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RETAIL VIEW: Fresh & Easy finding success with value pricing

Borrowing the line once used by a famous Arkansas resident, former Arkansas retailer Bruce Peterson said, "It's the economy, stupid!" when asked to comment on the recent trend of value pricing that is proliferating in retail produce departments these days.

Mr. Peterson, who currently is on the board of directors of Naturipe Farms, launched Walmart's fresh produce division and ran that operation for the better part of two decades. He said that value pricing is not new, but it is a trend.

"All retailers are trying to find a way to enhance their price image, given the current economic environment," he said. "That's in stark contrast to a short time ago when 'image' was the big deal."

Open any daily newspaper to its food page retail ads and the number of produce items featuring a price of $1 or less has increased exponentially in recent months. In just the past several issues of The Produce News, many shippers have discussed the value options they are offering retailers.

Nick Conforti of C&C Produce Inc. in Kansas City, MO, said that he was working with his retail clients to offer value-added packages at a very low price. He told this reporter that the concept was to have a special table at retail featuring a handful of items consumer-priced at $1.

Bill Vogel of Tavilla Sales Co. of Los Angeles recently explained a spike in mango sales by stating that the price to retailers had dropped to the point where they could feature the tropical fruit at two for 79 cents or three for $1. He said that retailers are looking for value-priced items to promote.

One chain making a splash with the concept is Fresh & Easy, the British- owned operation that entered the U.S. market in late 2007 with its first store openings. It now operates 115 stores in Southern California, Nevada and Arizona.

This past January, the chain launched a promotion that features six different items every week priced at 98 cents each. For example, in mid-March, the value-priced items being promoted were a head of Iceberg lettuce, three apples, a one-pound bag of red seedless grapes, one large mango, two pounds of yellow onions and one pound of tomatoes.

"It has been a fantastic addition to our stores," Fresh & Easy spokesperson Brendan Wonnacott told The Produce News March 10. "We've had more than an 11 percent increase in produce sales [measured in dollars] since we launched this promotion. We've had a fantastic reception from our customers."

Mr. Wonnacott said that Fresh & Easy has listened to its customers, "and they tell us they want more budget items. They are trying to stretch their food dollars as far as they can."

Fresh & Easy, which is owned by British retail giant Tesco, did a tremendous amount of research before launching its unique stores in the United States in 2007. The company opened a prototype store in Southern California and observed consumers for more than a year before launching its Fresh & Easy banner, which refers to the many ready-made items available in the 10,000- square-foot stores. Freshness and convenience were expected to be the signature attributes of the products for sale. However, the concept was launched before the economy flipped, and the chain is now re-evaluating its offerings.

Mr. Wonnacott said that the retailer's customers are "much more price- conscious" than they were just a year ago. The firm also has revamped the promotional flyer that it sends to consumers, going from a biweekly to a weekly, and it now includes more budget items.

Mr. Wonnacott admitted that the economy has taken its toll and the company has slowed the pace at which it is opening stores. However, he said that dozens of new stores would still be opened in 2009, with the Northern California market currently in preparation for its first stores later in the year. While Fresh & Easy has apparently experienced a great deal of success with its value pricing, longtime retailer-turned-consultant Bob DiPiazza said that a retailer has to tread lightly when it moves in that direction.

Not speaking specifically about Fresh & Easy but rather about the low-price trend in general, the former Sam's Club produce executive said, "You have to make sure your low prices don't become a self-fulfilling prophecy. There is room for 98-cent specials, but you have to have a balance."

Mr. DiPiazza said that a retailer should guard against having too many low- priced items and neglecting the higher-ring items. "Don't make all the choices for the consumer. Let the customer decide."

Mr. DiPiazza, who operates DiPiazza Consulting Services Inc. in St. Charles, IL, worries that when a retailer pushes the low prices to the exclusion of higher-priced items, the result is a lower average for each transaction, which is not the route to profitability.

"In this economy, retailers have to drive any unnecessary cost out of the system, strive for efficiency and pass those cost-savings to the consumer," he said.

And he reiterated, "The key to pricing is balance. Too many low-priced items upset that balance."

With its value-pricing being credited with an overall 11 percent increase in produce sales, Fresh & Easy appears to have found the right balance.