Opinion: peeling away hyped-up apple expectations
By Dawn Gray Global Consulting founder and president Dawn E Gray
Albert Einstein is quoted as saying “ the definition of insanity is doing the same thing over and over again and expecting different results". Perhaps we overuse this quote in the fresh produce industry because we practice it so often. Please believe me I am not being sanctimonious. Having spent more than three decades on the supply side I've participated in, and lived this reality more times than I care to count.
Next info the fray? The 2012 apple crop. We’ve all been reading a staggering number of articles concerning the size of crop. The daily, weekly and seasonal e-zines, and industry publication updates are full of stories telling us about the devastating losses in Michigan, major losses in New York and significant hail damage in Washington.
The World Apple and Pear Association (WAPA) is calling for the apple production in the EU to be significantly lower than average given unfavorable climatic conditions during the growing seasons across Europe.
As we look at where we are today, Southern Hemisphere stocks are moving along nicely and we are seeing strong FOB (freight on board) prices on Californian galas. Fantastic right? There is plenty of optimism amongst growers, shippers, packers and marketers that "this season" we will be able to provide strong returns to growers. We hear the tongue in cheek comments like "hey, even my dear old blind auntie could sell this crop for big money" (no offense intended to any blind aunties).
Okay....deep cleansing breath. Let's take another look from the consumer perspective. In North America, current prices on California galas are running from US$44-48, while storage crop grannies and reds are at US$34-38. From all the retail data I’ve been able to pull there is almost no promotional activity happening at retail on apples with everyday pricing running from US$1.99-3.99 per lb.
As a comparison, nectarines, peaches and plums are being promoted at US$0.89-0.99 per lb, Table grapes are gearing up promotions at US$0.99-1.29 per lb, imported citrus are being promoted at a per lb equivalent of US$0.60-0.75 per lb.
Strawberries are being promoted at an equivalent of US$0.99-1.25 per lb, and watermelons - always a summer favorite - are being promoted at US$0.33-0.44 per lb.
As of Aug. 10, the USDA National Agricultural Statistics Service is calling U.S.-produced apples to be about 8.1 billion lbs, down from 9.4 billion in 2011. The USDA has pegged the Washington crop at 5.7 billion lbs, up from 5.4 billion lbs in 2011.
So, as we head into the 2012 crop of Washington apples with little or no promotional activity, are we setting ourselves up for a big fall? We know that these days consumers are "shopping for the deals". They are paying attention to what retailers are promoting and spending their dollars accordingly. We know from retail data that the "sweet spot" for moving apples is US$0.99 per lb for the conventional varieties and US$1.99 per lb for the more premium varieties.
And it’s even more complex than just price. Customers today will compare prices across categories and compare selections and deals across channels.
How could retailers use apples as a channel strategy? Could Target and Wal-Mart build a killer "Back to School" promotion with backpacks, lunchboxes and apples?
As marketers we are tasked with achieving the best possible grower returns. Certainly that is as it should be with growers bearing all of the financial risk. FOBs in the high 30’s to high 40’s feels great from that respect. And all those articles talking about short crops and devastation in various growing regions fuels our belief and desire to achieve those prices. But - and there is always a but - what will happen when the retailers and consumers weigh in?
With bountiful crops of alternative fruits, will the apple industry hold prices too high too long for what feels like all the right reasons? Certainly no sales desk wants to be the first to "bust the price", and the battle for the share of shelf and stomach is as strong as ever.
Certainly this is not just an "apple thing". Dear old Albert's quote has been lived across many crops, many times.