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In Produce Departments, Prices and SKUs Are Both on the Rise

Produce prices are on the rise, and consumers are responding by purchasing less in many popular categories. This was one of the themes of the session “What Loyalty Card Data Tells Us about Consumer Habits,” presented today by Steve Lutz, executive vice president of The Perishables Group.

Lutz said that this year is starting to shape up a lot like 2008. That year, gas prices rose sharply, and food prices followed. This year, gasoline is already more than $4.00 per gallon in many cities, and food prices are already headed up.

But, the news isn't all bad. Convenience is once again becoming a priority for many shoppers. As Lutz put it, “just because you're cooking at home doesn't mean you can cook.” As a result, prepared food sales have grown 15.2% since 2005. Shoppers are also still looking for ideas to help them assemble or cook simple meals at home.

And, despite rising prices, produce departments remain one of the single most important traffic drivers in the supermarket. Shoppers make an average of 31 trips per year to supermarket produce departments, and 43% of their shopping baskets contain items from other departments. Compare that with meat departments, where shoppers make an average of 18 trips per year, and 27% of their baskets contain multiple items.

Also, the organic produce category looks like it has been re-energized since its brief slump during the worst part of the recession. In 2005, organic fruits and vegetables had 2.6% dollar share of the entire produce category. In 2010, it had a 5.4% dollar share.

However, one nagging challenge is the growth of SKUs. Lutz noted that when he was in the produce business in the early 1980s, most grocery stores offered three different apple SKUs. Now, the average grocery store carries 29 different SKUs of apples alone. To some extent, the new SKUs can boost incremental profits and help attract shoppers who want niche products. But, the increasingly complex nature of modern produce departments can also put a lot of pressure on store-level managers, who are working with limited space.