Apples can provide retailers with substantial sales, as long as they navigate the growing category properly.
By Steve Lutz
With the influx of new varieties stimulating consumer trial, apples have been among the most dynamic categories in produce. According to Nielsen Perishables Group data, apples were the fastest growing top 25 category in the produce department last season with total dollars jumping nearly 15%. With a larger crop and declining prices, some of that growth will reverse in 2014. Nonetheless, apples are now the No. 2 fruit category in the produce department falling behind only berries in total dollars.
Perhaps less noticeable, with the influx of new varieties, apples have become one of the most difficult to manage categories in the produce department. With the exception of the value-added categories like packaged salads and cut fruit no major produce category has greater complexity than apples. The average produce department today carries, on average, 30 unique apple SKU’s per store per week. Compare that to berries (10), tomatoes (14), lettuce (13) and peppers (16). Only the citrus category comes close with 21 unique SKU’s per store per week.
This surge of variety is presenting new opportunities for retailers to drive overall fruit sales by increasing apple category performance. At the same time, this new complexity also presents incremental challenges in managing assortment, optimizing shelf space and limiting shrink. When done well, double-digit sales growth is the result. When done poorly, profitability is diluted across a confusing array of apple varieties with no increase purchase rates, flat transaction sizes by consumer and increasing shrink for retailers. Not a good combination.
At CMI we recently collaborated on a national retail study analyzing assortment, variety and consumer purchase trends in the apple category. Grocery chains were ranked from top to bottom based on apple category sales per million dollars of total store sales. A detailed analysis was then developed for the top 10 and bottom 10 retail organizations to identify key performance variables and opportunities.
Differences between top and bottom performing retailers were stark. Top performing chains drive more than double the dollars of the bottom ranked chains. In addition, a few key practices stood out:
1. Success starts with bulk (versus bagged) mainline varieties—a strong sales foundation of larger Gala, Red Delicious, Granny Smith, Fuji and Honeycrisp was a common characteristic of top retailers. Top retailers set their stores for success by ensuring that these core varieties are well represented in terms of total space allocation, position in flow and a significant share of promotional support.
2. The right varietal mix is critical to accelerating apple category performance. Retailers should carefully look at how they use merchandising, assortment and pricing to entice consumer trade-ups from lower-priced to higher-priced varietal apples. In the high performing retailers, SKU count was more than 35 in seven of the top ten chains. For the bottom 10 chains the entire group fell below the national average (30) in weekly SKU count. The lowest performing chain only had 15 SKU’s. However, it is more about hitting the right varietals. This focus is critical because pricing on niche apple (KIKU, Ambrosia, etc.) is higher than traditional mainline and regional varieties. As a result, varietal switching generates strong increases in transaction size and ultimately category performance.
3. Consumers buy one apple variety per trip; it can either be a low ring or a high ring. A detailed basket analysis spanning two years shows that consumers are actively shopping the category and are very willing to follow retail price cues. As a result, retail practices that focus consumer attention on lower-end “value” products effectively incentivize shoppers to trade down, lowering category performance. The most successful retailers were very focused on strategies (merchandising, position in flow, space allocation) to move consumers the opposite direction, shifting purchases from low-priced value items to higher-priced apples.
The apple category is hot, but not for all retail chains. Some chains are succeeding beyond expectation while others are actually seeing declining sales. With more category complexity the reward is high for getting the category right. Conversely, the penalties for getting it wrong are painful.
Steve Lutz is vice president of marketing for CMI, a grower and packer of premium apples, pears and cherries in Washington State. For full study details, he can be reached at email@example.com.