Last year marked several shifts in the retail sector including buy-outs and exits, but what is in store in 2012? At www.freshfruitportal.com we catch up with industry consultant Dick Spezzano, who expects consolidation will continue. He is bullish on the prospects of mandarins, wary of Peruvian avocado entry and concerned about the effects of vine disease Psa-V on the kiwifruit market.

The changes taking place in the retail sector have come at a time of economic constraints, despite some promising signs when it comes to sales.

Dick Spezzano

"The U.S. economy is slowly rebounding and the most recent major food retailers are posting increases in continuing unit sales. However, the increases are barely keeping up with food inflation," he says.

"They were hunkered down with reduced Capex (capital expenditure) spending on major remodels and new stores, and now they are loosening the purse strings a bit and are doing a bit more of both."

It is a scenario that is forcing many companies to re-consider their options and re-shape operations.

"Regional consolidation will continue.  We have seen Schnucks sell off 10 stores to Kroger in a geographic region where they felt they couldn't compete, and Kroger sold them eight stores in a region for similar reasons.

"Safeway is exiting the Philadelphia area with its sale of 16 stores to Giant and will attempt to sell close to the rest of them. We may see Safeway do the same with their Dominick's division.

"If you listen to Tesco this will be the break-even year for their Fresh & Easy U.S. division. I believe if they hit their projected US$200 million loss for 2011-12 that will bring them to about US$1.1 billion in operating losses since entering the U.S. market in 2007."

Spezzano highlights that this figure for Tesco does not account for its capex investments in DCs (distribution centers), stores and equipment.

"My guess is that the number is probably north of US$700 million. It's also worth noting they announced that they will close, but retain the leases, on 12 underperforming stores."

Spezzano also expects the larger chains will feel a greater impact from smaller and independent stores in 2012.

"The rise of the independents will continue in the large urban areas of the U.S. in California, Boston, Chicago, New York, New Jersey, Florida, Minneapolis, Houston, Dallas and other areas, as conventional supermarkets continue to close underperforming stores.

"Now many of these stores are in the fringe areas of the urban markets and the independents are learning how to operate in those areas.

"The impact of the smaller and specialty stores will be more felt by the major and large regional chains; Save- a-lot, Aldi, Trader Joe's, The Fresh Market, Wal-Mart's small store, Target's Fresh P store, and probably Fresh and Easy's 3,000 sqft store."

He says the rise of the dollar store will also be one to look out for.

"The Dollar stores are starting to impact the food business with their very large store base, small real estate needs, and ability to operate in urban and suburban areas. Keep in mind many dollar stores are stocking some perishables and that includes fresh produce.

"The 99c stores operating in California, Arizona and Texas stock about 40 fresh produce items.  This will be an advantage for the produce."

Mandarins and avocadoes

Spezzano says foreign suppliers have a great opportunity in the U.S. mandarin market this year.

"In 1999 the U.S. was importing about 50 million 5# boxes of clementines from Spain and Morocco and none were grown in the U.S. With the vast plantings of seedless mandarins in California, with current production of about 70-80 million 5# boxes and the importing of about 20 million for a total of 90-100 million boxes, it shows that the U.S. consumer loves the fruit.

"South America can fill the void between April and November, with probably an additional 50-80 million 5# boxes. What a great opportunity."

Peruvian mandarins were well-received last year, when the Andean country also gained access to the U.S. for its avocadoes without cold treatment. With a full season available this time, Peruvian avocado growers are preparing for a big push of product into the U.S. market. Spezzano says this could cause difficulties for local growers.

"Any time you increase your supply by 30% in one season you have an impact. The good, or bad news is they will come in probably in May, versus August last year. In August, the Californian season was winding down but May will be the heart of the Californian season.

"Last year the Californian growers enjoyed a very good season on volume and FOB (Freight on Board) prices. The Californian Avocado Commission has done a good job of positioning the Californian grown as "home grown". I believe this will help in the market place.

"When California had the U.S. market to itself they had a high of 500 million pounds and then Chile started marketing to the U.S. and it went to 700 million pounds. Now with the addition of Mexico and a bit of Peruvian fruit it went to 1.1 billion pounds."

He says the U.S. has not reached its maximum level of avocado consumption yet, but the Peruvian full season entry will hurt wholesale pricing until demand can catch up.

"Peru will have to improve its export pack and make sure the fruit has enough oil content to compete with fresh Californian high oil content fruit."

New Zealand kiwifruit

Southern Hemisphere kiwifruit exporters faced profitability challenges last year, while New Zealand has been battling vine disease Psa-V for well over a year now. This has led to a 7% forecast decline in expected Southern Hemisphere kiwifruit exports, but could this be for the best when it comes to prices for exporters?

"Probably not. The export packs of Chile and Italy, and the domestic packs of the U.S. crop is not to the standard of the New Zealand pack," says Spezzano.

"I believe if the kiwifruit industry would duplicate the model of the avocado industry to provide ripe fruit at retail you would see a dramatic increase in consumption. Also at one time there was a lot of promotional money spent by New Zealand to push the fruit but we no longer see this in the U.S."

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