Successful Apple Marketing in the New Millennium
I'm going to discuss the market place trends affecting our profitability as fruit growers and/or packers, and what can we do about it. I'll focus both on what we can do as an industry, at the warehouse level, and as individual fruit growers.
Here is a quote that sums up, in many ways the current situation in the apple market. It is from Bruce Axtman, of Willard-Bishop Consulting.
The food distribution system in the United States has undergone fundamental change. New rules are being written which apply to everyone. The era of simply selling what you grow is nearly gone. Success tomorrow will require growing exactly what the consumer wants.
Consumer Driven Market
I grew up on an apple orchard in central Washington. My dad did his very best to produce a product that the consumer would want to buy. But the concept that the consumer might suddenly change--that the consumer might want something else other than what he was producing--is a notion that I don't think he ever really worried about. He figured that since we grow the best Red and Golden Delicious apples in the world, someone would always want to buy them. This concept, of growing exactly what the consumer wants, is driving our market today.
The CEO of Proctor and Gamble was recently the subject of a front-page article in the Wall Street Journal. He made the following statement.
The average consumer takes 23 minutes to do her shopping from the moment she slams her car door at the supermarket to the moment she climbs back in with her purchases. In that time she buys an average of 18 items out of 30,000 to 40,000 choices. She has less time to browse - it's down 25% in 5 years. She isn't even checking prices. She wants the same product, the same price in the same row, week after week.
That's our consumer today. We have a tremendously competitive environment in which we are trying to profitably sell our apples. For example, last Sunday my wife brought home a precooked roast from Costco. It was factory precooked, so all that was needed to prepare this dish was to stick it in the microwave, zap it for seven minutes, and serve. It wasn't quite as good as the pot roast my Mom makes that takes three hours, but it was pretty close. For seven minutes, it was remarkably close. The back of the pot roast package read, "Microwave for seven minutes, cook instant potatoes, and a packaged salad, and you have a complete dinner in minutes."
Those preparation directions exemplify the wants and needs of the consumer that we are trying to sell to today. It's somebody who is very, very pressed for time and making instant decisions about what they want to buy. As the quote from the president of Proctor and Gamble pointed out, price is less and less important in that equation.
What will it take for growers and packers to prosper in the future? I think that we must recognize that there are new competitive rules. We now compete in a global market with incredibly tough competition. If we fail to satisfy the consumer, they will simply buy something else. But most importantly, the consumers we are trying to sell have different needs and expectations than they did 5 or 10 years ago.
For example, just because we can grow a Red Delicious apple that is 100% red, as opposed to 90% red, does not necessarily mean anything to the consumer. While we are congratulating ourselves on our superior packouts, we may look up and find that our consumers are gone.
The graveyard of product marketing in the United States is littered with companies that focused on their definition of "quality" but forgot about how the consumer defines quality. Moreover, there is a tendency to think that the consumer is a stationary target, that what they wanted yesterday and today will determine what they want tomorrow. But in reality, the consumer is always moving, changing, evolving, and evaluating how to spend limited dollars in a world of choices. Think about some big examples: Detroit and big cars, IBM and mainframe computers, Wang and word processors, These companies all got better and better, but in the process nearly went broke. Why? Because they forgot that you have to satisfy a consumer whose needs are constantly changing.
What's clear is that competition is growing on produce department shelves and consumers are able to be more selective than ever before. According to a study by the Produce Marketing Association, when a consumer goes into the grocery store in the produce department, there are over 500 items from which to choose. That is double from 10 years ago. Everything is top-quality.
The Packer newspaper reported that between November 1999 and January 2000, 40 million 5-lb cartons of Spanish Clementines were unloaded on the East Coast. This product hits in the heart of our marketing season and was unavailable just a few years ago. Why the rapid success? Because the orange practically peels itself and is absolutely delicious.
What that says is that if our apples aren't tasty and firm, the consumer, typically, is not going to complain. They're simply going to conclude the apples aren't good and say to themselves, "Next time I'm going to buy those clementines from Morocco or maybe those grapes from Chile." There are plenty of fruit choices for the consumer if we stumble.
The next challenge we face is that there are fewer customers for us to sell to due to tremendous retail consolidation. That means that the people we are selling to have tremendous leverage over our success or failure. Every buyer matters more. Steve Burd, CEO of Safeway, had this to say about retail consolidation in Supermarket News on September 20, 1999:
The top five industry players could have market share reaching about 50% in 2002. That compares with 19% in 1992, 24% in 1998, and 33% earlier this year.
If you make Safeway mad, as a producer, you've got a problem.
The more serious consequence is that big mergers typically mean big debt. Because the perishable departments of the grocery store generate the highest retail profits, this generally means there must be upward pressure on prices at the retail level. The bottom line is that large, consolidated retailers who are struggling with takeover debt, cannot lower their prices in response to our bumper crops and low free on boards (FOBs). Beef producers, pork producers, cheese producers, milk producers, and apple producers have all suffered through terrible markets this past year. At the same time, when consumers go into stores they see prices just about what they were a year ago (big surprise). When we lower our prices the retailer simply says, "Thanks for the raise." The harsh reality is the new Y2K supermarket organization simply doesn't feel the need to solve our production surpluses by reducing prices.
Growers often say to me (and the Apple Commission as a whole), "Get in there, grab those retail chains by the tail, shake 'em, and let them know who we are."
Well, let's look at just one of the top five supermarkets. Last year, Kroger did $43.1 billion in retail sales. The combined Northwest apple and pear industry generated about $1.5 billion in sales, spread out among over 100 companies and thousands of growers. My observation is Kroger is going to make decisions based on what makes profit for the corporation, not necessarily what makes sense for our growers or what our crop conditions may be in any particular year. That is just the reality of the situation.
In summary, we face powerful buyers, more competition, we have to have the best quality in the store, there will be lower-priced alternatives, and consumer tastes and expectations are changing. How can the industry respond and what should individual growers do?
Industry Strategies: Market Share and Information Management
There are two things we can work on collectively as an industry. The first is to build a bigger market. Second, we can use the information technology resources that are becoming available.
How do we build a bigger market? Fundamentally, we need to get consumers thinking about our products before they ever get to the store. We do a good job of controlling retail shelf space inside the retail store. But, we don't have consumers walking into the store thinking about buying fruits and vegetables. What are consumers thinking about buying? They are thinking about buying potato chips or Coke or Tide or Crest or many of the hundreds of products that are talking to consumers on a regular basis via advertising. As an industry, we must be engaged in that activity, giving consumers reasons why they should buy our apples.
A second industry strategy is to increase our market by boosting the number of kinds of places where we sell apples. We have to reach consumers in more places. We have to get out of the grocery store rut. The percentage of apples that are moved through grocery stores is huge over 90%! In a country where less than half the food dollars are spent in grocery stores, we still have virtually all of our eggs in the retail supermarket basket. As an industry we have to get out of that situation. Hopefully, with the new processes now available to cut apples and keep them from browning, we'll be able to jump into precut apple products. The precut market has exploded the business for broccoli florets, cut carrots, etc. Precut products are rapidly expanding the opportunities for producers both inside and outside of the grocery stores.
Besides increasing our market, the apple industry must work to merge information and technology to our benefit. All those stickers on apples and pears are capturing sales information at the check out stand. We can use that information and the retailers can use that information. What I would suggest is that we obtain that information and use it to our advantage in working with retailers. For example, national sales data from 26 different retail chains show that in the first quarter (September through November) of 1999, 10 different apple varieties were only contributing less than one-half of one percent of sales. Those varieties literally kill opportunities for our main varieties (Reds, Goldens, Grannys, Gala, Fuji, etc.) by taking up valuable shelf space and promotional play.
We have an opportunity to manage that information and space for the retailer. Retailers are simply too busy to do comparative analysis on all the apples they sell. All they know is what they are selling through their stores. They have no idea whether they are doing well or poorly relative to national and/or regional standards. Many retail chains are slashing jobs and trying to be more efficient. When they do that, their ability to analyze data often goes out the window. We have an opportunity to go in with their sales numbers in hand and show them where they are missing opportunities on Washington apples. That's exactly what we've been doing with our category management program.
I think that in the future you will see a detailed analysis for fruit and vegetable category in the produce department. But this analysis won't be prepared by the retail supermarket, as they have neither the time nor personnel to do it. The analysis will be completed the producers or producer groups, like the Apple Commission, Pear Bureau, or Fruit Commission.
Grower Responses to Changing Markets
How can growers respond to our current situation? Growers should focus on getting the right marketing organization, seize opportunities for choice, and aggressively work to improve customer satisfaction.
What is the right marketing organization? Executives in the retail supermarkets that are buying our products today want "one-stop shopping." They want to be able to buy apples, pears, and cherries at a single source. This doesn't mean small producers or small warehouses can't survive, but it suggests that smaller producers are going to have to form alliances in order to have enough mass to sell to these people. Successful marketers must have a consistent, hopefully year 'round supply of product.
Your warehouse must have strong marketing. My observation is that a great pack of fruit gets simply gets you "in the door." If you have a great pack of fruit, then you are one of the people that that retailer is willing to talk to. But this is where the competition and selling truly starts. The successful fruit marketers of the future will be the ones that deliver great analysis and service beyond the box of fruit. They will be able to go to Kroger or Safeway and walk in the door with a total marketing plan including suggestions for retail pricing, promotion, merchandising, and assortment. That's fundamentally different from how 95% of our warehouses operate today.
Growers must seize opportunities in choice and improve customer satisfaction. We know Reds and Goldens are going to decline as a share of the total business. Growth will be in new varieties. To be successful, a grower must be able to satisfy the emerging consumer demand for more flavors, more choices, but with consistent quality.
Every product must have "WOW." If you don't have "WOW," you won't be in the store very long. No matter what the variety or product, it has to be something the consumer will buy twice.
I'm optimistic about the future. There is strong worldwide demand for our products, and there is strong acceptance for our products. That is not going to change anytime soon. Apples are probably in more households nationwide than Coke. Consumers like and want to buy our products. That's good. As baby-boom consumers get older, they will be more health conscious. That will raise consumption of fruits. Finally, our apples generate huge profits for retailers, meaning retailers will continue to handle our products.
At the same time, we must all recognize that the business we are engaged in will be fundamentally different than it was for my father, who started growing apples in the 1950s. It is going to take a different mindset, going forward about how and what we will do to be successful.
Washington State Apple Commission
P.O. Box 18
Wenatchee, WA 98807-0018
16th Annual Postharvest Conference, Yakima, WA
March 14-15, 2000