Retail Executives Discuss Organic Produce Strategies at Crosset Company 2019 Produce & Floral Conference

Fresh produce leaders from four leading, distinctly different grocery retailers from across the US and Canada shared their perspectives on organic produce opportunities at the Crosset Company 2019 Produce & Floral Conference.

Drew Sullivan, Greg Corrigan, Caitlin Tierney, Mimmo Franzone

The panel featured Greg Corrigan, recently retired Senior Director of Produce and Floral for Raley’s and now CEO of the United Vegetable Growers Cooperative; Caitlin Tierney, Senior Director of Produce for 99 Cents Only Stores; Drew Sullivan, Senior Category Manager-Produce for Sprouts Farmers Market; and Mimmo Franzone, Director of Produce and Floral at Longo Brothers Fruit Markets. The roundtable discussion was moderated by Steve Lutz, Vice President of Insights & Innovation for Category Partners LLC.

Steve Lutz opened the discussion with an overview of organic produce growth trends and the drivers moving consumers from initial trial to committed organic produce users. He noted that organic produce hit 10% of total produce dollar sales in 2018, and that nearly all produce department growth since 2015 has come from organics. Almost 70% of organic produce sales are driven by the top 10 items (packaged salads, lettuce, apples, carrots, potatoes, bananas, strawberries, blueberries, tomatoes, and grapes). Given that, Lutz suggested that even small retailers can and should incorporate organic produce into their assortment by carrying at least these core items. Fresh food, especially produce, is the “entry point” for organic consumption. New/light organic consumers buy fundamentally differently than heavy or “core” organic consumers. New users initially enter the category either “accidentally” when an organic item is on promotion or intentionally when a health condition such as allergies or dietary requirements recommend organics. “Regular” and “Committed” organic purchasers are motivated to buy because they believe organic represents doing something “good for me, my family, and the world”. Regular/committed users represent 20% of the population, but 80% of organic purchases. Continued organic growth, says Lutz, will come from more new and transitional users entering the category and staying for at least some portion of their produce purchases.

The retailer panelists all agreed that the growth potential for organic produce remains high, particularly as more shoppers enter the organic category. And it’s not limited to high income shoppers. “My demographic is highly Hispanic—it’s close to 50 percent,” noted Tierney of 99 Cents Only Stores. “We also have a large older demographic and a large millennial demographic, so it’s really spread out. But what I would say to any smaller retailer or region is that we are in big cities, we’re in rural areas, food deserts, we have small stores and large stores—the one message we get is that they want organics,” she continued. “So, it doesn’t matter what size store you have, what your demographics are, what the age of your customer is, or the location—organics is an area of growth for your store. Once you learn that and put the backing behind it, you’ll see it in sales.”

The panelists went on to discuss pricing strategies for organic produce, talk about the challenges of organic produce shrink, and provide their perspectives on produce packaging and the outlook for more sustainable alternatives.

Pricing: The data presented by Steve Lutz indicated that the aggregate average retail price of all organic produce remains nearly twice that of conventional produce, a gap that has remained virtually unchanged over the past four years. To address both the real and perceived price premium of organic vs. conventional produce, all four panelists agreed that being seasonally relevant with the organic items they feature is key, primarily because it is easier to offer more palatable prices during peak growing periods. “What we do to bring that price gap down is work closely with our grower partners, to understand when organic commodities are in peak season and can be priced comparably to their conventional counterpart,” said Longo Brothers’ Franzone. “Then we actually switch over to 100% organic….so, for example, when organic cauliflower is in season and can be priced the same as conventional, that full end-cap display halfway down the department is actually all organic.” Greg Corrigan concurred. “One of [Raley’s] initiatives over this last year was to make organics more affordable, so we literally looked for supply opportunities in peak season on items, matched the conventional price, and put them in the insert,” he said. “Recently, running both conventional and organic items together on ad has also become part of the company’s overall strategy. But if you’re running organics at a hot price, you’re going to impact that conventional item, so you’ve got to be careful on shrink numbers; you’ve got to back off that volume on the conventional if you’re going out there with an aggressive organic price.”

The key is making organic produce as attractive as possible without detracting from conventional. “Unless you’re going down the path of exclusively organics, you don’t want price to be the only reason [shoppers] switch over, away from the conventional item,” said Sullivan from Sprouts. “You need to find that sweet spot where you want to be known as a good place to go to get organics at an affordable price.” Corrigan added, “Typically you can get big lifts on the organics, but generally they still represent a very small piece of the business, so you’ve got to keep that conventional side of the business healthy.”

Another way to address the consumer perception that organics are more expensive is to offer a pack size that allows for a lower retail price that compares more favorably to conventional. Tierney noted that she has had success with this strategy at 99 Cents Only Stores. For example, she might sell a 2-pound bag of organic apples for $1.99 and a 3-pound bag of conventional apples for the same price, or she could price a 2-pound bag of conventional zucchini at 99 cents and offer 16 or 18 ounces of organic zucchini for roughly the same price. Steve Lutz echoed Tierney’s point, citing the success of this specific strategy for CMI Orchards.

Both Sullivan and Tierney are occasionally flexible on product specifications in order to offer a good value, as long as the eating experience remains intact and consumer expectations are met. “There are a lot of things that don’t affect the core eating experience,” said Sullivan. “Perfect color, shape, and size isn’t always necessary for great taste.”

Shrink: It’s important to understand item velocity and accurately forecast demand in order to prevent or reduce shrink for both conventional and organic produce. However, Franzone pointed out that the primary challenge for organic produce is the high cost of “paper shrink” that occurs when organic items are incorrectly rung up as conventional at the register. Corrigan agreed. “When Raley’s did secret shopper studies to examine scan accuracy on items like avocados, the results were shocking. It was just mind-blowing how many didn’t get rung up right, so the reality is that shrink is on paper.” To help combat “paper shrink”, Longo’s instituted a “scan first” policy, with manual entry of PLUs only if the item does not have a scannable barcode. The challenge is that cashiers often memorize the numbers for high volume items and enter the conventional PLU instead of checking the sticker or twist tie.

Packaging: Marketing organic produce in packaging “solves” several organic-specific challenges: 1) ensuring organic integrity when merchandised adjacent to conventional counterparts; 2) establishing price/value; 3) enhancing communication and differentiation versus conventional; and 4) helping to ensure accurate price scans at check-out.  While many retailers are concerned that packaging, particularly plastic packaging, will scare away core organic consumers, Steve Lutz pointed out that growth in organics is coming from a broader consumer base; he cited in-market experience with Daisy Girl Organic Apples demonstrating that the incremental perceived value offset stated concerns about the packaging itself. That said, the panelists agreed that this one more reason it is important for the industry to develop more sustainable packaging options. “There’s a few folks that we’ve been talking to that are working furiously on getting something that’s ready for shelf that is going to hold up and do the right thing for the product and then also be compostable in a reasonable fashion at the back end of the transaction,” Sullivan said. “There’s not a lot of options that are ready to go right now, but there’s a lot of folks that are really close, and it’s a race to get that one across the finish line and ready for retail.”

“We are thrilled that such a distinguished group of produce industry professionals joined us to share their experience,” said Greg Kurkjian, Crosset Vice President/General Manager. “Each of the retailers represented on this panel have successfully crafted a unique positioning in their marketplace, delivered in large part through their fresh produce offerings. We thank them for their time, insight, and willingness to participate on the formal panel and to be accessible to our conference attendees throughout the day.”

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