If you're a retailer, are you making a profit in your organic produce section? Do you know the amount of profit you are achieving?
I asked a produce manager why he had an organic produce section in the department. He said, "It's because the company wants it"—a very thoughtless and pessimistic answer. When asked how much money the organic section makes, he didn't know.
Most produce managers spend a lot of their time trying to keep up with the demands of operating their produce department all day. Many are short of workers, making their job even more time challenged. Very often, those hardworking individuals may not take the time to know what categories, sections, or items make a profit—or are losers—within the entire produce department.
Making a profit from every produce department category is vital for meeting a company's need for growth—and survival.
Let's examine some of the important areas influence the profitability of the organic section in a produce department.
- Costs: Organic farm operating costs have risen sharply due to inflation. Those costs are passed on to retailers and will eat away at the gross profit if prices are not raised at the store level.
- Retails: Being fueled by higher costs, the price of organic produce has reached a do-or-die situation. Retailers cannot live with gross profits in the 30 to 35 percent range from the produce department. But increasing retails to the 40 percent level could restrict shoppers from paying exorbitant prices, as they may choose to substitute more affordable conventional items.
- Supplies: The higher cost of packing material has also contributed to the product price. Containers, bags, wraps, etc. are adding to increased organic product costs.
Making a profit from every produce department category is vital in meeting a company's need for growth—and survival.
- Quality: Organic produce will sell better if the condition has a premium appearance and is “farm fresh.” Most shoppers will choose quality organic produce if they know good quality will have less defects and last longer, resulting in minimum waste.
- Merchandising: When you sell more product, you will make more profit. Sometimes you have to step back and analyze the organic section in order to identify what is working and what needs changing. Merchandising displays are a skill and strategy. It is possible to generate more profit by displaying an organic item or two on an end cap rather than just leaving it in a small row in the section.
- Promotions: Connecting with consumers is a huge part of selling more organic produce. Advertising promotions will draw shoppers to your store, especially loyal organic customers. Promotions can move four times the volume, which will result in four times the item profit.
- Shrink: Organic produce has a shorter shelf life than conventional items because it doesn't have preservatives. When prices increase during inflationary periods, it can spur customer resistance to making purchases. This causes the product to sit rather than sell, which leads to waste, and these shrink losses chip away at profit.
- Competitors: Most grocery stores handle organic fresh produce. Some have large sections on refrigerated wall cases, and some others have only a limited number of items. Are you as good or better than your competition in organic produce?
In summary, every category in the produce department has to make a profit. If you don't know what the organic section is earning after the shrink, it could lead to an unbalanced profit for the entire department.
If profit is not monitored and managed, it will quickly slip down the drain. That's when management will come knocking on the door of produce directors.
Ron Pelger is the owner of RonProCon, a produce industry advisory firm. He is also a produce industry merchandising director and a media writer. He can be contacted at 775-843-2394 or by e-mail at email@example.com.