shelf space allocation in the produce department...

Abstract

Shelf Space Allocation in the Produce Department:

Implications for Marketing Specialty Produce

by

Bobby G. BeamerFormer Graduate Research Assistant

Department of Agricultural EconomicsVirginia Polytechnic Institute and State University

Warren P, PrestonAssistant Professor

Department of Agricultural EconomicsVirginia Polytechnic Institute and State University

In recent years, fresh fruits and vegetableshave attracted attention as potential alternativeagricultural enterprises. The produce section alsohas grown in importance in the supermarketindustry. Yet, there is little known about theproduce shelf space allocation process withinsupermarket chains.

This research describes the organization offresh produce marketing within retail supermarketchains. Implications are derived for market pene-tration by new produce suppliers, particularlygrowers of specialty produce items. Results arereported horn personal interviews conducted withthe person most responsible for produce merchan-dising within each of 17 supermarket chains oper-ating in the Virginia area.

Introduction

As farm incomes from traditional enter-prises waned during the 1980s, producers in manystates looked toward production of fresh fruits andvegetables as an alternative agricultural enterprise.A number of economic studies were spawned bythe growing interest in these items to replace,supplement or diversifJ existing farm enterprises.Recent research on fruits and vegetables as alter-native crops has focused on individual farm pro-duction (Zwingli, Hardy and Adrian), regionalproduction (Epperson and Lei), production andmarketing systems (Runyan et d.), marketingchannels (Henneberry and Willoughby), marketwindows (Stegelin, Williamson and Riggins),consumer demand (Eastwood, Brooker and Orr),and export demand (Lopez, Pagoulatos andPolopolus).

The widening attention given to fresh fruitsand vegetables as a production alternative hasbeen paralleled by rising consumer demand for

Journal of Food Distribution Research September 91/page 23

these items (Capps). Consequently, the freshproduce department is now threatening the meatdepartment as the most important section of thestore. Produce sales were second only to freshred meat in the area of perishables during 1988(“Produce,” p. 43). Produce departments havegrown from 7.6 percent of total store volume in1970 to nearly 9 percent in 1988, and averagegross profit margins have grown from 28 percentin the early 1960s to 32.4 percent in 1986(Linsen, p. 131). Annual produce sales haveincreased by almost one billion dollars every yearsince 1984, when sales were $23.1 billion, to1988, when sales were $26.8 billion,

As the produce section has grown in impor-tance, retail supermarkets have attempted to attractmore business by offering expanded produce lines.Large stores may stock as many as 300 to 400produce items, compared to 50 to 100 items tenyears ago (Linsen, p. 131). In addition to therequisite staple items, most supermarkets nowoffer a range of low-volume, specialty items tocultivate an image of variety and completeness inthe produce department. The specialty sectionmay be six feet of shelf space set aside specificallyfor testing new items, or it may be an integratedpart of an expansive produce department whereseveral varieties of lettuce are displayed only afew feet away from star fruit and locally pro-cessed private-label apple cider.

How do such diverse items from differentsources find their way to the produce section ofthe local supermarket? McLaughlin concludedthat control over produce shelf space lies almostentirely with the retailer, whose “strength canrarely be compromised by strategic counter movesof produce suppliers” (p. 422). Thus, producesuppliers must understand and operate within theframework established by retailers.

Little is known, however, about manage-ment and decision making processes relevant toproduce marketing within retail supermarketchains. More generally, research into the struc-ture of food industries has “treated the firm as ablack box” connecting market structure with per-formance (Rogers and Caswell). Such research

sheds little light on the decision making processthat determines which fresh produce items will

receive shelf space in the retail market, and pro-vides no insight for producers wishing to enter themarket. An improved understanding of supermar-ket produce merchandising strategies will facilitatethe formation of better producer-retailer relation-ships, which are essential in the fresh produceindustry.

Research Objectives

The purpose of this research is to describethe organization of fresh produce marketing withinretail supermarket chains and to assess opportuni-ties for marketing fresh specialty vegetables withinthe confines of such arrangements. Specificobjectives are:

1. to describe intra-firm merchandising strategiesthat shape produce procurement practices, and

2. to derive from these strategies implications formarket penetration by new produce suppliers,particularly growers of specialty produceitems.

The research focuses on a case study ofsupermarket chains operating in the Virginiaregion. Although a different sample likely wouldyield different specific outcomes, general resultsand implications drawn from the sample are pre-sumed to be widely applicable.

Specialty Produce Itemsas Alternative Crops

Produce items may be classified by salesvolume along a spectrum from specialty to stapleproducts. Staple items are high-volume standardproduce items that play a major role in theAmerican diet. Staple items include apples,bananas, broccoli, cabbage, celery, grapefruit,variety greens, iceberg lettuce, mushrooms,oranges, yellow onions, potatoes, and tomatoes.Specialty items, on the other hand, are sold insmaller volumes and may be more market spe-cific. What is a specialty in one area could be astaple in another depending on the clientele.Because of the market-specific nature of specialtyitems, a strict definition is diftlcult to establish.Specialty items are generally carried in lowervolumes, may be relatively new within a given

September 91/page 24 Journal of Food Distribution Research

market area, and are provided to convey an imageof variety and completeness to the produce sec-tion.

With the escalating emphasis on variety inthe produce section, new producers might findproduction opportunities in the specialty itemcategory. New producers may more easily pene-trate the specialty produce market than the marketfor staple produce items for several reasons,Compared to staple items, specialty items areusually required in smaller volumes by retailers.Thus, small, local producers or producer groupsshould be able to meet retailers’ quantity require-ments. Retailers may not view year-round avail-ability of specialty items as necessary and so maybe more willing to stock items only when avail-able locally. Because many specialty items arenew, established marketing relationships may nothave developed. Also, some retailers mightappreciate the positive image that could be pro-moted by carrying locally grown produce. Thisresearch explores these possibilities.

Research Procedures

The modern retail supermarket industry isa competitive business. Hence, managementpersonnel are reluctant to reveal firm strategiesand operations to an unfamiliar researcher fromoutside the firm, To overcome such anticipatedrecalcitrance, personal interviews were chosen asthe appropriate vehicle for data collection. More-over, the objectives defined for the research sug-gested the need for an interactive dialoguebetween the firm representative and the re-searcher, which is best achieved through a per-sonal interview. Personal interviews allow for thedevelopment of relationships that facilitate discus-sion of sensitive issues, and provide the inter-viewer with the opportunity to pursue unantici-pated subjects relative to the research problem(Dean, Eichhorn and Dean).

To lend consistency to the interviews, ageneral interview protocol was developed. Inter-views began with inquiries about the managementstructure of the firm. Next, the interview focusedon the movement of produce through firm facili-ties to the produce department in individual stores.Respondents were asked to describe the require-

ments for both warehouse and direct store deliveryof fresh produce, as well as ordering and shippingprocedures between the warehouse and the stores.Descriptions of merchandising practices wereelicited with special attention paid to methods ofallocating shelf space. The only written part ofthe interview was the completion of check-off listsof specialty fruits and vegetables offered by thefirm. Completion of these lists was followed bya discussion of experiences with the items. Theinterview was designed to last no longer than 45to 50 minutes to maximize participation.

Sample Selection

Virginia fruit and vegetable growers main-tain a geographic marketing advantage with regardto their close proximity to the large populationcenters around Washington, D. C., Richmond andNorfolk. While direct marketing to consumers isa feasible option for some producers, commercialproduction of fresh fruits and vegetables typicallyrequires commercial outlets provided by retailsupermarkets. In the metropolitan statistical areas(MSAS) within the region of the study, single unitsupermarkets rarely accounted for more than 5percent of total market share (Chain Store Guide).Therefore, only multiple unit supermarket chainswere included in the sample.

The Chain Store Guide -- 19W Directory ofSupermarket, Grocery and Convenience StoreChains served as a source for identifying potentialparticipants in the study. An attempt was made toinclude all chains operating within Virginia’smajor metropolitan areas, as well as a number ofchains operating in other regions of the state.Selection of face-to-face interviews as the methodof data collection imposed time and budgetaryconstraints limiting the sample size. Therefore,the firms included in this study constitute a selec-tive rather than random sample. An attempt wasmade to capture as much of the market share aspossible within the region of interest, whileincluding chains of varying size, location, man-agement style, and organization.

Journal of Food Distribution Research September!lllpage 25

Table 1

Characteristics of Supermarket Chains in Survey Sample

No. of Areas ofChain Headquarters Stores Ot)eration

Acme Markets of Tazewell, Va.

Camellia Food Stores Co-op

Deskins Super Markets, Inc.

Driver Corporation

Farm Fresh

Food Fair of N.C. Inc.

Food Lion, Inc.

Giant Food Inc.

Harris-Teeter, Inc.

The Kroger Co.

Lowe’s Food Stores, Inc.

Magruder, Inc.

Safeway Stores, Inc.

Wade’s Foods, Inc.

Wayne’s Supermarkets

Winn-Dixie Charlotte

Ukrop’s Super Markets, Inc.

North Tazewell, VA

Norfolk, VA

North Tazewell, VA

Harrisonburg, VA

Norfolk, VA

Winston-Salem, NC

Salisbury, NC

Landover, MD

Charlotte, NC

Roanoke, VA

Winston-Salem, NC

Rockville, MD

Landover, MD

Christiansburg, VA

Charlotte, NC

Charlotte, NC

Richmond, VA

8

62

7

3

64

9

601

145

128

116

110

13

154

6

6

107

19

VA, WV

VA

VA, WV

VA

NC, VA

NC

DE, FL, GA, MD, NC, SC,TN, VA

DC, MD, VA

NC, SC, TN, VA

KY, NC, OH, TN, VA, WV

NC, TN, VA

MD, VA

DC, MD, VA

VA

NC

NC, SC, TN

VA

SOURCE: Chain Store Guide -- 19$XJDirectory of Supermarket, Grocery, and Convenience Store Chains.


An initial list of 25 chains was prepared aspotential participants. Of these, five were elimi-nated from the sample due to scheduling con-straints. The initial contact person within eachfirm was determined from the Chain Store Guideor by a telephone call to the public relationsdepartment of the firm. Because the producemerchandiser or director would be most familiarwith all positions and operations associated withproduce marketing, an attempt was made to iden-tify and contact the person in this position withineach firm. Each contact person received a letterrequesting an interview and a description of theresearch project. Within a week of receiving theletter, the person was contacted by telephone sothat any questions or concerns on the part of thefirm could be addressed. Next, an appointmentwith the produce merchandiser or a representativewas arranged. Of the 20 chains contacted, onehad been acquired by another chain in the sample,one was unable to arrange a meeting time, andone declined to participate. As a result, 17 inter-views were conducted with industry personnelbetween April 26 and May 31, 1990. The 17people interviewed included two vice presidents,seven directors of produce, five produce merchan-disers, and three produce merchandisers withother responsibilities within the firm.

(Table 2). Chains included in the study controlledbetween 50 and 85 percent of the stores andaccounted for 67 to 90 percent of the total saleswithin these five MSAS. If similar numbersapplied to the nonmetropolitan areas, the samplerepresented most of the market share within theregion of interest.

Table 2

Market Shares Held by Supermarket Chainsin Survey Sample,

Selected Metropolitan Statistical Areas

Percent PercentMetro~olitan Statistical Area of Stores of Sales

Richmond-Petersburg, VA 50 67

Charlotte-Gastonia-Rock Hill,NC-SC 69 72

Norfolk-Virginia Beach-Newport News, VA 82 82

Washington, DC-MD-VA 71 83Sample Characteristics

The 17 chains in the sample representedover 1,500 stores operating in 15 states and theDistrict of Columbia (Table 1). For purposes ofclassification, chains operating less than ten storesare referred to as small, chains operating 100 ormore stores are referred as large, and those inbetween are referred to as medium in size. Six ofthe chains in the sample (35%) operated ten orfewer stores each, accounting for 2,5 percent ofthe total stores, In the United States, about 84percent of supermarket chains operate fewer thanten stores, accounting for only 20 percent of totalstore numbers. Nine chains in the sample (53%)operated more than fifty stores each, accountingfor about 95 percent of the total stores within thesample.

Although market shares cannot be computedfor the entire study region, market shares can becalculated for five MSAS within the study region

Greensboro-Winston-Salem-High Point, NC 85 90

SOURCE: Chain Store Guide -- IN Directoryof Supermarket, Grocery, and Convenience StoreC%ains.

Strategies Affectingthe Produce Department

Various firm strategies influence the pro-duce assortment available to consumers. Firmimage, while not specific to the produce depart-ment, holds important implications for producemerchandising. Although quality and supply ofproduce lie beyond a supermarket chain’s com-plete control, firms employ strategies to improveconsistency and availability of produce. Finally,

Journal of Food Distribution Research September 9 I/page 27

merchandising strategies culminate in individualproduce departments with the allocation of shelfspace.

Firm Image

Most supermarket chains try to project theimage that their stores offer the best quality aswell as the best prices. These characteristics,however, may be mutually incompatible. Thus,most retail supermarket chains, after strippingaway the commercial rhetoric, have chosen animage that is reflected in their marketing activi-ties.

Two major categories of supermarket imageare “full service” versus “price conscious. ” Fullservice chains attempt to project an image ofvariety and completeness to the consumer bytouting extensive product lines, high quality stan-dards, and special customer service. Producemerchandisers for such firms insisted that theybuy only the highest grades regardless of price.Price conscious chains extol low prices and tie-quently offer generic products, limited variety,and limited customer services. These firms tendto carry fewer specialty items than the otherchains. While attempting to offer variety andquality, they often compromise to keep priceslow.

Merchandisers for five firms in the inter-view sample explicitly stated that the chains oper-ate full service supermarkets selling only thehighest quality produce. Merchandisers for thesefirms stressed the importance of quality character-istics above all else when selecting produce. Onemerchandiser indicated that an average of 10percent of all produce delivered to their ware-house is rejected because it does not meet com-pany standards. Another merchandiser stated thathis firm purchases only the top U.S. grade stan-dards and does without rather than sell lowerquality. Other traits of the full service supermar-ket image are variety and completeness, From alist of 83 specialty fruits and vegetables, eachmerchandiser was asked to check off the itemsthat the chain carried in the past year. The aver-age for all 17 firms was about 44 items. Theaverage number of specialty items from the fivefull service chains was over 67, while the average

for all other chains was fewer than 33 items.“We carry everything” was the typical attitude ofthe merchandiser for the till service chains.

At least three of the other 12 chains com-pete for a share of the fill service market in atleast some of their stores. Only one intervieweespecifically claimed to have a “meat-and-potatoes”type market. The other eight chains fall some-where between the full service and strictly priceconscious extremes. These firms tend to carryonly the most popular specialty items. They offerdifferent varieties and high grades of produce, butonly when it can be obtained at a “reasonable”price. Determination of the trade-offs betweenprice and quality is the responsibility of the pro-duce director or merchandiser.

Another factor closely related to firm imageis that of uniformity among stores. Differentchains allow for different amounts of variationfrom one store to the next. Most intervieweesindicated a desire for uniformity among all storeswithin the chain. Usually this is achieved througha marketing plan or departmental layout developedin the upper management levels. Such plans allowindividual stores varying levels of flexibility. Thegreatest amount of uniformity occurs among thefull service chains. While some freedom might beallowed with respect to total volume of an itemcarried, merchandisers at most fill service firmssaid that “if one store carries it, all stores do. ”Part of the fi.dl service image is the ability of theconsumer to find the same items in the samelocation. in any of the chain’s stores. Anotherfactor influencing uniformity is the geographicalarea over which the chain operates. Chains oper-ating over diverse geographical areas may experi-ence difllculty meeting local consumers’ needswhile maintaining strict uniformity. On the otherhand, the merchandiser for one of the medium-sized chains pointed out that all of their stores arelocated within a 15 mile radius, and so whileflexibility is allowed, little is needed.

Produce Quality and Supply

Of the many factors that influence the suc-cess of a produce department, quality is probablythe most important (Imming, McLaughlin). Whendiscussing sources of produce, all merchandisers


in the study stressed the importance of consistentquality. The quality concerns of merchandiserswere not limited to the size and maturity of theproduct in question, but also included propergrading and length of shelf life. Most merchan-disers, especially those with large firms, expressedconcern over the ability of local producers to meettheir quality requirements in these respects. Mer-chandisers felt that small, local producers do aninadequate job of grading their product. Mer-chandisers emphasized the need for boxes packedwith only one size of produce.

Almost everyone interviewed also stressedthe need for pre-cooling of produce to removefield heat. Because fresh fruits and vegetablescontinue to respire after harvest, the sooner thatthe temperature of the produce is reduced andheld at the lowest safe temperature, the longer theexpected shelf life (Nonnecke). While local pro-ducers may be able to supply a fresher product toretailers, if the field heat has not been properlyremoved and the product has not been shippedunder refrigerated conditions, then the local pro-duce may have a shorter shelf life than a similarproduct shipped from across the country. Respon-dents feh that local producers are either unable orunwilling to adopt the technology necessary toperform this vital function.

Seasonality is another important factorinfluencing which items are found in the producedepartment at any given time of year. Mostretailers indicated that their produce racks werechanged four to six times per year because ofseasonal variation in the availability of items.Because of improved handling and transportationtechniques, the availability of most staple itemshas been extended to almost a year-round basis formost parts of the United States. Some items,however, are still available ordy during certaintimes of the year, and the season can have a largeinfluence on the price and quality of availableitems. Hence, local producers might find oppor-tunities to extend the season of specialty produceitems.

Shelf Space Allocation

Computer programs such as Direct ProductProfitability (DPP) are gaining popularity among

supermarket chains (Tanner). These programs areused to determine the most profitable allocation ofshelf space based on contributions to overhead.However, such programs have limited penetrationinto the produce section. Only three respondentsacknowledged that their chains use formal com-puter programs for shelf space allocation. One ofthese uses DPP while the other two use internallydeveloped programs. Even when available, theuse of these programs in the produce departmentis limited. One merchandiser stated that they usethe programs as another source of information,but not as a strict format to follow. He stated that“Many produce items would not be carried if theirprofitability was the only consideration used inspace allocation. Programs cannot account for theperception of variety achieved by a wide range ofitems. ” He further indicated that the main use ofthe program is with value-added products thatrequire in-store processing. The programs help totrack and compare labor costs of different items.

Most merchandisers seemed skeptical of theusefulness of such programs in the producedepartment. Most indicated that the use of com-puter programs as strict planning guidelines doesnot have much appeal to store-level management.Successful produce management was described asbeing based on “instinct and experience. ”Another merchandiser explained that “it is muchmore beneficial to know your clienteIe, what theirneeds are, rather than have someone at the corpo-rate ofilce designing a planigram for the wholecountry and not providing the flexibility to deviatefrom that to give the consumers what they arelooking for. ”

By far, the most common criterion used forallocating shelf space in the produce department isproduct movement. Merchandisers typically setprices based on procurement costs and somepercent margin, Therefore, more space is allo-cated to those items that sell in the most volume,with only small consideration given to the actualcontribution to overall profit. The decision tocontinue to carry a product may be based almostentirely on the percentage sold because merchan-disers know how much they need to sell to makea profit. Therefore, merchandisers use movementas a proxy for profitability. Firm image alsocomes into play again. A store may carry small

Journal of Food Distribution Research September91/page 29

volumes of specialty items, selling them at or nearcost, just to meet the firm’s image goals. As longas the product sells a certain volume, the storewill carry the item regardless of direct contribu-tion to profits. Perishability is artother factor thatinteracts with movement to determine space allo-cation. More perishable items receive less shelfspace.

Introduction of New Produce Items

While few firms have formal methods fortesting new produce items, general procedures forintroduction can be described given the source ofmotivation to carry the items. Most merchandis-ers indicated that they are sensitive to consumers’requests, and the informal policy of some largefull service chains requires that any item requestedby a customer be carried if available. For themost part, however, variety in the produce sectionseems to be supply driven. Most merchandisersindicated that shippers inform them about newproducts that become available, and often supplypoint-of-purchase display materials and extraproduce for in-store sampling. Merchandisersalso obtain information about new varieties andnew items through trade publications and industrymeetings.

When consumers initiate product introduc-tions, they may express their interest in a particu-lar item at any of various management levelsdepending on the size of the firm and the accessi-bility of employees in each level to consumers.The most common first contact is through theproduce manager or the store manager, althoughsome merchandisers indicated that they have beencontacted directly by consumers. While some fullservice firms may introduce a new item based ononly one request, most firms require severalrequests to initiate action.

Information is passed from the level atwhich an initial request is made, through themanagement structure, and finally to the producemerchandiser. The merchandiser fkst must deter-mine whether the new item is compatible with thechain’s image, In some cmes, the chain may havea policy restricting certain items. Next, the mer-chandiser determinw if there is sufficientexpressed demand to justify introducing the prod-

uct. If apparent demand is suftlcient according tofirm standards, the next step is to determine theavailability of the product. If sufficient qualityand quantity cart be obtained, the new item isdistributed to a store or number of stores, basedon the merchandiser’s perception of the product’sappeaI.

The second scenario for product introduc-tions is when shippers promote new items. In thiscase, the shipper contacts the produce buyer ormerchandiser with information about a new prod-uct. The merchandiser considers firm image anddemographic characteristics of the market, as wellas the quality of the product and the reputation ofthe shipper. Shipper support, such as point-of-purchase displays, enhances the willingness ofmerchandisers to introduce new products. If allof these criteria are met, the product is offered toconsumers.

In either of the above scenarios, merchan-disers employ a variety of tactics when introduc-ing new items. While some provide only a list ofavailable items to their stores, most merchandisersindicated that they force-distribute new items toeach store or a subset of stores. One merchan-diser couples the distribution of a new item withfour weeks of consumer advertising. Anothermerchandiser advertises the product only if itshows promise based on reorders. One merchan-diser believed that some chains fall short in pro-viding consumers with information about newitems. He stated that “People want to try newthings. They’ll buy it once, but if they don’t useit properly, they’re not going to like it and theywon’t make repeat purchases, ” This chainincludes recipes for new items in weekly news-paper inserts. One merchandiser indicated thatbefore the chain carries a new item, he wants tosee it, taste it, and check prices and availability.Next, the new item is placed in the stores for aweek before any promotion is started to give storepersonnel time to lemn about it.

September 9 I /page 30

level, they may drop the item during the currentseason and try it the next season that it becomesavailable. Consumer feedback can be importantin this type of test. Consumers sometimes com-plain when an item is discontinued. Often, con-sumers inquire about the availability of an itemthat they purchased during the previous year in aparticular season, Such feedback encouragesretailers to carry the item again. If no customersnotice that the item is gone, however, the likeli-hood of carrying the item again is reduced. Theitem also may be discontinued if the quality stan-dards drop below those required by the merchan-diser.

Produce Procurement

Warehousing versus Direct Store Delivery

Each chain in the study moves some part oftheir fresh produce through a central warehouse,whether owned by the chain itself or an indepen-dent wholesale distributor. In addition, firms canbe categorized into one of three groups based ontheir use of direct store delivery. Two firms usedirect store delivery extensively. Three firmsallow no direct deliveries to their stores at all.The other twelve firms use a limited amount ofdirect store delivery within certain guidelines.

The three firms that allow no direct storedelivery maintain their own warehouses and placea great deal of emphasis on uniformity amongstores. Produce merchandisers at these firmsindicated that a main concern with direct deliveryis the loss of control over quality. With directdelivery, the produce manager at each store isresponsible for judging quality of the product. Asa result, large firms have many people makingjudgments about quality characteristics of theproduce sold in the stores. While the loss ofcontrol is a major concern to all merchandisers,some have established strict guidelines to allowfor direct delivery. The firms that do not usedirect store delivery are also unlikely to deal withsmall, local producers. Merchandisers at thesefirms stressed that ‘theyonly deal with producersthat can supply sufficient quantity to service all oftheir stores through the warehouse. Smallergrowers may participate in such markets throughcooperatives.

The two firms using direct store deliveryextensively do not operate their own producewarehouses. One chain encourages produce man-agers to purchase from local producers during thelocal production season when possible. The otherfirm has agreements with several producers thatgrow exclusively for the chain. These items areusually delivered directly to the store, althoughsome items are occasionally moved through awarehouse.

Of the remaining firms, basically two typesof direct store delivery are used. The first typeinvolves fresh items that are highly perishable orotherwise not compatible with warehouse process-ing. For example, two respondents describedusing direct store delivery for highly perishableitems such as mushrooms. One of these merchan-disers indicated that the chain’s use of direct storedelivery is diminishing, and will be limited toonly a few highly perishable items in the future.Problems cited with direct store delivery includethe inconsistency of having different managersmaking decisions on quality and the congestion oftying up the back door with many deliveries fromdifferent small producers. Instead, the firm hasestablished a separate warehouse for acceptingdeliveries from local producers. To facilitatesales by smaller producers, the warehouse has nominimum quantity restrictions.

The second type of direct store delivery isone in which a producer makes a formal agree-ment with the retail chain to service one store ora group of stores in a certain area. Such agree-ments usually continue over a period of years.The relationships are usually initiated by growers.When a produce or store manager is contacted bya grower interested in supplying significantamounts of produce to a store or a group ofstores, the information is passed up to the producemerchandiser. The merchandiser then contacts thegrower to evaluate the ability to meet the require-ments of the chain, Requirements may includeassurance that the produce is locally grown andthat it will be of acceptable quality and of suffi-cient quantity. If the grower meets the require-ments, a formal agreement is established. Theagreement may be a list of items that the groweris authorized to bring to the stores, or it may bea broader contract including provisions for com-

Joumal of Food Distribution Research September 911page 31

modity guarantees, contact persons, and growerinsurance. The merchandiser at one chain indi-cated that if a particular store runs out of an item,the produce manager at that store is authorized topurchase it locally if the product meets the chain’squality standards. The merchandiser for anotherchain explained that he encourages growers whocontact him to market through a wholesale distrib-utor if they have sufficient quantity. This allowsthe chain to get the product to every store moreeasily. The wholesaler, however, will not dealwith growers that are too small to provide mini-mally sulllcient quantities.

Requirements for warehouse delivery werediscussed by merchandisers from chains thatoperate their own produce warehouses, Theserequirements presumably hold for warehousesoperated by wholesale distributors as well. Mer-chandisers stressed that the field heat must beremoved from produce as soon as possible afterharvest to extend shelf life. The produce thenmust be graded and packed to strict standards sothat buyers know what they are getting. Theproduce must be packed in containers that can behandled by pallet. All packages should be markedclearly with the grower’s name. To establish agood relationship with the retailer, the growermust provide accurate harvest information and beprepared to stand behind the product.

Retailer Perceptions of Local Growers

Most of the merchandisers interviewed areinterested in dealing with local growers, but holdreservations about the ability of local growers tomeet the needs of the retail market. Most mer-chandisers are concerned about the ability orwillingness of local producers to invest in technol-ogy necessary to remove field heat and extend theshelf life of produce. Most merchandisers alsoexpressed concern over the packing and gradingreputation of local growers. One merchandiserdescribed a “processing mentality” among growersin certain regions: “Why should I [the grower] goto the trouble of merchandising my product in acertain box, with a certain characteristic, when fdra dollar and a half less, I can take it to the pro-cessor. That’s the mentality that they pack underand they wonder why they don’t have good accep-tance” at the fresh retail market.

Several merchandisers believe that localgrowers do a very poor job of marketing whatthey grow. There is also a great deal of concernabout growers’ lack of understanding of the retailsystem. One merchandiser suggested that “pro-ducers need to follow their product all the waythrough the system to understand retailers’ needs. ”A different merchandiser stated “Another impor-tant thing for people to think about is that dealingwith produce is not just putting it in the ground,harvesting it, and putting it on a truck. R’simportant that [growers] try to remember that theyneed to think of it as being their product from thetime it starts as the seed to the time it gets to theconsumer’s plate. I say that because there are alot of farmers that I have dealt with over the yearswho have excellent product. However, when itcomes to harvesting, packaging, shipping, icingand doing all the finer points to get the productinto our back door at its maximum quality, theylose sight of it. ” Another merchandiser felt thatproducers “grow a lot better than they pack. ”That is, local producers are capable of producingfresh fruits and vegetables of commercial quality,but lack the commitment to process and packagethe produce in a commercially acceptable manner.

Comments such as the above suggest that abarrier to entry that local producers must over-come is the perception of merchandisers andbuyers. The only way to improve the image oflocal producers is to establish good, long-termrelationships with retailers. This is especiallyhard for new producers to accomplish because ofwhat one merchandiser termed “the 10yalty fac-tor. ” One retailer said “We have dealt with anumber of growers that have our business; and,even at a cheaper price, it’s going to be hard topry us away from them because of their consistentsize, color, packing and delivery. If we call themup and say that we’re short and need anothertruck load, they’ll have it here for us this after-noon. Those are the kind of consistencies that ittakes a long time to develop with produce retail-ers. ” The existence of such relationships showsthe need for new producers to learn about theretail rnwket. Rather than compete with existingrelationships, producers need to identify commodi-ties having inconsistent supplies or poorly estab-lished supply relationships.


Implications

During interviews merchandisers persis-tently expressed doubts about the willingness ofsmall, local produce growers to adopt practicesconducive to the establishment of marketing rela-tionships. Although small producers lack theeconomies of scale that enable large producers toinvest in equipment and facilities, several institu-tions may provide small firms with the supportneeded to establish relationships. Marketingcooperatives can provide physical facilities thatenable small producers to meet packing and cool-ing requirements. Grower cooperatives may alsomarket collective y, reducing individual costs forlocating buyers. In Virginia, for example, aproposed Farmer’s Market Network would pro-vide more facilities to small growers.

Fruit and vegetable growers traditionallyhave operated with a production concept: con-sumers will favor those products that are high inquality, widely available and low in cost. Thesegrowers concentrate on increasing productionefficiency and producing high quality produce,given constraints of growing conditions. Whilemany producers of staple commodities with estab-lished marketing channels may successfully con-tinue with this approach, new producers or thoseinterested in penetrating a new market shouldadopt the marketing concept. Under the market-ing concept, the firm must determine the needsand wants of buyers in target markets and deliverthe desired commodities more effectively andefficient y than competitors (Kotler). For thefresh produce grower, the relevant target marketis two-fold: both the ultimate consumers of pro-duce and the intermediate buyers must be consid-ered. Familiarity with consumer tastes and pref-erences, especially new consumer trends, is neces-sary. However, the producer must also know theneeds and wants of the retail firms that constitutethe immediate market.

Findings of this research suggest that firmimage is of particular importance for understand-ing decisions related to shelf space allocation andproduce procurement, Full service chains offer agreater variety of produce than other firms in thesample. Most full service supermarket chains,because of their emphasis on uniformity among

stores, allow the least amount of freedom at thestore level for shelf space allocation and use theleast amount of direct store delivery.

Chains that use direct store delivery aremore likely to deal with small producers. Con-versely, chains that require all produce to passthrough their warehouses have greater volumerequirements that may prove prohibitive to smallproducers. While full service chains carry agreater variety of specialty items, they are alsoless likely to work with small producers. Coulda grower of specialty produce provide enough tosupply an entire full service chain? While someretailers felt that specialty items are not carried insufficient quantities to justify new producer entry,a core of specialty products has developed amongfirms of varying sizes and organizational struc-tures. Thus, growers willing to place specialemphasis on quality, handling, and packaging maybe able to supply several retailers with selectspecialty produce items.

Growers looking for a marketing niche needto make initial contact with retailers, since mostdirect store delivery relationships have been initi-ated by producers. Although most firms arehesitant about forming new relationships and havestringent requirements that must be met by pro-ducers, this is an avenue for market entry thatshould not be overlooked. Direct store deliverycould serve as a starting point for a small pro-ducer. By establishing a good reputation forquality and dependability in serving a small num-ber of stores in a chain, the producer might thenbe able to expand production to meet the needs ofthe entire chain,

The results of this study confirm the condi-tions for market entry described by Runyan et a/.:consistent quality, even sizing and grading, properproduct maturity, anticipated arrivals, removal offield heat, and grower organizations. Producersmust meet these requirements before seeking toestablish the informal relationships common to thefresh produce industry. McLaughlin consideredthese relationships to be major barriers to entry.Merchandisers in the interviews also stressed theimportance of good relationships, stating that newproducers would have a hard time penetrating the

Journal of Food Distribution Research September91/page 33

market because of the “loyalty factor” betweenestablished growers and buyers.

Economic behavior underlies buyer loyaltyto longtime suppliers. The goal of the supermar-ket chain in procuring produce is to provide aconsistent supply of goods to consumers through-out the year. Chains invest time and resources tolocate suppliers capable of meeting their needs.Such search costs can be minimized once relation-ships are established with a set of reliable suppli-ers. Also, an established relationship with asupplier protects the retailer from the uncertaintyof dealing with a variety of unfamiliar suppliers.Economic considerations help to explain why oneretailer stated that he would not break from estab-lished suppliers, even if goods could be providedat a lower price. Thus, reliable markets awaitgrowers willing to overcome the barriers to estab-lishing initial marketing relationships with retail-ers.

References

Capps, Oral, Jr. “Changes in Domestic Demandfor Food: Impacts on Southern Agricul-ture. ” Southern Journal of AgriculturalEconomics, 18 (July 1986): 25-36.

Chain Store Guide -- 193MDirectory of Supermar-ket, Grocery, and Convenience StoreChains. New York: Business Guides, Inc.,1989.

Dean, John P., Robert L. Eichhorn, and Lois R.Dean. “Observation and Interviewing. ” AnIntroduction to Social Research, 2nd ed.,John T. Doby, ed. New York: MeredithPublishing Co., 1967.

Eastwood, David B., John R. Brooker, andRobert H. Orr. “Consumer Preferences forLocal Versus Out-of-State Grown SelectedFresh Produce: The Case of Knoxville,Tennessee. ” Southern Journal of Agricul-tural Economics, 19 (December 1987): 183-94.

Epperson, J. E., and L. F. Lei. “A RegionalAnalysis of Vegetable Production withChanging Demand for Row Crops Using

Quadratic Programming. ” Southern Jour-nal of Agricultural Economics, 21 (July1989): 87-96.

Henneberry, Shida Rastegari, and Charles V.Willoughby. “Marketing Inefilciencies inOklahoma’s Produce Industry: Grower andBuyer Perceptions. ” Journal of Food Dis-tribution Research, 20 (September 1989):97-109.

Imming, Bernard J. Produce Management andOperations. Cornell University Food In-dustry Management Home Study Program.Cornell University, Ithaca, New York.1983.

Kotler, Phillip. Marketing Management: Analy-sis, Planning, Implementation, and Clmtrol.6th ed. Englewood Cliffs, N.J.: PrenticeHall, 1988.

Linsen, Mary Ann. “And the Produce Beat GoesOn.” Progressive Grocer. June 1988, pp.131-137.

Lopez, Rigoberto A., Emilio Pagoulatos, and LeoC. Polopolus. “Constraints and Opportuni-ties in Vegetable Trade. ” Journal of FoodDistribution Research, 20 (September1989): 63-74.

McLaughlin, Edward W. Buying and SellingPractices in the Fresh Fruit and VegetableIndustry: Implications for Vertical Coordi-nation. Unpublished Ph.D. dissertation,Michigan State University, 1982.

Nonnecke, Ib Libner. Vegetable Production.New York: Van Nostrand Reinhold, 1989.

“Produce.” Supermarket Business. October1989, pp. 43-50.

Rogers, Richard T. and Julie A. Caswell. “Stra-tegic Management and the Internal Organi-zation of Food Marketing Firms. ” Agri-business: An International Journal, 4(January 1988): 3-10.


Runyan, Jack L., Joseph P. Anthony, Kevin M.Kesecker, and Harold S. Ricker. Determin-ing Commercial Marhzting and ProductionOpportunities for Small Farm VegetableGrowers. USDA, AMS, No. 1146.Washington, D.C. July 1986.

Stegelin, Forrest, Lionel Williamson, and SteveRiggens. To Market, To Marlwt to SellFresh Produce; But Where ? And W%en?Staff Paper # 264, Department of Agricul-tural Economics, University of Kentucky,September 1989.

Journal of Food Distribution Research

Tanner, Ronald. “Computerization: The Futureis Now. ” Progressive Grocer. Volume 66,No. 1, January 1987, pp. 40-44.

Zwingli, Michael E., William E. Hardy, Jr., andJohn L. Adrian, Jr. “Reduced Risk Rota-tions for Fresh Vegetable Crops: An Anal-ysis for the Sand Mountain and TennesseeValley Regions of Alabama. ” SouthernJournal of Agricultural Economics, 21(December 1989): 155-65.

September 91/page 35

shelf space allocation in the produce department...

Documents