A Hot Sales Opportunity?

Marketing your produce to alternative retail channels

Because we live in a fast-paced society where convenience equals value, this presents a sales opportunity worth exploring. Thousands of convenience stores, filling stations, discounters, and drugstores across the nation are challenging traditional grocery stores by stocking not only more grab-and-go or value-added products but an increasing selection of fresh fruit and vegetables.

What’s more, many of these stores are located in much-publicized ‘food deserts,’ and, as such, hope to fill the fresh food gap. Even big box retailers, like Walmart and Target, which carry fresh produce in their supercenters, are opening small-format or ‘express’ stores to compete with the convenience of quick marts in cities and urban areas.

Nontraditional Venues
Traditional grocery stores capture about 68 percent of fresh produce dollars, according to Chicago-based Nielsen Perishables Group. This means nearly a third of consumers’ fresh produce dollars are spent elsewhere, in nontraditional channels including warehouse or club stores, convenience stores, drugstores, dollar stores, and other discounters. Compared with more than 33,000 traditional supermarkets in the United States, the sheer number of alternative retail outlets, excluding clubs and warehouses, seems staggering.

Case in point: there are more than 150,000 convenience stores nationwide according the National Association of Convenience Stores (NACS), catering to 160 million customers per day or an average of 1,100 per store, per day. In addition, there’s the increasingly popular dollar store category, with more than 25,000 outlets in the United States, as well as 41,000 drugstores nationwide. The number of drugstores stocking food, with many including a selection of fresh produce, has risen 21 percent from 2007 to 2014 according to Nielsen.

Charlotte Cutler, who handles retail development for the Race-West family of companies in Clarks Summit, PA, sees nontraditional outlets as a prime market for fresh produce. “There’s so much more out there; people are focusing on health, super foods, and grab-and-go items,” she says, noting that mobile apps, home delivery, and juicing are all on the rise. While it took some convincing, Cutler says

Race-West Company began selling to nontraditional retailers about a year ago, and these sales now represent about 5 percent of the family’s business.

Jeff Lenard, vice president of strategic industry initiatives for NACS observes, “Five years ago, it was not very common to see produce in convenience stores—now it’s uncommon not to see it.”

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Because we live in a fast-paced society where convenience equals value, this presents a sales opportunity worth exploring. Thousands of convenience stores, filling stations, discounters, and drugstores across the nation are challenging traditional grocery stores by stocking not only more grab-and-go or value-added products but an increasing selection of fresh fruit and vegetables.

What’s more, many of these stores are located in much-publicized ‘food deserts,’ and, as such, hope to fill the fresh food gap. Even big box retailers, like Walmart and Target, which carry fresh produce in their supercenters, are opening small-format or ‘express’ stores to compete with the convenience of quick marts in cities and urban areas.

Nontraditional Venues
Traditional grocery stores capture about 68 percent of fresh produce dollars, according to Chicago-based Nielsen Perishables Group. This means nearly a third of consumers’ fresh produce dollars are spent elsewhere, in nontraditional channels including warehouse or club stores, convenience stores, drugstores, dollar stores, and other discounters. Compared with more than 33,000 traditional supermarkets in the United States, the sheer number of alternative retail outlets, excluding clubs and warehouses, seems staggering.

Case in point: there are more than 150,000 convenience stores nationwide according the National Association of Convenience Stores (NACS), catering to 160 million customers per day or an average of 1,100 per store, per day. In addition, there’s the increasingly popular dollar store category, with more than 25,000 outlets in the United States, as well as 41,000 drugstores nationwide. The number of drugstores stocking food, with many including a selection of fresh produce, has risen 21 percent from 2007 to 2014 according to Nielsen.

Charlotte Cutler, who handles retail development for the Race-West family of companies in Clarks Summit, PA, sees nontraditional outlets as a prime market for fresh produce. “There’s so much more out there; people are focusing on health, super foods, and grab-and-go items,” she says, noting that mobile apps, home delivery, and juicing are all on the rise. While it took some convincing, Cutler says

Race-West Company began selling to nontraditional retailers about a year ago, and these sales now represent about 5 percent of the family’s business.

Jeff Lenard, vice president of strategic industry initiatives for NACS observes, “Five years ago, it was not very common to see produce in convenience stores—now it’s uncommon not to see it.”

Consumer Shopping Trends
Linked to the growth of fresh food at convenience and other nontraditional retail outlets are changes in how and where consumers shop. “For years, we watched four main forces impact the food buying consumer: health, convenience, value/quality, and new tastes or experiences,” explains Chris Balzer, associate client director at Nielsen Perishables Group. “More and more, fresh—produce in particular—is claiming ownership over delivering these consumer benefits. It’s one of the reasons fresh growth is outpacing the rest of the store.”

Part of the attraction to convenience stores and quick marts is the smaller, more easily navigated format, a distinct advantage to consumers on the run. This is backed up by NACS figures finding more than 80 percent of food bought at a convenience store is consumed within an hour of purchase.

A weak economy also influences buying habits, especially at dollar stores.

A September 2014 Jones Lang LaSalle retail research report credits price-conscious consumers for helping to spur growth at discounters, like dollar stores. As the recession of the late 2000s deepened, cash-strapped consumers—including many ‘trade down’ middle class and upscale shoppers—sought ways to increase their purchasing power.

The result has been a greater acceptance of shopping at discount stores even as the economy has recovered. In consumer surveys, Dollar General found only 7 percent of consumers had a negative view of the chain in 2012 versus 23 percent at the beginning of the recession in 2008. While market consolidation may impact store growth to a degree, dollar stores continue to increase revenues and have developed a strong market niche.

Experimentation & Evolving Demand
Convenience stores and other alternative formats began experimenting with product mix not only to tap into changing consumer trends but to open up new revenue streams. Convenience stores, in particular, sought to offset declining tobacco sales and low fuel profit margins—and what better way to attract shoppers than to offer a variety of healthy food options?

By 2013 fresh fruit and vegetables were sold in 72 percent of convenience stores, with 39 percent increasing the amount available for sale—and all of the top national and regional chains had plans to increase fresh produce and value-added products and meals. The nation’s top convenience store chain, 7-Eleven, began testing a new line of healthier foods from celebrity health and fitness guru Tony Horton, including sandwiches, salads, wraps, and cold-pressed juices. The company’s sales of fresh products rose 30 percent from 2012 to 2013, and 7-Eleven has reported selling “seven times more bananas than Snickers,” its top-selling candy bar.

Walgreens, with 8,229 drugstores nationwide in 2014, began selling fresh fruit and vegetables as a pilot program in 2010. The company also committed to opening 1,000 “food oasis” stores by the end of 2016 in geographic areas lacking full-service grocery stores. CVS Pharmacy, with more than 7,600 retail drugstores, jumped on the fresh produce bandwagon in 2010 as well, with a plan to include fresh fruits and salads in a fifth of its stores nationwide.

Consumer demand for organic fruits and vegetables continues to grow as well. To distinguish itself from competitors, 99 Cents Only stores now stocks organics alongside its seasonal selections of produce. Dollar General appealed to middle class and upscale shoppers by adding ‘Dollar General Markets’ in select cities in 2011 and 2012. These larger stores feature wider aisles and are more like traditional grocery stores with both perishables and daily necessities at competitive prices.

More important, perhaps, are the many convenience stores in or near neighborhoods designated as food deserts. A location is considered a food desert if residents live more than a mile away from a grocery store in an urban area or 10 miles in a rural area. The U.S. Department of Agriculture estimates nearly 26 million Americans live in food deserts—with 18,000 convenience stores located in these areas, adding fresh fruits and vegetables offers a distinct market advantage.

Barriers to Fresh Produce Sales
Despite the growth of food sales in convenience stores, drugstores, and dollar stores, they are still not top-of-mind for most shoppers when it comes to purchasing produce. Shelf space is limited, and as a result, variety suffers. And budget-minded consumers can’t find the kinds of promotions sales found at traditional supermarkets and supercenters, like Walmart.

Some consumers also continue to hold a negative perception of convenience stores. A 2013 NACS survey found only 38 percent of respondents considered C-stores as a place to get fresh food; 82 percent believed prices were too high; 78 percent believed only ‘unhealthy’ food could be found in stores; and 73 percent said the stores needed to do more to address health and wellness.

On the vendor side, assessing demand is a big challenge for operators unaccustomed to stocking fresh fruit and vegetables, with their limited shelf life. Product must be monitored on a regular basis and rotated if produce items spoil. For smaller stores, finding suppliers can be a detriment to stocking perishables. A 2014 report from ChangeLab Solutions found minimum purchase requirements and delivery fees were often prohibitive, and suppliers that did offer reduced quantities charged fees for splitting cases. Lenard acknowledges the problem, noting that access to affordable fresh foods “is the big nut we have to crack for smaller operators.”

Infrastructure can pose another barrier. “Many alternative distribution locations do not have the appropriate refrigerated transportation or logistics infrastructure,” finds Minos Athanassiadis, managing partner at Fresh Link Group, a fresh produce industry advisory firm. Though none of these obstacles are insurmountable, they do require cross-industry cooperation and support.

Industry Awareness
A step in the right direction to not only increase awareness but get more fresh fruit and vegetables into alternative retail formats was the 2014 partnership between United Fresh Produce Association and NACS. The two organizations teamed up, forming a task force to identify best practices in developing a fresh produce supply chain for convenience stores and their management.

Jeff Oberman, vice president for trade relations at United Fresh explains: “We set up three working groups (Supply Chain, Merchandising, and Outreach) to identify challenges and solutions,” he says, adding, “We have retailers who have had success with fresh on the task force to share with others how it can work.” The groups are developing tool kits and will be presenting educational workshops at United Fresh and NACS trade shows later this year.

A Golden Opportunity?
Athanassiadis believes more fresh fruit and vegetables in alternative formats is a win-win, as both “consumers and growers-shippers will ultimately benefit from expanding channels of distribution.” He also noted that neither Trader Joe’s nor Costco carried fresh produce 15 years ago, and both Walmart and Target are still relative newcomers to the industry.

And while the expansion of fresh produce to convenience stores, dollar stores, and drugstores will add competitive pressure on traditional supermarkets, Athanassiadis believes grocery chains can hold their own “by offering unique varieties and emphasizing flavor over price.”

“Produce in many ways is in the driver’s seat,” asserts Balzer. “More and more retailers are figuring out that a great produce department is a great way to differentiate yourself from the competition.”

Produce sales at convenience stores reached $328 million in 2013, and NACS’s Lenard says this is equal to only about $1 per person a year compared to other sales categories. “That screams opportunity to me,” he says. Perhaps the United Fresh-NASC task force’s efforts will help usher in change to dramatically increase fresh produce sales over the next five years. “Everything is changing,” Lenard points out, “and if you don’t change, you will be left behind.”

Image: iStock