 to $1.29 a pound.

“Grapes continue to be the most popular item featured this week, beating second place asparagus by nearly 5,000 total ads,” noted the report. “In addition, there were notable increases in ads for limes, lemons, iceberg lettuce, and tomatoes on the vine.”

By contrast, prices were higher on strawberries, watermelon, yellow peaches, navel oranges, mangoes, avocados and other fruits. Cucumbers, iceberg lettuce and mushrooms were among the few vegetables showing retail price increases. Grocery buyers and others stressed that prices fluctuate frequently, based on crop and weather conditions.

Steve Lutz, executive vice president of The Perishables Group, said he expects to continue seeing lower retail prices for the category in the near term.

“Certainly on fruits, a lot of those are storage commodities,” he said. “If the [sales] volume drops, every day that goes by puts more pressure on selling to keep the inventory moving. It forces retailers to react by lowering their retail prices.”

ON SALE

While some grocers have noticed a decline in fresh produce sales, as shoppers switch to options that are often less expensive and easier to store at home, such as canned or frozen produce, some grocery chains are experiencing higher produce sales, as consumers eat at home more often and continue looking for healthier options for their families.

“Overall, business is very good. Our sales are up over last year,” Kirby of United Supermarkets said. He speculated that United's sales growth in the produce department could be directly attributed to customers dining out less and eating at home more.

“Produce is a staple of eating at home,” he noted.

Publix, on the other hand, has noticed that while shoppers may be eating in more, they are modifying their purchases to stretch their dollars, according to Brous. “In a tough economic environment, shoppers tend to trade down in their choices. For produce, shoppers may look to purchase frozen or canned varieties,” she said.

Lutz said the decreased produce volume that the Perishables Group found in the fourth quarter could be linked to a couple of different factors.

“Is this reflecting consumer shift from fresh to frozen or canned, or are consumers opting for alternative stores such as Wal-Mart or Costco that are not included in our data set?” Lutz asked. Indeed, while total chain profits for Costco Wholesale slid 27% during the company's second fiscal quarter, reported in early March, its food sales grew 11% during that time, indicating that shoppers were still making trips to the club chain to stock up on food staples, possibly including the value packs and frozen items that the company is known for.

One thing is certain, though. Where supermarkets are building fresh produce sales, they're often doing so with aggressive promotions that attract the attention of penny-pinching shoppers, offering savings on staples, such as head lettuce, and on items that are in season and in plentiful supply. For example, many supermarkets promoted grapes in January and February because of a large crop this year. In addition, Florida strawberries have been plentiful, after the state recovered from cold weather earlier this year.

Publix is able to source strawberries from Florida, and often offers deals on the fruit, and other items in-season. “Plant City is in our backyard. It is strawberry season, and we are offering great deals on fresh strawberries,” Brous said. Florida strawberries were on ad at $5 per three 16-ounce containers for the week of March 5 through March 11.

United Supermarkets is offering value in its produce departments by selling small navel oranges and small apples in a pack, priced at four for $1. “It gives guests a lower-cost alternative, and a snack-size item. We offer larger sizes also, but try to offer that as an option,” Kirby said.

As a result of shoppers honing in on prices, grocers are also increasing their use of coupons, loyalty card discounts and weekly price discounts.

In Information Resources Inc.'s Consumer Dynamics survey, released in December, 75% of shoppers said they choose products based on weekly fliers, 68% choose products based on weekly coupons, and 66% say loyalty card discounts drive their purchasing decisions.

The most important factor in shoppers' decisions at the grocery store is price, according to the same survey. Eight-seven percent of shoppers said they buy products based on price, while 84% said choosing products they like is most important.

In addition, IRI also recently found that shoppers are choosing more healthy snacks, and staying away from less healthy foods — a fact that could benefit produce department sales. The research was based on new IRI consumer research that will be presented during FMI's Future Connect conference in May.