Significant Changes in U.S. Markets

Significant Changes in U.S. Markets
A number of different speakers at the US Apple Association Apple Crop Outlook and Marketing Conference in Chicago in late August 2008 agreed that major, significant changes are under way in the U.S. food market. Some of these changes are the result of the current economic slowdown, but many are intertwined with more fundamental changes in the attitudes, perceptions and behavior of U.S. consumers.

High Interest in Apple Category
Steve Lutz of the Perishables Group stressed that interest in the apple category remained high with both retailers and consumers. However, unlike vegetable purchases that are usually preplanned, fruit purchases are largely impulse purchases. With consumer budgets under pressure and a stunning array of choices available, consumers are shifting more to value purchases.

The frequency of shopping trips is dropping, especially the number of major shopping trips. The range of retail formats carrying food is becoming wider. Formats from dollar stores to upscale stores are taking market share away from conventional supermarkets.

Younger consumers have low food knowledge and are bored and confused by food shopping. They are more focused on organics, but have the least ability to define organics.

Key Drivers of Apple Purchases
In apple buying, said Lutz, the key consumer drivers are still appearance, variety, price, organic and usage. Consumers are willing to pay a wide range of prices for different apple varieties. However, added apple varieties have tended to cannibalize existing apple varieties. Many apple SKUs have a very limited market share.

Sales per square foot for apples tend to be low relative to those of competing fruits such as grapes, berries, bananas and soft fruit. As retailers becoming better able to measure sales performance and more inclined to use quantitative measures in making shelf allocation decisions, apples are vulnerable to loss of shelf space to competing fruits.

Lutz argued that apple marketers need to help consumers simplify selection and speed shopping. They need to offer new choices, such as multi-fruit packs. They need to better understand the increasingly complex relationship between price and value. Attracting new customers to the apple category will be crucial. In particular, marketers need to do a better job of matching new varieties to the customer segments with the most favorable demographics for each variety.

Coping with Economic Slowdown
Des O'Rourke of Belrose, Inc., publishers of the World Apple Report, examined the main features of the current economic slowdown, including shifts that have already taken place among consumers and retailers, the lessons of past economic slowdowns, and potential coping strategies for the apple industry.

The current slowdown has many similarities with the five previous slowdowns since 1970 with slowing growth of GDP, rising unemployment and tightening credit. However, this slowdown has been exacerbated by the mortgage meltdown, falling real house prices, and shocks to the financial system. The dramatic increase in oil prices, and rising prices for other necessities such as food, health care and utilities, have drained consumers' discretionary income.

Consumers' transportation patterns and shopping habits have changed significantly. Many state and local taxing districts have been hit. Lower income groups have been hit particularly hard. Consumers have cut back on eating out, increased their purchase of private label and other value packs and switched more of their food shopping to discount outlets.

Lessons from History
In the last comparable recessionary period, in the early-1980s, while the volume of apples and other fresh fruits consumed held up, prices at the grower level took a beating. However, they did eventually recover. If the present slowdown follows the 1980-82 pattern, the economy should bounce back to normal growth by 2011.

Since the 1980s, consumers have become much more complex and discriminating. The apple industry is more affected by international forces. Food retailing is now dominated by supercenters and club stores that have close alliances with produce suppliers. As a result, the outcome for the apple industry will differ somewhat from the experience of the 1980s.

Marketers will Need to Make Adjustments
The more prolonged the recession, the greater will be the changes among consumers and retailers and the need for apple marketers to adapt their strategies. Consumers are likely to shop less often, try to make each shopping trip more effective, more often prepare shopping lists, seek out coupons, deals and price specials, and be less eager to buy for social or environmental reasons.

Retailers will be less willing to stock slow-moving items, will use coupons, loyalty cards and other devices to give their customers a price break and ask their suppliers to share the burden of such price breaks.

For apple producers and marketers, now is the time to weed out weak varieties and SKUs and to step up promotion of strong SKUs. It will be vital to get apples on consumers' menus and shopping lists before they go shopping, and to increase merchandising efforts in store to give consumers a reason to choose apples for their impulse purchases.

Suppliers will need to be adaptable to both a brief recession that requires only modest changes in apple marketing or a longer, more severe downturn that brings major lifestyle, shopping and business changes.

Growing Number of Have-Nots
Dr John Stanton, Professor of Marketing at St Joseph's University in Philadelphia also focused on the changing consumer food landscape. To him, the three main drivers of food choice continued to be convenience, taste and health, but other factors are beginning to take center stage.

Among the most influential demographic changes is the changing income gap between rich and poor. Thirty-four percent now think they belong to the "have-nots", twice the percentage that thought so twenty years ago. Eighty million American baby boomers will retire (and face lower incomes) in the next 22 years. Student high-school drop-out rates are zooming. Drop-outs average annual incomes 32 percent lower than those of high-school graduates.

Lower income consumers have less options. Because of rising energy prices, they are changing their travel behavior, buying less groceries, eating less at restaurants, reducing shopping trips, and generally trading down.

Link between Food Safety and Buying Local
Stanton argued that food safety has become number one in consumers' minds. Local foods have benefited because they are seen to have an advantage in taste and safety. Many retailers are jumping on the "Buy Local" trend.

At the same time, the links between "organic" products and food safety has weakened. The trend towards organic foods is waning. Only one percent of food sales and six percent of produce sales are organic. Healthy eating gets more media attention than it deserves. Very few consumers practice what they preach or successfully follow healthy diets.

Stanton saw considerable opportunity in the trend towards local foods. However, he believed that the apple industry would need much more effort and ingenuity to tap into that opportunity.

Sustainability Driven by Fear of Risk
The final marketing speaker was Linda Cox, senior account executive with the Hartman Group, one of the leading analysts and interpreters of the effects of social and environmental movements on consumption. The Hartman group has chronicled the evolution of the organic, sustainable and other lifestyle movements for many years. Consumers, she argued, are willing to "buy green", but in selective categories such as food and beverages, home and garden products, pet care products, etc.

Almost all of the push for sustainability is driven by fear of risk. She cited fears that have emerged about the risks of tap water, sun exposure, germs, chemicals, cancer, and many other common phenomena. Organic food consumption is seen as mitigating risk because it does not contain pesticides, antibiotics, additives and other harmful elements.

Differing Levels of Commitments to Sustainability
Consumers continue to differ widely in their concern for organic or sustainable products. The core sustainable consumers make up about 11% of all consumers. They live and breathe their passion for sustainable products and sustainable lifestyles. They see their buying decisions as more important in changing the world than their votes.

About 67% of consumers have changed their behavior and purchasing habits somewhat in response to sustainable concerns. They may recycle, turn off the tap when they brush their teeth, occasionally buy organic products, etc. These, she classified as "mid-level sustainable."

A further 25% of consumers occupy what Ms Cox termed the "Periphery". They are generally more concerned about price and convenience in purchasing and have little social or environmental awareness. The final 7%, the Uninvolved, don't want to know about such issues.

Triggers for a Sustainable Lifestyle
Three of the most common triggers that move consumers into the core group are major life changing events such as bringing home a new baby, dealing with a new health condition or coming under the sway of an influential friend.

However, Ms Cox believed that Mid-level sustainable consumers offered the best opportunity for the apple industry. They respond to improved knowledge and experience of sustainable products. They tend to be more pragmatic, being willing to make trade-offs between price and convenience and sustainability. They expect government and companies to be more responsible than individuals. "If you show them that your company is socially and environmentally responsible, they will respond favorably."

However, she warned against using the word sustainability. Rather companies need to talk positively about their actions and use favorable words like local, artisanal, fresh or unpackaged.

Changed Consumer Not Easily Persuaded
All the speakers agreed that consumers are being impacted by both long-term societal issues and by the current economic environment. Consumers are responding to a complex and changing hierarchy of concerns.

Persuading today's consumers that your products meet their varying needs will require both that your firm change many of its past modes of operation and that it convey the message of change very subtly to consumers.

First published in the World Apple Report, October 2008, Volume 15, No. 10, page 5.

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