Trends Impacting Tree Fruit Growers

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Trends Impacting Tree Fruit Growers

• Steve Lutz
• Perishables Group
• December 5, 2005

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Looking Backand Ahead

• An unhappy byproduct of success in one
  generation is a narrowing of focus and a
  vulnerability to competitors championing the next
  technological generation. While a firm is
  congratulating itself on its great product, it
  can suddenly find the customers have moved on.
  The product may be perfect, but for an
  increasingly small range of buyers.
• James Utterback, Economist
• Massachusetts Institute of Technology
• Mastering the Dynamics of Innovation

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A Look Back

• Nobody will ring a bell to call your attention
  to the fact that you are entering a period of
  dramatic change. Its a gradual process the
  forces start to grow and, as they do, the
  characteristics of the business begin to change.
  The transition is gradual and puzzling and comes
  on little cat feet. Its not clear until you can
  look at the events in retrospect to understand
  something changed, its different now.
• Andrew S. Grove
• President/CEO
• Intel Corporation

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Focusing on Trends
1995 2005 2010 2015
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Why Focus on History/Trends
1995 2005 2010 2015
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Trend Factors

• The Consumer
• The Customer/Retailer
• The Packer/Marketer
• The Producer

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Trends Overview--Consumer

• Trying to entice to a very different consumer
• More than everSuccess starts with the consumer
• Higher expectations My way, everytime,
  anytime.
• Relentless about Fresh
• Consistently pay for conveniencegrab and go
• Organics continue transition from niche to
  mainstream
• Very different shopping habits
• Different household composition

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Trends Overview--Customers

• Selling to a very different customer base
• Alternative format stores on a roll
• Different sourcing practices
• Food is everywhere
• Conventional retailers seeking new solutions
• Perishables focused, especially conventional
  chains
• Standardization vs. product exclusivity
• Cut fruit opening broad new markets

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Trends OverviewShippers

• Shippers will continue to feel the pressure
• Customer list is keydrives everything
• Traditional FOB sales desk is dead
• New marketing skills essential for most
• Demands for low-cost mainline items along with
  get it here niche products
• Packaging emphasis continues to grow
• Expect continued consolidation
• Ad Hoc marketing programs replace Apple
  Commission

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Trends Overview--Growers

• Warehouse selection, variety mix more important
  than ever.
• Traditional mainstream items losing
  space/preference
• New mainstream losing price premium
• Marketing expertise
• Customer lists/loyalty
• Capabilities in exploiting opportunities
• Success with alternative varieties/crops driven
  by production methods, site selection, choice of
  warehouse
• Outstanding, new emerging opportunities

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Consumers
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Key Business Environment Trends

• Consumer Wants/Needs are Changing
• Increasingly fragmented purchase behavior
• Demographic differences
• Lifestyle choices
• Variations in shopping patterns
• Saturated with product alternatives
• Older, richer, willing to pay for convenience
• Focused on produce quality/flavor/choice
• Evolving consumer shopping experienceconvenience
  based

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Todays Consumer

• The Traditional American Household has changed
• Over 65 of Americans live in one or two-person
  households
• 24 are young singles or GenX. 42 are empty
  nesters or active elderly. 35 of population are
  families with children highest at-home
  consumption
• Baby Boomers
• Considered the most influential consumer segment
  for food with 50 of total spending power in the
  US
• More diverse than previous generations in terms
  of lifestyle, health, family size and income.
• 89 look for high-quality fruits and vegetables
  as primary feature in ideal grocery store

Source USPB, FMI, Packer Fresh Trends research
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Shopping Patterns have changed

• Consumers report that over the last 10 years
• Purchase of convenience foods up by 50
• Time spent preparing dinner down from 49 to 31
  minutes
• Shopping occurs across multiple formats, multiple
  trips
• Only 1 in 3 households now conduct a primary
  weekly shopping trips down, down by 50
• Consumers making multiple quick trips which
  often favor other retail segments
• Continuing focus on natural products and organics
• Source What America Eats, 2005

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Retailers
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US Store TrendsTraditional Grocery
Who do you want as a key customer???
Source Competitive Edge, 2004
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US Store Trends-Nontraditional Grocery Channel
Source Competitive Edge, 2004
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Consumer Shopping Experience
Quality of Shopping Experience
Source Coca-Cola Retailing Research Council of
N. America 2004
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Consumer Experience-Supermarket
Quality of Shopping ExperienceVoid in the middle
Source Coca-Cola Retailing Research Council of
N. America 2004
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Retail Overview

• Consolidation as a solution to customer erosion
  (Wal-Mart) has not worked.
• The traditional retail format based on large,
  cookie-cutter stores is fading
• Conventional retailers see perishables as a key
  competitive tool against SuperCenters.
• The fastest growing stores (same store sales) are
  natural foods/organic outlets

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Retail Snapshots

• I see stores getting smaller and more focused on
  the needs of consumers in each specific market.
  Food retailers will have to develop specialized
  format targeting specific customers.
• Nick McCoy
• Senior Consultant
• Retail Forward

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Retail Snapshots

• Grocers everywhere are looking for new tools
  to help them survive against Wal-Mart. We found
  the arrival of Wal-Mart SuperCenters results in
  an almost immediate 17 sales loss for nearby
  grocery stores. Consumers most likely to defect
  were families with children and weekend shoppers
  looking for cheaper, private label brands. Those
  most likely to stick around tended to spend more
  on fresh produce, fresh seafood, salad bars and
  ready to eat foods that might serve as quick
  dinners.
• Dr. Vishal Singh
• Asst. Professor of Marketing
• Carnegie Mellon University

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Retail Response

• Wal-MartNeighborhood Markets
• CostcoExpanded perishables
• SafewayLifestyle Stores
• Food LionBloom Markets
• Del HaizeSweet Bay

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So What?

• The focus on fresh produce will continue to
  increase
• Retailers will increasingly seek unique fresh
  products to create value and differentiation with
  consumers
• Mainline products are commodities. New varieties
  (controlled and marketed) have tremendous value
  in the new competitive landscape

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Pureheart
Watermelon .10-35 cents/lb. Pureheart
.70-.99 cents/lb.
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Shippers/Marketers
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Evaluating Sales Options

• The conventional FOB based sales approach is
  nearly dead. Telephone sales people being
  replaced by business managers and analysts
• There is a new set of capabilities required for
  future success
• Target Acquisition becomes a key component.
• Sales force must be able to secure commitments
  from non-conventional food retailers is critical
• Growers must evaluate their warehouse with this
  context

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Growers
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Destination Tactics Segregating the Apple
Category
V O L U M E
Pacific Rose, Sonya, HoneyCrisp
Gourmet
P R I C E
Pink Lady, Cameo Organics
Premium
Gala, Fuji, Granny Smith Braeburn
New Mainstream
Red Delicious, Goldens, Macs, regionals
Bargain
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Life Cycle Marketing Strategies
Growth Maturity Premium
Varieties Mainline Apples Rapid
Growth At/past peak sales Drive
performance Intense price comps Create
distinction Eroding base Build for future

Introduction Decline Niche
Varieties Seasonal
offering Very slow growth Sales
slide continues Create Excitement
Production consistent Prestige Price
exceeds demand Limited Discounting
Steep shelf erosion Introduce
products In/out
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Apple Variety Life Cycle
Granny
Jonagold
Empire
Gala
Golden Delicious
Fuji
Growth Maturity
Cameo
Red Delicious
Introduction Decline
MacIntosh
Rome Winesap
Pacific Rose Pink Lady
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Grower Success

• Product mix more important than ever
• Apples, pears, cherries, soft fruit, berries
• Mix of varieties selected to exploit specific
  sites
• Strategy for dealing with the product life cycles
  is critical
• Recognition that niche varieties will require
  incremental marketing investments
• Active vs. Passive marketing
• Knowledge that selection of warehouse/marketing
  organization is now a critical (top 3) strategic
  decision

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Thank-you