Market limitations

How new varieties will coexist with those that have already carved out shelf space is the million-dollar question.

The biggest change from a marketer’s standpoint in the next decade will be the influence of the club varieties on the marketplace, says Bob Mast, marketing director at CMI (Columbia ­Marketing International) in Wenatchee, Washington.

“There are so many club varieties that are starting to hit the retail shelf now, and will be increasing in tonnage over the next five to ten years, that it’s going to have a significant impact,” he said. “The million-dollar question is: How many of these club-type varieties will survive, and if they do survive, will they coexist with the present varieties or will they displace some of the current varieties?

“The biggest challenge we face is the limited shelf space isn’t necessarily getting any bigger, because there’s a lot of competition, not just in the apple category, but from new citrus, new grape varieties, and new tomato strains that are coming out every day.”

One of the driving forces behind the introduction of so many club varieties is the fact that each retailer wants to have an exclusive item or to be first in their market with a new item, Mast said. “There’s a lot of interest from the retailers to have something new, and it puts pressure on the marketing agencies to come up with something new that’s different from what their neighbor down the street has.”

However, it’s the consumer who ultimately decides whether a new variety will succeed or not. “Some of these varieties look very similar, so unless they have a real standout appearance on the shelf or a dynamic flavor ­profile that really captures the consumer’s attention, there’s a good chance that they will not make it,” Mast said. “We, as marketers, can sell everything, for the most part, to the retailers the first time. The second, third, and fourth orders are based on what the consumers are saying about the varieties.”

Pressure to perform

Steve Lutz, executive vice president with The Perishables Group, said the pressure for new apple varieties to perform well on the retail shelf will be greater than ever before. While retailers are asking for more new varieties and new products to keep the apple category interesting and vibrant for consumers, they’re feeling more pressure than ever to turn a profit on the shelf space.

Apple shelf space will be under increasing pressure as retailers consider how much return they receive on a ­dollar-per-square-foot basis. Currently, the average ­grocery store carries 27 to 30 different apple SKUs.

“Stores are not necessarily going to say, “I think I need more apples,” Lutz said. “When you come to the table with your next new variety, they are not going to allocate more space, and so what goes out? When does it go out?”

It’s a risk for retailers to try selling a new variety that consumers don’t know because it might move slowly and incur more shrink than an established variety. As a result, there must be a well-developed marketing program to support varietal introductions, he said.

Lutz believes there will be continued interest and continued opportunities for new varieties, however. He envisions that growers will manage their orchards like a portfolio with varieties that they know how to produce and consistently perform well, along with more speculative varieties that are higher risk but could bring greater returns.

“From a grower standpoint, you really have to be fairly well aligned with your warehouse, so you understand who the customer is,” he said.

There are chains that carry only a limited selection of apples and others that tend to be more innovative. “You have to try and understand who the customer is today, and who the customer is in the future, and align your orchards that way.”

Apple Commission

Todd Fryhover, president of the Washington Apple Commission, said the continuing diversification of the industry in terms of apple varieties, will be a challenge that the commission has to face also in the next decade as it promotes Washington apples in export markets. It no longer runs promotions in the domestic market.

Volumes of Gala and club varieties are likely to increase as Red Delicious declines, Fryhover said.

“How do we address those club varieties? Should we promote them? Can we promote them? I see that as our biggest area that we need to address.”

Even though managed varieties are promoted by the variety owners or licensees, Washington producers pay an assessment to the commission on those varieties, just as they do on every other variety, Fryhover noted. And then there are varieties that have an optional promotional arm, such as the Cameo Apple ­Marketing Association.

“How do we interact with organizations like that?” Fryhover wonders. “If we’re collecting assessments, we need to address those issues.”

Another apple industry trend Fryhover predicts for the coming decade is continued ­consolidation.

“There’s going to continue to be consolidation, whether it’s at the sales desk, or definitely at the grower level,” he said. “I think consolidation is inevitable.”

He thinks economics will force consolidation at the grower level for those who don’t have the most profitable varieties or who don’t have high enough yields. A grower that is not integrated with packing and marketing does not have control over the price received for the fruit, Fryhover pointed out. “It’s supply and demand.”

More industry consolidation will improve the Apple Commission’s efficiency, Fryhover said, because there will be fewer sales entities for the commission to work with on promotions in order to increase Washington apple sales. “This is where I see us moving in the future—becoming more transparent and open, and developing relationships with the retailers,” he said. He envisions working more closely with the industry to make sure the marketers become partners in retail promotions in export markets.