Partners for Advancing Agriculture ®

Understanding the Produce Value Chain

Spring 2015

Think back several decades and walk into your favorite grocery store. What did you see? Was produce the first department you entered? Did you see a vast array of fruits and vegetables including fresh cut, a dozen or more different types of apples and tomatoes, and fresh berries every day? (Hint: the market for small tomatoes has tripled in just the last decade to now well over $1B). Leap forward to today, and if you don’t see a well-stocked, well merchandised impressive display of fresh produce then you’re probably shopping in a store that won’t be around for long.

INStory3Image1

Grocery retailers know that it is the ‘fresh perimeter’ of their store that sets them apart from competition, with produce being the number one point of differentiation. The aromas, colors and vibrancy of so much fresh and wholesome food are a powerful way to greet their customer. It also is a powerful way to grow profitability.

According to the United Fresh Produce Association, fresh produce accounted for 13 percent of store sales in 2013, up from just under 11 percent in 2011. The average produce department in 2013 generated $47,209 in revenue every week, up 4.8 percent from 2012 with most of this gain coming from pricing. Innovation in convenience, variety and flavor helps drive these price gains. Newly popular items like clementines and kale, snack-sized tomatoes and peppers, fresh cut salad and fruit are just examples of categories that have exploded due to innovation.

However, not all innovation is successful. In fact 70-80 percent of new grocery items fail. It is not enough to know only what the consumer wants, or know only how well a product yields on the farm. One also needs to understand cost of production, handling, packaging, distribution logistics, shelf life and challenges faced by the grocery retailer. Bringing forth a new produce item is risky business and is not for the faint of heart.

Context has extensive experience all along the produce value chain, from seed and inputs, through packing/shipping to grocery retail and foodservice. A critical factor in launching any product innovation is to make sure the value chain is lined up beforehand. Growers can’t take the risk to produce a new item unless they know who is buying, and for how much. A packer/shipper may be willing to take some risk, but they need to understand seasonal impacts on supply and product quality, best practices to preserve flavor and shelf life, have some idea as to consumer willingness to purchase the item and retailers willing to carry and promote the product.

INStory3Image2

For retailers, shelf space is precious and adding items requires work and often worker training. Retailers need to be comfortable that the product they receive will be consistent in delivering the promised value, dependable in supply, and unique enough to catch the attention of their customers –and of course, grow profits. Regardless of where you are along the chain, Context can link the chain together helping ensure product and financial success.

Provided by Jennifer Garrett, Senior Associate; David Stark, Senior Associate; and Jim Zarndt, Senior Associate.