Produce Category Memo: FMI Annual Survey Shows U.S. Consumers Prefer 'Locally-Grown' Produce Over Organic; Bulk Over Store-Packaged

The just released annual Food Marketing Institute (FMI)-Prevention magazine "shopping For Health 2008" consumer survey offers some significant shopper data in the fresh produce category.

This year, for the first time in the annual survey's history, consumers chose locally-grown produce over organic in terms of shopping preference.

When the cost is the same, 50% of the 2,700 adult consumers surveyed by research firm Harris Interactive for FMI and Prevention, say they would choose locally-grown fresh produce over organic, which only 28% of the respondents sited as their preference compared to local fruits and vegetables.

The 2,700 consumers surveyed also said they prefer bulk produce over store-packaged. A mere 9% of the U.S. shoppers polled said they would choose store-packaged produce over bulk, particularly if the bulk produce is locally-grown.

The only exception to that rule is fresh strawberries. If and when packaged strawberries are cheaper in-store than locally grown or organic berries, 45% of the survey respondents say they would buy the packaged variety. However, 34% would purchase locally grown and 22% would choose organic strawberries even if both varieties are more expensive than the packaged ones.

This finding is a bit of an anomaly however. First, most supermarkets and food stores in the U.S. sell strawberries in plastic tubs, thus meaning the majority of fresh strawberries, whether locally-grown, conventional or organic come packaged.

Second, the fresh strawberry season in the U.S. last for only about 4-5 months. The rest of the year the berries come from places like Mexico or Central America. These imported strawberries are almost always pre-packaged, so it makes the finding a bit of a moot point.

Additionally, since for at least half or more of the year, locally-grown strawberries aren't available to U.S. consumers--and in some part of the country local strawberries don't even exist-our analysis is that retailers shouldn't pay a lot of attention to this finding, although we do think it's illustrative of the overwhelming preference American consumers have for buying bulk produce over store-packaged produce.

The fact 50% of the 2,700 U.S. consumers surveyed choose locally-grown produce over organic (28%) is big news however. And, the annual FMI-Prevention survey is widely respected, therefore it should hold some weight in the industry.

Among the reasons consumers sited in the survey for choosing locally-grown produce over organic include:

• Organic is too expensive. A whopping 70% of the 2,700 shoppers surveyed say this is the case.
• There's no difference between locally-grown and organic to justify the higher cost. A solid 39% of consumers polled say this is the case.
• A surprising 33% of the 2,700 shoppers surveyed say they are concerned about the safety of organic produce.

This last finding is something the organic produce industry and food retailers need to pay close attention to. One of the historically key selling propositions of organic produce has been that's its safer and better for consumers because it's grown without the use of pesticides, fungicides, herbicides and synthetic fertilizer.

If 33% of the consumers surveyed are concerned about the safety of organics, yet 50% prefer locally-grown, which means local produce that's conventionally-grown, that essentially means one of the key points of differentiation regarding organic produce is being eroded in the consumers mind and shopping behavior.

Another survey finding the organic produce industry and food retailers who sell lots of organic produce should pay very close attention to is the overwhelming number of consumers in the survey who say organics are just priced too high.

One of the goals of the organics industry has been to try to get a wider spectrum of consumers in the U.S. to buy organic produce and foods, rather than catering to a consumer elite. However, this price perception, which is reflected in numerous other surveys, could prove to not only be a barrier of entry to this goal, but also could contribute to an erosion of organic produce consumers who already buy organic over conventional.

This is serious data. It's especially serious because of the current food inflation climate in the U.S., and elsewhere in the world. The costs of conventionally-grown foods is soaring across the board, and organic produce and other food products are increasing even higher.

The organic industry and major organic produce retailers like Whole Foods Market and others need to find a way to hold the line on the retail price increases of organic produce. If not, we believe there will be an eventual erosion in category sales. This will be the case not just because more an more consumers are opting for locally-grown over organic, but because the costs of organic produce becomes prohibitive for all but high income consumers.

Healthy eating

Regarding whether or not American consumers are or plan to eat healthier foods, the results form the survey offer a bit of a mixed bag.

Below are the key finding from the 2,700 shoppers surveyed regarding their healthy eating habits and plans:

The 'swap-out' factor

Although consumers admit to not always choosing the most diet-friendly option when it comes to unhealthy indulgences in product categories such as ice cream, cookies and salad dressing, many are amenable to healthier choices. The swaps that consumers say they would make:

• Healthier alternatives in the same product category, for example, those with less fat or fewer calories. Consumers reported they would purchase healthier salad dressings (41%), potato chips (36%) and ice cream (27%).

• 100-calorie packs of cookies--23% said they would purchase this over any other alternative-- but 20% of cookie-eaters would not change their habits at all.

• Drink less soda--29% of consumers choose this alternative — but 28% would not change their consumption.

How those who eat healthy succeed

Regarding how healthy eaters succeed in achieving that goal, the FMI-Prevention survey found the following key details:

• Successful eaters say their grocery decisions are driven strongly by goals to manage weight (52%). They are also more likely than average to shop in order to avoid future medical conditions or manage a current condition.

• They develop a plan and stick to it, starting with using a list when they shop--done by 65% of healthy eaters, compared with 42% of all consumers.

• Their plans include eating more fruits and vegetables (87% vs. 63% of all shoppers), limiting foods with trans fats (79% vs. 63%) and reducing portion sizes (79% vs. 47%).

• 83% eat dinner at home five to seven times per week, giving them better control over healthy ingredients, compared with 66% of total shoppers.

Who are these healthy eaters? They mirror the average shopper--that is, six in 10 are women, slightly more than half are married and about one in five is black or Hispanic.

“This survey shows that anyone can eat healthfully,” said Cathy Polley, R.Ph., FMI vice president of pharmacy services. “All they need is determination and direction, which food retailers can provide with nutrition information, in-store dietitians and clinics, often coordinated with supermarket pharmacies.”

This data, especially the finding that 83% of "healthy eaters" shop at grocery stores and eat at home far more than consumers in general do (66%) offers good news to the natural and healthy foods industry, along with retailers that offer lots of natural and healthy products in their stores.

The additional finding that over 20% more "healthy eaters" buy and eat more fruits and vegetables than consumers as a whole, also offers important merchandising insight to the fresh produce industry as well as to food retailers. Targeting this population segment with healthy fresh produce messages will pay big dividends.

Consumers and diet restriction

Another interesting set of finding from the survey of 2,700 U.S. adult consumers is how many of those surveyed are currently on calorie-restricted diets. Below is a snapshot of that data:

• More than one in three shoppers (38%) said they had started a diet in 2007.

• Two-thirds (66%) of these shoppers were still on a diet by November 2007.

• More than half of dieters (57%) said they are on no specific diet regimen; they are merely watching their calories.

The most significant finding here in our analysis is that 57% of those 38% who said they started a diet in 2007 have no specific diet regimen. In other words, they aren't on a specific diet like Atkins or Weight Watchers.

For the natural and healthy foods industry this offers a great opportunity to market healthy products to consumers on diets, which is good for the industry as well as for consumers, since regimented or formula diets seldom have a long lasting positive result.

This finding also offers the fresh produce industry further opportunity to market fresh fruits and vegetables to dieters, since the categories offer perhaps the healthiest diet options available.

Conclusion

The results of the annual FMI-Prevention "Shopping For Health 2008" consumer survey are good news for the fresh produce and natural and healthy foods industries. An overwhelming number of the 2,700 U.S. consumers surveyed indicate they buy, and plan on continuing to buy, lots of fresh produce, be it conventionally-produced, locally-grown or organic--or a combination of all three.

The fresh produce category data offers even further good news and opportunity for those people and groups promoting local foods initiatives, as well as for small, local farmers, food producers and marketers.

The data also offers important information to food retailers who either already are or are considering offering locally-grown produce in their stores. The response: do it if you aren't already doing so. And, if you are already doing some local produce merchandise and marketing, do more of it.

The survey results suggest locally-grown produce is in many ways the new organic. This doesn't mean organic produce is going to go away any tome soon. Not at all. Rather, it means-- along with other data we've seen as well as demonstrable sales of local produce--that locally-grown is right up there with organic as a key marketing and merchandising niche at retail.

The local foods consumer movement has been gaining steady steam for about the last five years in the U.S. In just the last two years or so, it's taken on a full head of steam. We see that head of steam--and the local foods movement--getting only bigger and more powerful.

The fresh produce category offers huge opportunities in the local foods realm. American consumers perceive locally-grown to be far fresher than any other type of produce.

In survey after survey, fresh is the key variable shoppers site when it comes to produce preferences. Since locally-grown fits this "freshness" preference the most currently, the ability to offer fresh, locally-grown produce at reasonable prices is an offering supermarket retailers can make bank with in our analysis.

Monday Morning Java

New Study Suggests Consumer Dissatisfaction With Primary Grocers: Analysis and Ways to Move Forward for Food Retailers

A new survey conducted for information industry giant IBM suggests consumers have widespread dissatisfaction with their primary grocers.

The survey, conducted for IBM by the market research firm Zoomerang, found a whopping 73% of the 6,000 U.S. consumers surveyed feel either antagonistic towards or have no loyalty to their local supermarket. The study also found that this dissatisfaction is creating legions of disloyal customers sharing their negative experiences and shopping around for a better alternative to their local supermarket.

This sharing of negative experiences by consumers is made all the easier today with the internet and the numerous websites available where shoppers can post reviews of supermarkets, restaurants and other retail businesses.

According to the study's results, this widespread dissatisfaction is directly impacting the shopping choices consumers make. Only a scant 27% of grocery shoppers are acting as "advocates" for a particular retail food store. "Advocates" are loyal customers who recommend their grocer to others, by more from their food retailer, and stay with their primary grocer instead of going to the competition.

The study, and IBM's analysis, says these "advocates" place a high quality on quality, selection, store employees, product availability, and the emerging category of social responsibility and ethical retailing.

In the study, the researchers identified nearly half (46%) of the respondents as "antagonists." These are customers who have a poor attitude towards their grocer and may be actively causing damage to the food retailers business reputation through their vocal displeasure. These "antagonists" place a high value on the same attributes "advocates" do but feel their primary grocer falls short in delivering on them, according to IBM's analysis of the survey data.
Fred Balboni, IBM's global retail industry leader for its Global Business Services division, says "loyalty card efforts across the U.S. grocery industry have fallen short of their goals as grocers sacrifice customer experience to focus on lower prices."

"Building differentiation with today's savvy and vocal consumer requires a whole new approach for businesses," Balboni says. "Grocers that emphasize using deep customer insights throughout their business operations, applying them in a personalized and tailored way, will build strong advocates and loyal customers."

We aren't sure we can agree with Mr. Balboni's first quote above. Why? At least 30% or more of U.S food retailers today (upscale grocers, supernatural food retailers and others) have positioned their business to focus on customer experience rather than price. Safeway Stores with its Lifestyle format stores, Kroger and Supervalu with their upscale banners, Wegmans, Publix, Raley's Superstores--the list of food retailers positioning on customer experience attributes over price goes on and on.

Therefore, if Mr. Balboni is right, then that means these grocers are in the main doing it all wrong. Rather, we think he may be correct in regards to the majority of food retailers who still put price positioning over customer experience. That segment is decreasing though. And even highly differentiated, lifestyle-oriented retailers have to focus to a certain extend on price if they are going to be more than small, niche retailers.

Regarding Mr. Balboni's second point--that differentiating retail operations and using deep customer insights and applying them in a personalized and tailored way is important for grocers to do with today's consumer--we agree with it as a general proposition. But it's only a part of the equation. After all, that's just what loyalty card programs were supposed to help do. And if Mr. Balboni is right they aren't working for grocers, then it essentially supports the argument that more is needed to create loyal customers who will be advocates for a food retailer.

To achieve this we believe grocers need a clear positioning strategy. Food retailers need to know who they are (or find out) and what their target market is. If price is key, create the customer experience around low prices. Food retailers like WinCo in the Western U.S., German-based limited-assortment grocer Aldi (its U.S stores), Supervalu's Save-A-Lot banner, Food Maxx (owned by Save Mart Supermarkets) in California and others all do extremely well--and have loyal customers--by clearly positioning their stores as price-oriented. In other words, evidence suggests it's not the sacrificing of customer experience to the grocery sales god of price that's the problem in the main. Rather, it's a lack of a clear positioning statement and mission for the grocer.

The study, Why Advocacy Matters to Grocers, recommends grocers place a greater emphasis on understanding and catering to their most loyal customers. We agree with this suggestion completely. We recall our Grocery 101: Primary customers are key, give them the most focus and attention. Secondary customers are good, but "your" main job is to convert them into primary customers. Teriary customers are welcomed. Take their money but don't spend too much time on them unless you think you can convert them to primary shoppers.

The study also looks at the difference between specialty stores, like Whole Foods, Trader Joe's and others, and supermarket retailers. According to IBM's analysis, specialty-oriented stores focus more on customer service, product selection and quality, which gives them an edge over other grocers. The survey found 46% of customers who shop at these type of stores act as "advocates," compared to the 27% for supermarkets. "Specialty stores fine-tune their operations to the specific needs of the community, offer local assortments and are better equipped to develop truly personal relationships," says Mr. Balboni.

We generally agree with this point. However it's important to add that numerous non-specialty stores do the same. These are basic grocers, rather than upscale or specialty ones, who focus on their regions, communities and neighborhoods. Examples include Stater Bros. in Southern California, Save Mart in Central and Northern California, WinCo in the Idaho-Montana region and numerous others.

None of these food retailers are specialty-oriented, but they all have one thing in common: they're known as the "local guy" and generally loved by shoppers and the communities they do business in. These type of community retailers obtained this distinction by supporting their regions and communities in every way--and doing so sincerely. It's not so much about being a specialty retailer we believe but rather having a clear positioning point and executing it. In terms of creating "advocates," one can never underestimate the importance for grocers--national or regional, conventional or specialty--of becoming part of the communities their stores are located in.

You can read a summary of the study written by its authors and obtain a copy of the complete study here.

Sidebar: Related Research, Ways Grocers Can Move Forward

As we discussed above, the first step to building customer loyalty is for food retailers to know who they are, who they want to target, and what those targeted consumers are looking for. Once that knowledge is gleaned, the grocer then needs to position its stores in a way that serves this target market--and creates loyalty. Once a solid positioning strategy is in place, the grocer can then begin to create "advocates," as the IBM study so importantly points out. Below is an FMI study that, like the IBM survey, shows the challenging consumer landscape grocers currently face. However, as the two examples of two very different grocers--Whole Foods and WinCo--demonstrate below, it's a landscape that can be navigated with success.

FMI Research:The End of One-Stop Grocery Shopping

The Food Marketing Institute (FMI), the national trade association for U.S. grocers, has surveyed consumer food shopping habits and behaviors since 1974. This year, FMI found strong evidence for the first time in its 33 years of conducting the study, that food shoppers have abandoned one-stop supermarket shopping. In other words, consumers are shopping multiple stores for multiple reasons. This article in the Hartford Courant (11-04-07) newspaper reviews the results of this year's FMI Consumer Shopping Habits study and discusses what might be going on with food shoppers, including their reasons for shopping multiple retailers for food and grocery products.

Combined with the results from the IBM study, FMI's survey results add emphasis to the fact that retailers need to create clear, strong positioning statements and implement them using consumer insight information in order to differentiate their retail operations and create what the IBM study calls "advocates."

Whole Foods: Clear Differentiation and Retail Positioning

Whole Foods Market, Inc. has become a success for many reasons. These reasons include its appeal to shoppers who desire healthy, all natural foods and products, its successful prepared foods program and the warmth and excitement shoppers feel when in the grocer's stores. These offerings are only the execution though of a very well researched, formulated and developed marketing position program, which the retailer has turned into a mission statement. This positioning then was made the centerpiece of the grocer's corporate culture and is the primary ingredient of everything Whole Foods executes at retail.

Brandchannel.com, an online marketing publication, has a well-written piece today on Whole Foods' corporate and retail positioning and how it guides everything the grocer does and executes. The piece also talks about how this positioning has allowed Whole Foods to develop a strong customer base (what the IBM study refers to as advocates) of primary shoppers. In fact, Whole Foods is such a differentiated grocer, like Trader Joe's and a few others, that residents in communities where there isn't a Whole Foods store nearby often launch campaigns to get the supernatural grocer to locate a store in their city or neighborhood.

WinCo: Low-Price Grocer Builds Loyalty With Clear Positioning

Idaho-based Winco, an employee-owned food retailer with stores in the Western U.S., including the Pacific Northwest and California, is an example of a grocer who builds strong customer loyalty without appealing to everybody, and does so based on low prices and the basics of grocery retailing. WinCo currently has 62 stores and does $3 billion annually in sales. (note: many grocers with twice the number of stores don't do $3 billion annually.)

This article in today's Idaho Times-News gives an overview of WinCo and discusses how the grocer is winning loyalty from the segment of shoppers it is targeting.