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Retail View: Value-added, organics drive California retail produce growth

Fueled by significant gains in both value-added products and organic fruits and vegetables, California produce sales rose to more than $7.3 billion in sales in 2017.IMG 0065

While bulk items and conventional produce still deliver more revenue, over the last four years fixed weight packages and organic produce have accounted for the lion’s share of growth. Those are two big takeaways from an analysis of the past five years of the Fresh Produce & Floral Council Market Report prepared by Fusion Marketing.

More than a half-dozen years ago, the FPFC began contracting with the Chatsworth, CA-based marketing and sales solutions firm, which specializes in the fresh produce industry. Each quarter, Fusion uses scan data to analyze retail produce department sales in four of California’s top markets as well as the state as a whole. The markets analyzed are San Francisco, Sacramento, Los Angeles and San Diego. The FPFC offers this data as a member benefit with the main goal of helping its members — whether they be retailers or suppliers — gauge their own sales against the industry at large within their main region.

During a recent webinar comparing California retail produce sales data from the end of 2013 through 2017, Fusion President Steven Muro said it is that comparison that allows a company to more accurately assess its own performance. He noted that a Los Angeles-based retailer might think they did well in 2017 with a 3 percent increase in sales. However, Los Angeles had a retail produce growth rate of 4 percent in 2017, so a retailer below that under-indexed.

The numbers presented by Fusion showed that California retail produce sales totaled $6.1 billion in 2013. The 2017 number of $7.3 billion represents a 19 percent growth in that four-year period.

Where did that growth come from? It largely came from increased sales prices of the product sold as price per pound increased 16 percent. Yet that only tells part of the story. The per unit price increased because consumers bought more organic produce and more value-added items — two categories that almost always have a higher retail ring than their conventional or bulk item counterparts.

During those four years, the organic produce share of produce department sales rose from 7 to 11 percent. So, while conventional produce still accounted for 89 percent of sales in 2017, those sales accrued at an average price per pound of $1.55. The 11 percent of organic produce sales came in at an average of $2.91 per pound. Consequently, “organic produce contributed 27 percent of the dollar growth, despite contributing just 11 percent of overall category dollars,” according to the report.

There has been a decrease in the price differential though between organic and conventional produce over the last four years. In fact, average per pound price of organics actually dropped five cents in 2017 to $2.91, while the conventional price per pound rose to $1.55, a 20 cent per pound increase in the last four years.

In 2017, the numbers show that of the $1.2 billion in produce sales growth from 2013, conventional produce accounted for $846 million while organic produce accounted for $315 million in growth.

A similar correlation can be made when analyzing fixed vs. random weight dollar share of total produce sales from 2013 to 2017.

Comparing 2017 with 2013, fixed weight sales are up 30 percent and account for 44 percent of produce department sales. That represents a 4 percent increase in market share. During that same time period random weight produce contributed a majority of sales at 56 percent of category sales, but 2017 sales were only 12 percent greater than 2013. Fixed weight produce contributed 64 percent of total dollar gains while random weight items contributed only 36 percent of the growth compared to 56 percent of sales.

On a per unit basis, fixed weight items sell for an average of $2.28 per pound at California retail operations while random weight items check in at $1.33 per pound.

Muro said if you are trying to drive produce department sales, it might be a good time to add more fixed weight items to the mix as that gap continues to grow. In 2013, fixed weight items averaged $1.97 per pound, which was 79 cents more per pound than random weight products. By 2017, the gap had grown to 95 cents per pound as the retail price of fixed weight items were up 15 percent while random weight items were only up 13 percent.

FPFC President Carissa Mace said that while the data has been collected since 2011, the webinars are relatively new. “The goal is to give the members some ideas as to how to use the data and make sense of it,” she said.