LENEXA, Kan. — Led by changing consumer tastes and retailer needs, innovation is the key to managing the apple category, said Steve Lutz.
Lutz, vice president of marketing for Wenatchee, Wash.-based Columbia Marketing International, visited The Packer offices Nov. 3 for a presentation about changing consumer influences, the effect of retail consolidation on producers and other topics.
The economy in the U.S. — with the affluent on one end and large numbers of shoppers who are struggling economically on the other — has implications for the apple industry, Lutz said.
“The middle class is disappearing, with median wage rates down since 1973, a fact that has spanned both political parties,” he said.
Lutz said cumulative household income has dropped for 14 straight years.
Those economic forces have put pressure on consumers, with high-end retailers building more stores and Dollar General and other discount retailers expanding their influence.
For apples and other commodities, consumer perception of value is driving demand, Lutz said. Apple demand is keyed by variety, flavor, health benefits, impulse purchases, budget and family needs. Another barrier to consumer demand is fear of failure, including poor quality and waste.
“The interesting piece is what is not on the list — color,” Lutz said.
That isn’t reflected in retail demand for apples, he said. Retailers often insist on redder apples, which often are priced at premium levels.
“Retailers want to buy the best and they take their cues from us and want stuff that is 100% color,” he said.
Retailers who follow consumers’ leads can create strong programs for their shoppers with less red fruit, he said.
“At the end of the day, (color) has no impact on sales, it is a created mindset of the industry deciding we need to have red color, and we get paid a lot of money to make them red, so we do,” he said.
Lutz said the apple industry is like the beer industry in the sense the category it is driven by “power products.” Like the beery category is driven by big brands like Budweiser, Miller and Coors, the apple category is driven by galas, red delicious, fujis and granny smiths. Five items drive 35% of sales, but the number of apple varieties and packs in produce departments has risen dramatically in recent years. The challenge is to build volume sales around a few items at the same time offer variety to consumers in a way that is affordable.
Varieties like gala and red delicious generally have no differences between one retailer and the next, with a limited ability to impress consumers.
Instead, the vitality and excitement is coming from unique and new products like the Ambrosia and other premium niche varieties, he said.
“That’s what driving the interest,” he said.
That is new to the apple industry over the past 15 years, he said. In 2000, there were no premium niche varieties in the apple category.
Some consumers now will walk past 79 cents per pound red delicious to buy a more expensive Honeycrisp, Ambrosia, Kanzi, Kiku (all marketed by CMI) or other premium niche varieties.
Retail consolidation is causing produce growers to evolve capacity to meet the need of key accounts, he said. Some focus on delivering low-cost mainstream varieties and others focus on providing unique products and packaging for customers.
CMI has invested in facilities to cater to specific retail needs for niche varieties, he said.
“We have got the very best varieties and very best genetics going in the ground because we have got the group of retailers we want to satisfy,” he said.
Managed varieties also are showing up in apples but also other categories such as citrus, he said.