I n early 2009, a research project by the Perishables Group identified various value-seeking strategies by consumers. The study examined point-of-sale data from 13,000 U.S. supermarkets. The Perishables Group also partnered with two retailers, one on the West Coast and one on the East Coast, to gather consumer loyalty card data from 200,000 households and conduct 1,600 in-store shopper intercepts.
The Perishables Group then undertook a follow-up study — sponsored by Chiquita, Fresh Express, Crunch Pak, Dovex, Duda Farm Fresh Foods and Ready Pac — with information gathered in late 2009, to define “the new consumer reality” that emerged in the past year. The Perishables Group and Produce Merchandising have brought you the results of this follow-up study throughout the past four months.
When comparing overall purchasing behaviors from last year and this year, it is clear that most consumers are still seeking value. This month, we explore how consumers are prioritizing their decisions when it comes to everyday low prices and category trading, as well as luxury purchases such as convenience, organic and locally grown items.
Everyday low prices touted in reaction to changing consumer priorities
It is apparent to retailers that price is top-of-mind with consumers. When the Perishables Group interviewed 10 retailers from chains across the U.S., all agreed the environment in the produce department is very different today than it was a year ago. Most of those changes centered on pricing, promotions and most often consumers’ search for value. As a result, several retailers lowered their everyday prices, and some have seen growth by increasing their focus on pricing in select categories.
Many of the major retailers across the U.S. have advertised their efforts to bring the consumer “everyday low prices” on many items, rather than temporary sales. This tactic was used to try to encourage shopper loyalty, and to bring them back to supermarkets from Wal-Mart and other discount retail channels offering growing assortments of fresh produce.
The everyday low prices advertising efforts were a smart move, as consumers are significantly more price-conscious than they were a year ago. In a survey of 6,000 produce department consumers across the U.S., more than half said they are now purchasing more fresh produce on sale than they were a year ago, and a quarter said they are now using coupons to buy fresh produce more often.
Category consumers agree, with about half of the apple, banana and packaged salad consumers saying they now purchase these categories on sale more often than they did a year ago.
The consumer feedback is supported in the sales facts. When looking at apple sales across the U.S. for the Q1-Q3 2009 (the study time period) compared to the same period the prior year, apples posted a 6% increase in volume sold on promotion. Additionally, bananas increased 1.4% in volume sold on promotion. Packaged salads, which have traditionally had a large percentage sold on promotion, experienced a 1% decline in percent of volume sold on promotion. This trend was fueled by consumers leaving the category altogether.
Many consumers are actually changing their purchase frequency based on sales. The Perishables Group analyzed loyalty card data from an East Coast and a West Coast chain. In both retailers, consumers were spreading out their purchases, likely waiting for deals and stocking up on staple items such as potatoes, citrus and cooking vegetables, as these items were bought less frequently, but in greater volume when purchased. Aside from lettuce and salad, the items appearing under this behavior type are able to be stored for several weeks and are conducive to pantry loading.
Category trading persists
In the Perishables Group’s 2008 research, trading behavior was perhaps the most prominent value-seeking strategy among consumers. Shoppers either traded to a lower-priced option in a category, or they traded to a different category altogether if it offered lower price points. Some even traded to canned or frozen produce in an effort to save money and extend shelf life.
This category trading behavior has persisted. About half of produce consumers surveyed said they are now more often purchasing lower priced items in place of higher priced items. Consumers are also trading higher priced stores for lower priced stores.
Much of this trading is occurring to the detriment of convenience items. More than 40% of respondents reporting buying whole fruit in place of cut fruit more often than they did a year ago, and 30% saying they are now more often buying whole lettuce in place of packaged salad. More consumers are trading out of celery or snacking vegetables than are trading into the category.
Sales trends across the U.S. confirm consumer trading from packaged salad, prepared apples and prepared celery. In each convenience category, both volume and the percent of volume sold on promotion declined, while they increased or remained relatively flat for the items’ bulk alternatives. These volume shifts help to glean visibility into consumer trading behaviors, as they shift from purchasing convenience to whole items.
In both retailers studied, consumers bought less volume of many produce categories during each shopping trip progressively over the first three quarters of 2009. This, too, builds on trends observed last year, when consumers cut back on purchases, reducing waste and trading down to less expensive items.
When examining sales at our partner retailers over the three-quarter time period, consumers in the East Coast retailer traded into citrus, prepared fruit, berries, and organic apples, while trading out of packaged salad and cooking vegetables. Slightly different behaviors occurred in the West Coast retailer, as consumers traded into prepared apples, berries, packaged salad and lettuce, while they traded out of organic apples, citrus, bananas, grapes, potatoes and prepared celery.
Convenience items sacrificed for price
Many consumers indicate a decrease in purchases of convenience items, as consumers are going back to the basics by purchasing whole, uncut produce and avoiding higher priced convenience and value-added items. Yet an analysis of shopping trends in loyalty card data tells a different story.
When asked, slightly more than 40% of produce survey respondents said they sometimes or regularly purchase convenience produce items. Shoppers are relatively price-sensitive when it comes to buying convenience items, with more than a quarter saying they only purchase the items when the price is right.
For produce in general and for the convenience categories of celery and snacking vegetables, cut fruit and packaged salad, the importance of price increased over last year more than any other factor. Additionally, 13% of produce consumers indicated purchasing more convenience items, while more than 20% said they are buying fewer.
Looking at specific categories, apple consumers are much less likely to purchase convenience items. Slightly more than half of apple consumers said they rarely or never purchase convenience items such as pre-sliced apples, and 23% said they are now purchasing fewer. Additionally, nearly a quarter of apple consumers are price-sensitive, saying they only purchase convenience apples when the price is right.
Trading out of convenience continues for fresh-cut fruit. A larger percentage of consumers said they are now buying less than said they are now buying more of the categories fresh cut fruit, overwrap fruit, jars and cups, and sliced apples.
Loyalty card analysis also confirms that, during 2009, many consumers were price sensitive to convenience items. In this example from the West Coast retailer, as the price rose and promotion dropped for prepared celery in the third quarter, consumers responded by trading out of the category. Everyday price dropped on regular celery and celery hearts during the same quarter, which likely contributed to the consumer and sales losses for prepared celery.
When looking at convenience items’ trip frequency and the amount of volume purchased during each trip at the East and West coast partner retailers, it is clear that consumers are buying more when they find a good deal. In nearly all categories studied, the volume per trip increased, but the trip frequency increased by a smaller amount or even decreased. Shoppers weren’t necessarily buying these products more often, but they were buying more quantity when they did decide to purchase, likely in conjunction with promotions.
Pricing remains key to organic produce success
Organic sales growth has been significantly stronger than conventional produce, with double-digit growth in volume and dollars over several years. While organics are still growing, sales gains have dropped into the single digits since the onset of the recession. Organic produce experienced total U.S. dollar and volume growth of 4.5% and 3.6% respectively over the first three quarters of 2009 compared to the prior year. Clearly, higher price points on organic produce have caused some consumers to search out lower-cost alternatives.
Consumers indicated “organic” produce is less important than overall quality and price, with health/nutrition ranking third in importance. While a slight majority of produce survey respondents say they rarely or never purchase organic produce, about 16% either sometimes or regularly purchase organics. However, a significant number of these organic shoppers continue to base their purchase decisions on price. Nearly one in five organic buyers say they only purchase organics when the price is right.
Younger consumers proved to be strong organic produce consumers, with 26% of consumers 24 years old or younger indicating that they purchase organic produce weekly.
The consumer demand for organics seems to be flat for produce in general and for the categories studied. About the same number of respondents said they are now purchasing more organics than they were a year ago as said they are purchasing less. The one exception is cut fruit, which has been negatively affected. While 8% are now purchasing more organic cut fruit, more than 20% are buying less. Sales of organic prepared fruits across the U.S. fell nearly 50% in sales, despite an 18% decrease in average retail price. However, this category accounts for only a small percentage of organic produce sales, giving any decrease in sales the potential to account for a large percentage of the category’s sales.
Apple consumers are the most likely to purchase organics, with nearly a third regularly or sometimes purchasing organic apples. Yet one-third of apple consumers only buy organic when the price is right. Organic apples dollar and volume sales across the U.S. were boosted by 16% during Q1-Q3 2009, thanks in part to a 20.6% decrease in average retail price.
Packaged salad consumers are nearly as committed as organic apple consumers, with 27% either sometimes or regularly purchasing organic salad.
It is evident that organics must be priced right, particularly when it comes to everyday retail price decreases, to boost sales growth. Offering attractive pricing on organics is a strategy retailers can employ to attract a higher-end shopper. Organic shoppers are important to produce, as they are often heavily invested in fresh and commonly purchase multiple organic produce items in the same trip.
For example, organic apples are a price- sensitive item. Retailers with higher decreases in average everyday retail pricing from year to year experienced growth over the prior year.
It’s important to understand the specific price thresholds for your consumers when it comes to organics, as too high of a price premium over conventional substitutes can encourage trade downs which significantly impact sales performance.
It’s also imperative to use advertising or in-store signage to make consumers aware of sales on organic items, since price is so often the determining factor for whether a shopper chooses organic over conventional produce.
Locally grown pulls its weight
Locally grown produce options seem somewhat more important to consumers than price. Even with the struggling economy, buying locally grown produce continues to increase in importance.
More than three-quarters of the produce survey respondents consider “locally grown” produce to mean it was grown either within their community or state, and more than half of said they sometimes or regularly purchase locally-grown produce. Eleven percent of respondents indicated they are purchasing significantly more locally grown fresh produce, led by those with incomes below $50,000.
Those with no children in the home are showing the most variance in their preference for locally grown fruits and vegetables, with 29% of this group buying more locally grown produce than they did a year ago, while just 7% report buying less.
As with produce in general, more than half of apple consumers said they sometimes or regularly purchase locally grown apples, and nearly half of cut fruit consumers said they sometimes or regularly purchase locally grown cut fruit.
It can be difficult to decipher consumer priorities and thresholds in a recession. It’s not surprising that organic produce and some convenience items have taken a hit in sales as consumers keep a hold on their tightened purse strings. Yet signs of recovery are emerging, as 13% of consumers report buying more convenience items than last year, and more than one-quarter of organic packaged salad and organic apple consumers are demonstrating loyalty by either sometimes or regularly purchasing these items.
The key to capitalizing on opportunities for additional sales is to make sure consumers are actually aware of a good deal when it is available. After supermarkets began advertising their everyday low prices, many consumers returned to their local grocery store. The shift was noticeable enough to spur Wal-Mart to institute more price cuts on grocery items. Many consumers admit to preferring organic and locally grown produce when they can afford it, with nearly one-fifth of shoppers saying they will choose an organic item over conventional when the price is right, and 54% of shoppers saying they regu larly look for and purchase locally grown produce when it’s available plus an additional 21% who choose locally-grown when the price is right. In-store signage, knowledgeable produce department staff, as well as advertising via circulars, retailer websites and social media outlets, can all be used to boost consumers’ awareness of value in their local supermarket.
