Consumers are coming back to normal—if by normal we mean the more “old-fashioned” way—being responsive to prices and being willing to buy less or substitute lower-priced products if the price seems wrong.
That may make it harder to sell apples this year than it was last year. “2011 won’t look like 2010,” said Steve Lutz, executive vice president of The Perishables Group. He speaks nearly every year at the U.S. Apple Association’s annual Outlook and Marketing Conference in August.
One big change this year is persistently high gasoline prices. Energy for transportation normally costs consumers about 14 percent of their paycheck, he said. But starting early in 2011, gas prices rose steadily from about $2.90 a gallon in 2010, spiking above $4 in April and then settling in the $3.70 range. Energy for transportation is now taking 20 to 22 percent of the family budget.
“That comes right out of food purchases,” he asserted.
Also unusual this year is food price inflation. Food prices had been pretty flat since the recession hit in 2009, he said, but early this year there was a sharp rise in food prices, and the higher level has persisted.
Retailers this year also shifted the way they promote fruit. Promotions have centered on premium fruit products, and the promoted price is not as alluring to consumers. So, while fruit is moving at higher prices—good for the retailer—volume has been lower, which could be tough for growers, who need to sell their entire crop.
“Consumers are starting to emerge from cover, and that’s good news,” Lutz said. After the bad news on the economy came in 2009, “They pulled in after being shell-shocked. They came out of the recession in 2009 not spending. Consumer spending started to improve last year,” he said.
Then came higher gas prices and higher food prices. “Food inflation is a factor, and it’s affecting consumer spending,” he said.
Lutz sees striking similarities to the marketing period for the 2008 crop, which was not very profitable for growers, he said. As in 2008, the 2011 crop is late maturing, and that’s a bad start.
“When we get a late start, it’s hard to catch up,” he said. In 2008, asking prices started too high, and it took several months of lowering the offering price before the right level was found.
“Be wary of a slow start this fall,” he said. “Sales lost in September and October can’t be recovered later.”
When it comes to selling apples, it’s a mixed situation, Lutz said. Apples enjoy good consumer support—being a frequent, regular food choice. In recent years, variety offerings have proliferated from just a few to some 30 apple items in the produce department. Consumers buy produce on the average 31 times a year, and 43 percent of the shopping baskets contain apples.
On the other hand, only 8 percent of those baskets with apples contain more than one variety of apples. So, as the number of varieties increases, there isn’t a corresponding increase in volume of apples sold. There is more competition between varieties.
“We have to do better at getting more varieties in a basket,” he said. “Perhaps,” he suggested, “we could try offering apples in a variety pack.”
Consistent pricing and consumer promotion will go a long way in helping market the new crop, Lutz said. Consumers like apples, but they’re under pressure.
Retailers offer a complex array of some 600 items in a produce department, and they will sell what is most profitable. Luckily, apples have filled that bill. Their incentive to treat apples well is that the produce department is the biggest draw in the grocery store, and apples are a major draw in the produce department.
When a shopping basket has apples in it, it’s a bigger basket, Lutz said. In a study last year, the checkout tally for a shopping basket without fruit was $57, he said. One with fruit grew to $64. But one with apples bloomed to $82—a good reason for retailers to like apples.