CHICAGO — The fourth quarter of 2010 will be crunch time for the U.S. apple industry, one leading retail analyst believes.

Fourth quarter is crucial for apple industry, analyst says


“You can't miss Q4,” said Steve Lutz, executive vice president of The Perishables Group, West Dundee, Ill., during a presentation at the U.S. Apple Association's Outlook Conference Aug. 19.

“As an industry, if we don't get the fourth quarter right, most of the time it will be a tough Q1, Q2 and Q3,” Lutz said.

For apple marketers and retailers, that means getting out of the gate with well-planned promotions, and an accurate estimate of crop volume and size is critical.

“The clarity of a big crop opportunity is key to retail,” he said.

Retailers want to promote apples when there is an opportunity, he said.

The industry struggled with the fourth quarter of 2008, beginning the period with high prices that hurt movement. The problem was made worse that year when the fresh Washington crop turned out to be bigger than projected. The industry did much better in the fourth quarter of 2009, with lower prices and ample promotion opportunities at the start of the quarter.

“We had very flat, very consistent pricing  and gradually it worked its way up over the course of the year,” Lutz said. “I would suggest to you as any industry and individual producers, that the 2009 scenario is a lot easier to generate retail support.”

Despite pressure by retailers to reduce the  number of items carried, Lutz said the number of apple impressions — the number of unique items per store per week â€” actually increased for most of the 2009-10 marketing season compared with the previous season. Figures from The Perishables Group and the Nielsen Co. show the number of unique apple items per store in August 2009 was about 20, and it peaked at nearly 30 in November before falling to about 23 this June.

Varieties that featured the most percentage increase in impressions at retail for the year ending June 28 included Pink Lady (11%), Honeycrisp (about 10%) and empire (up 8%).

The top 15 apple items for retailers in the fourth quarter of 2009 accounted for a whopping 75% of the volume of the entire apple category. The most important item to retail volume and sales in the fourth quarter of 2009 was the Honeycrisp apple, accounting for 8.5% of apple volume and 13% of sales, with an average price of $1.99 per pound. The category average was $1.34 per pound, which Lutz said makes the performance of Honeycrisp that much more remarkable.

“You have Honeycrisp about a 40% premium for the category and it is number one,” he said.

Consumers are clearly willing to reward a product that they enjoy, he said. The challenge for retailers and marketers is to differentiate their apples in a category that has an abundant variety of similar-looking bi-colored fruit. Lutz said apple merchandising is increasingly about consumer demographics on a regional basis.

He said there is a perception that potential growth in apple sales at retail is “maxed out” because it is a mature category. Far from it, he said. For example, in the fourth quarter of 2009 apples accounted for 11% of Cub Foods produce sales, while lowest  performing chains reported only a 4% contribution for apples.

Of more than 100 retailers measured in the fourth quarter 2009, the top 15 performing chains average 9% contribution compared to the bottom 15 that averaged 6%. For about a third of the retailers, apple contributed less than 7% of produce department sales in the fourth quarter.

“Surely there is room for growth in understanding what causes some of these chains, some of which are in apple country, to perform at a very low level on a key category at the peak of the apple season,” Lutz said.

Key to a strong quarter is determining the optimal formulas for pricing and assortment of varieties featured.

“Pricing and promotion and space decisions are much more important as varieties expand,” he said. Apple marketers can help assist retailers in fixing “broken” apple departments, he said. “Those opportunities continue to be out there,” he said.

Still, he said the expansion of varieties makes apples one of the most complex categories in the produce department.

“Packaged salads is easy compared with apples,” he said.