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Innovate or risk being irrelevant in today's marketplace

Thursday, 14 April 2016 | Posted in Innovation by Renee Harrison

Innovation creates value and is critical to success. Agricultural innovation is more than just a one-way transfer of results to practice: Innovation prospers when the worlds of research and farming permanently interact by sharing knowledge, ideas and thinking together. When it comes to fostering innovative cultures, companies throughout the produce supply chain must be open to changing the way they do business. This article discusses the building blocks of truly innovative companies and why the perception of a company’s culture often varies between senior leaders and mid-lower level managers and employees.

Agriculture is constantly addressing increases in food demand and the need to provide a sustainable, safe and secure food supply for an increasing global population. Stiff competition for limited natural resources as well as the additional pressure that this poses on ecosystems is challenging growers to think differently. Farmers are using technology not only to mitigate the impact of agriculture on climate change but also to adapt to the impact climate change is putting on farming. The challenge is not only to produce more, but also to produce more effectively, and in more difficult conditions.

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Increasing Floral Sales Through Generational Selling

Thursday, 14 April 2016 | Posted in Floral by Renee Harrison

As we strive to increase our floral sales each year, we should take a few moments to reflect on the demographics of our customer base and make sure we are meeting their needs. Are we providing the right product mix for our customers to encourage them to buy more flowers? Are we appealing to Boomers with custom items and inexpensive options, enticing Gen X to make self-purchases, or providing smaller bundles at cheaper prices for Millennials. Consumer research performed and presented by Brian Numainville of Retail Feedback Group (RFG) in October 2015 at the Produce Marketing Association’s Fresh Summit examined the purchasing behavior of Millennials, Gen X and Boomers.

 The differences in the frequency of purchase of floral products and shopping behaviors by generation is intriguing. RFG’s research uncovered that approximately 65% of most generations make four or less floral purchases a year with the exception of boomers where 56% make four or less floral purchases a year. In general, Boomers buy flowers more frequently than any other generation making this an important generation for us to please with our floral mix. Baby Boomers were born between the 1946 and 1964, placing them in the age range between 51 and 70 years. There are many articles on selling to Baby Boomers but most agree that seeing the physical product and the human touch are important to this generation. Thus, merchandising and having employees available to aid in the purchasing decision are important factors.  

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Where the Foodservice Industry is headed

Wednesday, 6 April 2016 | Posted in Foodservice by Renee Harrison

 By 2025, the food industry will see major shifts in the distribution of consumers’ food dollars. As a result, the structure of the foodservice and retail sectors will continue to evolve into having large market shares for premium products as well as affordable items and a small market share for mid-tier foods and venues once marketed to the middle class.
Total food industry sales will likely increase by more than $700 billion, reaching $2.06 trillion by 2025. While retail and foodservice will share the new growth equally, Technomic projects notable share gains by fresh-format and limited assortment stores, online channels, independent restaurants and small chains, and supermarket fresh prepared foods. These shifts are a reflection of the changes in consumer demand. Within foodservice distribution, alternative channels, namely club stores and online will be 16 percent of market share, compared with 12% in 2014.

Food companies will have to make upgrades in their food sourcing, IT infrastructure and people to keep up with trends.The following models developed by Technomic can guide industry’s investments.

The NEW Consumer Model
  • Consumers will be more ethnically diverse but also polarized in terms of age and income.
  • They will be interested in upscale food experiences or in maximized value.
  • Consumers (and trade customers) will demand that companies be totally transparent about business practices and corporate social responsibility
  • Consumers will value healthful food (fresh, GMO-free, local, organic, minimally processed, etc.), and corporate social responsibility.
  • Older and younger consumers will drive urbanization, favoring independents, digital channels for food and specialty distributors.

The NEW Food Supply Model
  • Consumer demand for fresh food and clean labels will shift food production to more organic and sustainable production and require a supply chain that focuses on fresh and local.
  • National distributors will dominate the supply chain for retailers and restaurants, but specialty distributors will carve out a sizeable niche.
  • Consumers and regulators alike will push for radical transparency from suppliers and food brands.
The NEW Economic Model
  • Escalating occupancy costs in urban markets will require restaurants and retailers to trim building footprints but maintain sales levels.
  • Partnering with players in the digital space or building separate fulfillment centers for off-premise sales and delivery will enable brands to harness big data and keep store-level economies efficient.
  • Industry regulations won’t let up, adding layers of volatility to input costs. Brands should stay flexible through integration of in-store and consumer tech.

The NEW Labor Model
  • Staffing models will bow to popular pressure against low wages. Brands will trade higher wages for lower turnover and relief from bad PR.
  • Progressive investments, like Starbucks’ tuition assistance or Whole Foods’ onsite clinics, will be tools in the contest to attract the best talent.
  • New technology, from labor scheduling software to digital ordering and fulfillment services, will help contain labor cost inflation as sales increase

In preparation for the transformation, Technomic advises that food companies including produce need to focus on the following five areas.

Reimagine, Reinvent, Reallocate, Repeat. Consumers have already begun to shift what and how they buy in response to evolving demographics, changing priorities and new realities in the economy and in the food supply, resulting in their moving away from traditional brands and venues. People and capital will need to be reallocated to growth channels and categories, which over the next decade will include a more healthful food supply built on fresher offerings and digital platforms for buying and distributing those items. New offerings must be acceptable to health-conscious consumers and accessible to anyone via online, mobile or digital means.

Act small to grow big. If they are to accelerate their pace of change and their speed to market, food companies must think and act like a small company – or acquire brands nimble enough to meet shifting demands quickly. Corporate strategies must increase a brand’s relevance to and coverage of emerging nontraditional channels, as well as growth segments like supermarket fresh prepared foods, group purchasing organizations and independent restaurants. The “less is more” ethos will play out in productivity initiatives and efficient restaurant and store designs that fight skyrocketing food, labor and other operating costs.

Embrace digital and big data. Companies must build their research and predictive analytics teams for customer insights because the challenges of the next decade, including consumers’ demand for greater transparency and food integrity; falling profit margins; and disruptions to the supply chain can be mitigated with data-driven solutions. Commerce and communication will continue to migrate online and to mobile devices. Food brands need to develop their capabilities in these channels or partner with experts to turn today’s transactional data into tomorrow’s winning strategies.

Anticipate and plan for the demand for a health-focused food supply. Consumers’ definitions of health will continue to evolve, and descriptors like ‘fresh”, “local” and “sustainable” will lose their elitist associations and be demanded by all consumers, not just the affluent or activists. Noncommercial segments like schools and healthcare are demanding fresher, natural and local food. Companies must move their food offerings to higher levels of health and food safety before their key accounts begin to request them. Revamping the supply chain to meet this demand will span everything from manufacturing and sourcing processes to packaging to where plants are located and how their deliveries are scheduled.

Boost your CSR quotient. Radical transparency will be the price of entry for consumers, not just on food companies’ ingredients labels, but also on their brand identity as good corporate citizens. Food companies will have to audit their policies on people, products and the planet. They will need to address everything from antibiotics and pesticides in the supply chain to carbon footprint to employee compensation – and be ready to show leadership in at least one of these areas.

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Chinese consumers view U.S. produce as safe

Tuesday, 5 April 2016 | Posted in China by Michael Worthington

In North America, when we talk about food safety, we think about pathogens like E. coli, salmonella and listeria. In China, when the produce industry and consumers think food safety, they think about chemicals applied to products or contaminants in the soil. Couple this with mistrust in the Chinese government and you get a country increasingly importing fresh produce to feed populations with growing wealth — and it’s a country ripe with opportunity for U.S. growers and packers.

Earlier this month, the Produce Marketing Association held one of 2016’s eight Fresh Connections events, this one in Shanghai, China. Joining me on a panel about food safety was Richard Bennett from PMA Australia/New Zealand and Keith Refsnider from Driscoll’s.

While I was happy to share Markon’s perspective, I found myself enthralled in the Chinese cultural underpinnings that make the country a unique target market for U.S.-grown produce. Because of the mistrust in government and China’s lack of oversight leading to contaminated soil, air and water, Chinese consumers don’t trust local produce.

In fact, lack of trust in local produce by high-end consumers is the No. 1 concern among Sam’s Club consumers in China, according to Neil Maffey, Sam’s Club China’s chief merchandising officer, who spoke at the event. Instead, they associate imported fruit and vegetables with safety and quality, as they do with imported dairy products.

Chinese fruit imports grew from U.S. $3.4 billion in 2013 to $5 billion in 2015. The largest imported fruit is bananas, followed by cherries, grapes, and durian. Among the fast-growing fruit are berries, avocados and apples. There is also a willingness to pay a premium for imported food and other products.

The Chinese use the term “haitao,” which means “overseas.” The most frequently purchased items are food, baby care products and cosmetics. Many of these purchases happen online where consumers feel they have a more direct path to purchase from the product source. Technology also plays a critical role. Chinese use of technology is well ahead of the U.S.

In 2014, Chinese mobile phone users downloaded 59% of all apps worldwide; the U.S. downloaded 8%. WeChat, Taobao and Weibo, along with Alibaba, are ingrained in Chinese culture. Some vending machines don’t even accept cash or credit cards — they require purchase through one of the common apps. But technology aside, a look at the retail environment also tells a story about how Chinese consumers view imported produce.
Market tours. On one of our market tours of China, the day kicked off with a visit to the Huizhan Wholesale Market. 

The Huizhan Wholesale Market is the largest import market in Shanghai, and one of the biggest in China. Large import companies provide fresh produce to fruit dealers who forward it to local markets and e-commerce companies. After the wholesale market, the tour continued with a visit to an Olé Supermarket Food Hall. Olé’s Food Halls are luxury supermarkets that target a high-end customer segment.

Fresh produce and imported fruit and vegetables provide an important part of the retailer’s product offering and are shown centrally in beautiful product displays. I have no U.S. comparison to this market — perhaps the best elements of a Wegmans and Whole Foods combined. We then visited Sam’s Club, a division of Wal-Mart Stores, where premium quality fresh produce is also an important product segment. The company continually reinvents its packaging and marketing to appeal to a Chinese audience, and its China stores are among the highest sales volume worldwide. Cherries are highly prized by Chinese — the 12 Chinese stores sell 90% of the volume of all 550 U.S. stores.

We also stopped at Pagoda, one of China’s innovative new fruit chain stores, offering imported, high quality produce. Produce is all shrink-wrapped or uniquely packaged to showcase quality and safety. Pagoda has built a vast network of more than 1,300 shops across China during the past three years, on the path to 10,000 stores in the next five. The chain focuses purely on sales of high-end fruits. Its shops are located in population-dense neighborhoods.

We ended the day at a traditional “wet market.” A contrast to our earlier stops, wet markets generally appeal to those who are less affluent than shoppers at other retail formats we visited. Chinese consumers purchase about 85% of their fruits and vegetables at wet markets, although other retail models are picking up steam. Wet markets contain beautiful displays of unrefrigerated produce (along with live seafood and raw meat) from which to select product. Many Chinese who shop at these markets shop for produce every day, with most produce being cooked.

During the days’ presentations, Bryan Silbermann and Cathy Burns of PMA showcased an important trend that has gained traction not only in the U.S., but also in China: a desire for transparency. Chinese consumers, like their American counterparts, want to know when, how and where a product was grown and harvested and what’s in it or on it. We’ve heard a lot of late about a slow down in China. But that wasn’t the China we saw. By the end of the trip, the group could not ignore the potential in the market. I looked around and wondered why there were not more U.S. producers present.

The message is clear: There’s a growing middle class with huge population numbers and money in their pockets. There’s demand for imported produce because trust in local produce does not exist. Finally, if there’s a wheelhouse in the produce business — and there is — it’s the quality of our produce combined with a food safety system and a commitment to transparency that’s second to none.

One week in China does not an expert make, but it certainly gets the entrepreneur in all of us digging a little deeper into the potential that is China. 

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Tim York is CEO of Salinas, Calif.-based Markon Cooperative. Centerplate is a monthly column on “what’s now and next” for foodservice and the implications for produce.
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