TRENDS IN PRODUCE MARKETINGthe objectives

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TRENDS IN PRODUCE MARKETING-the objectives

• Use produce marketing as a way to look a specific
  part of food retailing.
• Review/learn some general food marketing trends.
• Show why industry knowledge is important to
  marketing and sales.
• Trade practices
• Promotions which we have already discussed
• Technical advances

2
Supermarket buyers (future sales people in this
class) must stay abreast of changing trade
practices, promotions technological advances.
(p.2).

• Understanding the Dynamics of Produce Markets
• USDA Article by Kaufman et. al.
• From which you have the abstract and glossary of
  terms

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U. S. Fresh Produce Markets a USDA article

• Marketing Channels, Trade Practices, and Retail
  Pricing Behaviorby Dimitri, Tegene Kaufman
• Four key developments in marketing fresh fruits
  and vegetables (FFV)

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1. What are four key developments in marketing
FFV?

• 1. Demand for quantity and quality of FFV
• _________________
• 2. Supermarkets have merged, acquired new stores
  
• _______________
• 3. The role of wholesalers has
• ____________
• 4. Non-price provisions between retailers and
  grower-shippers have
• ____________

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Demand for quantity and quality of FFV has
increased

• Before 87 FFV were purchased How?
• _____________________
• Now there is much more
• _______________
• Which means more built-in services, volume
  discounts, specifications on product quality,
• value added, consumer banding, importing and
  variety.

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Demand for quantity and quality of FFV has
increased (cont)

• 3. How have retailers responded to that demand?
• ________
• ________
• ____________
• ________
• ____________________________
• _____________________________________

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What has happened to SKUs? Why?

• _________________
• Why?
• _________
• __________
• ____________

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What are some other trends in produce marketing?

• _______value added
• _______consumer branded items
• _______variety and varieties
• _______Food wholesaling and retailing
  consolidation
• _______food service sector influence
• ________Role of imports
• ____________________________

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4. What has happened to produce as a of sales
in food service relative to retail? Why?

• Restaurants share has
• ____________
• and retails has
• _________.
• (_________________________________________________
  _)
• Why?
• ___________________________
• _______________________
• _____________________
• _________________________________
• ______________________________________________
• _____________________________

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2. What caused the demand for quantity and
quality of FFV to increase?

• ____________________________
• __________________
• Why?
• _______________
• We have higher expectations wrt food safety and
  quality
• _______________
• _______________
• _______________
• _____________________________________________
• __________________
• ________________________________________

10/31/2009
10
11
The Food Service Takeaway Continues

• nontraditional retailers have competed for a
  larger share of retail food sales, and consumers
  have _______________
• share of food spending in restaurants and other
  foodservice outlets (USDA/ERS Briefing Room
  http//www.ers.usda.gov/Briefing/FoodMarketingSyst
  em/foodretailing.htm)

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food-away-from-home spending

• By 2005, food-away-from-home spending
  accounted for ___________
• of all food spending, up from 45 percent in 1990
  and 39 percent in 1980. (USDA/ERS Briefing Room
  http//www.ers.usda.gov/Briefing/FoodMarketingSyst
  em/foodretailing.htm)

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Supermarkets have merged, acquired new stores and
grown larger

• Relatively new competitors for supermarkets are
• ___________________
• They bring every day low prices (edlp), use
  cross-docking, electronic data exchange, direct
  store delivery, forward contracting, scanner
  based purchasing and many other to gain
  competitive advantage

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Responses

• Food retailers are also experimenting with
  ___________________
• The Kroger Co.s "Marketplace" format store in
  Columbus, OH, that is ___________of its existing
  supermarkets includes general merchandise, such
  as bath towels, bed linens, office supplies, and
  patio furniture.
• Other supermarket operators are introducing
  ethnic-oriented formats for example, Publix in
  Florida opened a new Hispanic format called
  _______________. In addition to the ethnic foods
  offered, the stores feature sit-down cafes, an
  expanded deli and hot foods department, and
  personal care products targeted to the
  ________________market.(USDA/ERS Briefing Room
  http//www.ers.usda.gov/Briefing/FoodMarketingSyst
  em/foodretailing.htm)

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Supermarkets have merged, acquired new stores and
grown larger(cont)

• The supermarket response has been
• _________________
• ____________
• _________

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Competition

• supermarket firms are reviewing their pricing
  and __________________ in response to discount
  mass-merchandise stores, warehouse club stores,
  and supercenters.
• Food products have become increasingly important
  to the growth strategies of nontraditional
  retailers, as evidenced by the rapid introduction
  of ___________________
• Other retailers, such as ________________________
  _____________________________, have increased
  food offerings, including perishable foods, in
  recent years.
• Together, nonfood store retailers accounted for
  ____ percent of total retail store food sales in
  2005, the most recent year for which data are
  available, up from ____ percent in
  1990.(USDA/ERS Briefing Room http//www.ers.usda
  .gov/Briefing/FoodMarketingSystem/foodretailing.ht
  m)

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Responses

• In response to price competition from
  nontraditional food retailers, supermarket
  operators have sought to increase consumer
  satisfaction by
• introducing _______________ products,
• developing and expanding _________________________
  __________
• promoting _______________________
• Introducing _______________ stations,
• expanding frequent shopper card programs, and
• offering online home shopping services.
  (USDA/ERS Briefing Room http//www.ers.usda.gov/Br
  iefing/FoodMarketingSystem/foodretailing.htm

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5. How would you measure concentration in produce
wholesaling, for example?

• Sales or market share measurement held by
• _______________________

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Consolidation in Food Retailing

• to gain procurement and operating
  efficiencies. a number of retailers have
  pursued ________________________strategies.
• Kroger Co., Albertsons, Ahold USA, and Safeway,
  have produced a significant increase in the share
  of total U.S. grocery store sales by the largest
  __________________.
• Between 1997 and 2000, more than 4,100 U.S.
  supermarkets were acquired, representing 69
  billion in sales.
• By 2005, the ___________________________________of
  total grocery store sales, ____________percent
  in 1992.
• third-ranked Albertsons was acquired in 2006
  by a consortium of investors, including grocery
  wholesaler, Supervalu and drugstore operator CVS.

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Supermarkets have merged, acquired new stores and
grown larger(cont)

• By 2000 the 20 largest supermarket chains had 52
  of the
• _______________
• up from 36.5 in 87 (USDA p. 9)
• but no change in
• ________________

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The role of wholesalers has apparently declined

• Then
• _______________________________
• Now
• ___________________
• The role of wholesalers in selling to retailers
  has
• _____________
• There is more volume going directly to the
• ________________
• Wholesalers have increased their business with
  the
• ________________________

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Selling and Distribution Channels
A distribution channel is a set of people and
organizations responsible for the ____
_____________ __________________ producer to the
ultimate user.
1-22
McGraw-Hill/Irwin
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Selling and Distribution Channels

• Business-to-business channels

1-23
McGraw-Hill/Irwin
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Selling and Distribution Channels (continued)

• Consumer channels

1-24
McGraw-Hill/Irwin
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What has been the savior of (the remaining)
wholesalers? Why?

• _______________
• ____________
• __________
• __________
• __________
• Why?
• ________________________________________________

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6. How do produce gross margin compare to
grocery gms? Why?

• _________
• Why?
• _________
• _________
• _________
• _________

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Gross Margin GM vs. Mark Up

• Gross margin is the earned of the retail price
  (e.g. )
• Mark up is the of increase above COGS (e.g.)

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General Retail Food Marketing Issues

• 1) Proliferation of New Products 855,617
  9516,683 009,248
• _________________________
• _________________________
• _________________________
• _______________
• _______________

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General Retail Food Marketing Issues (cont)

• 2) Low and Declining Profits for Supermarkets
• _________________________
• __________________________________
• _________________________
• we are not just selling food!!!! Bank, deli,
  vision center, pharmacy

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More General Issues

• 3) Proliferation of Retail Formats
• _________________________
• _______________
• ________________________________________

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More General Issues

• 4) Increased competition for a limited consumer
  stomach space means
• _________________________
• Establishing Product Culture for customer-loyalty
• _________________________
• _________________________
• _________________________
• _________________________

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Produce Efficiency or Power?An unanswered
question

• While consumers demand for produce shifts and
  grows, wholesalers and retailers are
  consolidating and restructuring in response.
  Have they become more efficient. Is this an
  Efficient Consumer Response or power grabbing?

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retailers introducing new information
technologies and supply-chain initiatives.

• investing in online exchangessuch as Transora,
  UCCnet, and Agentrics, the merger of
  Globalnetxchange and Worldwide Retail
  Exchangethat allow __________________________.
  
• Internet for transactions with suppliers and
  distributors promises greater flexibility and
  lower transaction costs than the commonly used
  Electronic Data Interchange (EDI) system.
• Because online exchanges allow suppliers and
  buyers to interact at a lower cost relative to
  EDI, use of the new technology has been
  extended to ___________________-______________.
  
• In addition to firms adopting use of online
  exchanges, individual retailers, such as
  Wal-Mart, operate _________________
• ________________to provide up-to-date sales and
  inventory
• information to their suppliers to facilitate
  inventory replenishment. (USDA/ERS Briefing Room
  http//www.ers.usda.gov/Briefing/FoodMarketingSyst
  em/foodretailing.htm)

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Market Competitiveness

• Two factors give retailers the
• potential for market power
• Consumers are
• ___________________
• and have to pay to travel so there is some power
  over those close at hand
• 2. Retailers can differentiate themselves and
  charge a premium through
• _________________________________

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4. Non-price provisions between retailers and
grower-shippers have increased

• _________________________
• __________________________________
• __________________
• some of which are called efficient consumer
  response (ECR) like category management, and
  electronic data interchange
• _________________________

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Services provided

• ____________________
• Like customized containers, returnable containers
  and pallets.
• ____________________
• ____________________
• ____________________
• automated inventory replacement, scanner based
  purchasing (new age consignment), cross-docking,
  direct store delivery, forward contracting
  category management

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Market Competitiveness

• The benchmark for determining market power is
• ____________________________
• Price should equal
• ______________
• If sellers have market power they charge
  consumers prices
• ______ ___________
• If buyers have the power they pay suppliers
  prices ________________________

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Market Competitiveness

• Monopsonists and oligopsonists have a
• _______________
• Between p mc than monopolies and oligopolies
• If retailers have monopsonistic power they set
  prices to consumers
• _______________
• sales of farmers products
• If they have oligopsonistic power they reduce
  price
• _______________
• producer-shippers

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8. What is price

• asymmetry?

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8. Pricing stickiness or ________________

• The allegation is that prices respond more
  quickly and fully to farm price
• __________________________________________________
  __________________
• If price decreases due to a large harvest and the
  decrease is not transmitted to the consumer the
  added sales needed to clear the increased
  production are
• ______________.

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Some Conclusions from the USDA Article

• By 2000 retail concentration had increased at
  the national level but not the local level.
  (p21)
• retailers are able to influence prices paid to
  fresh produce shippers and by consumers for some
  commodities. Consumer prices in excess of
  competitive prices were evident (p.21) for
  some FFV However, there was no evidence of
  coordinated pricing or collusion among retailers
  within a city. To the extent that retailers are
  exercising market power they are
  __________________ __________________they possess
  through geographic and brand differentiation.
  (p19-emphasis added)

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More Consolidation and More Competition!

• Increasing food sales by non-grocery store
  retailers, new information technologies, and more
  efficient supply chains have likely
• contributed to price competition in retail food
  markets, _______________________
• _____________________(see Bjornson and Kaufman,
  "Change and Firm Valuation in U.S. Food Retailing
  and Manufacturing," Journal of Food Distribution
  Research, Issue 35, No. 2, July 2004).

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Moving toward customer driven solution- The Drive
for Efficiency

• Consumer Demand pushed for efficiencies.
• ______________________
• ________________________________________
• ______________________
• How can unnecessary costs be eliminated in the
  food system?? ECR-Efficient Consumer Response

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Produce Changing Markets and Challenges

• Imported produce continues to expand
• Fewer supermarket buyers looking for larger
  suppliers
• Rapid growth in retail direct-to-consumer
• Technology for production and post-harvest
  handling becoming more sophisticated
• Food safety a driving force
• Growth in Organic mostly in SW US

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Kentucky Produce Marketing Channels
Percent selling at least 10 of their produce
into given market channel
Source Ernst Woods, 2001-05 KY Produce
Marketing Practices Surveys Direct markets
include on-farm and off-farm retail, direct to
restaurant/grocer, and CSA
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CSA Community Supported Agriculture

• CSA is a way for the food buying public to create
  a relationship with a farm and to receive a
  weekly basket of produce.

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Organic Produce?

• Broader interest in organic food
• 20 annual growth for last 10 years (14 B 2005)
• Organic food sales channels
• 47 Conventional Supermarkets
• 44 Natural Food Stores
• 9 Direct Marketed
• Fresh produce accounts for 42 of all organic
  food sales
• 1/3 of organic produce sold under contract
• Trend towards larger growers direct to retailer
  sales

Sources Dimitri Greene, 2002 USDA
ERS-Oberholtzer, Dimitri Greene, 2005 Organic
Trade Asoc., 2004 Tondel Woods, 2006
Agricultural Economics
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Limiting Factors to Expand Produce Operation by
Kentucky Farmers

Source Woods, T. and M. Ernst, 2002 Planting
Intentions SurveyProducers were asked to
indicate each factor with a score with 1 not
limiting to 5 limiting. Indicates percent
ranking the factor a 4 or a 5.