By any objective measure, fresh-cut fruit sales at retail have to be considered disappointing.
About five years ago, when packaged salad sales were still doubling every year, conventional wisdom within the fresh-cut industry was "you ain't seen nothing yet." The industry was certain that fresh-cut fruit would surpass fresh-cut vegetables in popularity. The reasoning seemed sound. Most of the top ten items in sales in the produce department are in the fruit category. If packaged salads, broccoli, cole slaw and baby carrots could catch the fancy of
the American public, marketers were drooling over the potential for sliced apples, cubed melons and fresh-cut citrus. Over the last two years, fresh-cut fruit has made some inroads, but its progression has been much slower than expected.
"I think the challenges were underestimated by the industry," said Edith Garrett, president of the International Fresh-Cut Produce Association. "Companies thought they were go ing to be able to apply the same technology and the same packaging (that worked with packaged salads) to fruit, but that wasn't the case."
Consequently, Garrett said the industry had to develop a whole new line of equipment to peel cantaloupes, for example, and a whole new line of packaging. "That took time," she added.
In the last two years, Garrett has noted substantial growth in sales but she said it has been diffficult to quantify because fresh-cut fruit production is still being done primarily regionally or at store level. There has been very little branding of the product which can be tracked nationally so that sales can be graphed.
However, some formidable firms are involved in the business now and Garrett believes sales are primed to take-off. Del Monte has made a major commitment to a national fresh-cut program, and has established a network of regional operations to accomplish this task. Ready Pac Produce Company just finished a $1 million fresh-cut fruit processing facility located adjacent to its fresh-cut salad plant in Irwindale, Calif.
But there are still lots of challenges to hurdle. First and foremost — now that packaging and equipment have been developed — is raw material supplies.
Dennis Gertmenian, CEO of Ready Pac, which is one of the leaders in the packaged salad industry, said getting a consistent year-round fruit supply is always going to be a challenge. In the first place, fruit quality tends to be very weather dependent. A nice, sweet piece of fruit does require certain conditions to reach its optimum sugar level. And those conditions don't always exist. In the second place, it is not possible to have a year-round fresh-cut fruit program without sourcing off-shore, which in itself, is a challenge. "Fruit is definitely more difficult," Gertmenian said. "We have learned a lot of lessons over the last few years. It didn't come as quickly as we thought. But we are very, very excited about it now."
Gertmenian still believes that fresh-cut fruit sales could eventually eclipse those of fresh-cut salads. And he said research shows that the price point can be higher. "We know that you can't price a bagged salad at more than $2.99," he said. "Demand drops off significantly at that level. We've done research on the price barrier for fresh-cut fruit and we have yet to find the point where demand drops off. Consumers are willing to pay a lot more for fresh-cut fruit."
Garrett also believes that fresh-cut fruit will have a great impact, but she said it faces a much different situation than bagged salads. 'When packaged salads were developed that created
a whole new category. Sales of those salads were new purchases that were not substituting for anything else. There are already canned fruits and packaged fruit and dried fruit. We don't know how fresh-cut fruit will fit in."
But Garrett said the efforts of Del Monte should make an interesting case study. For items such as baby carrots and packaged salads, processors in control of their own supply have had the most success and have been chiefly responsible for growing the category. Del Monte is in that position with fresh-cut fruit, and Garrett said their progress will be worth watching and studying.
Gertmenian believes that over the next 10 years, fresh cut products will garner a majority of the space in a retail produce department. Currently, he said at least 40 percent of the grocery stores in the United States have inadequate space devoted to the category. He expects refrigeration within the department to increase significantly, and with it, the number of fresh-cut products sold by retailers.
Garrett believes that there is room for produce department redesigns to help accommodate the explosion of products in that department. "Look at the produce department and you see a lot of flat display area with produce piled high. In the rest of the grocery store the displays are more linear and the space is used more effficiently."
Garrett intimated that there is room for some new refrigerated case designs that could help display more product.
Gertmenian said it only makes sense that retailers will continue to allocate space to fresh-cut items because they are good sellers with good margins. "Almost every chain has a fresh-cut item on ad every week," he added.
Garrett agreed that the profit margin for most fresh-cut items is very good...and certainly good enough to convince retailers to devote more space as new items are developed.
But with linear display racks and a majority of packaged products, will it be long before the produce department is run like the grocery department?
Gertmenian doesn't believe so. Ready Pac has had experience going outside the produce industry to find executives to run the company. Gertmenian explained that when you try to take a company from $100 million in sales to the next level, you need people with a different skill set and so he has had to look at other industries for people with experience. "But we have targeted the people we hired. It still takes a produce mentality to handle this product."
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