Value Added Apple Products: A Marketing Study Agribusiness Economic Outlook Conference December 14, 1999 Modified by Georgia Agriculture Education Curriculum Office June, 2002

Overview l Background l Inter-departmental Research Project l Marketing and Economic Analysis Research Plan l Processor Survey Results

US Per Capita Apple Consumption: 3-Year Averages

US Per Capita Processed Apple Product Consumption: 3-Year Averages

Changes in US Consumption: l Fresh Apples: +9.4% l Processed Apples: +60.8% Juice: % Canned: -3.9% Dried: +11.7% Frozen: +52.0%

US Per Capita Consumption: Canned Apples and Fruit

US Per Capita Consumption: Apple and Fruit Juice

US Per Capita Consumption: Frozen Apples and Fruit

US Per Capita Consumption: Dried Apples and Fruit

Apple Prices, 3-Year Averages:

Processing Apple Prices, 3-Year Averages:

Prices Changes: l Fresh: +55.4% l Processing: +30.1% Canned: +39.7% Juice: +17.0% Frozen: +49.2% Dried: +12.1% Inflation: %

Inflation Adjusted Price Changes: l Fresh:-34.7% l Processed: -45.4% Canned: -41.3% Juice: -48.6% Frozen: -37.3% Dried: -52.9%

US Apple Production (5-Year Rolling Averages)

Apple Production: US, China, World

Processing Apple Production

Apple Utilization: US and NY, 1997

Marketing Challenges l Raw product supply l Mature markets for finished products l Environmental concerns l International competition l Consolidation l Profitability l Labor

MARKET SHARES FOR U.S. GROCERY CHAINS

TOP 10 GROCERY DEALS IN 1998

TOP GROCERY DEALS IN 1999

EVIDENCE OF CONSOLIDATION WHOLESALERS Sources: 1 Private Label, March/April Food Distributors International

Development of an Environmentally Sound, More Profitable System for Production and Marketing of Value Added Processing Apple Products in the Northeastern United States Project Goals lDevelop a more environmentally sound, cost- effective apple production and pest management system lStimulate growth of apple processing industry with new technologies that support commercial production of diversified, high value apple products lAssess economic impacts, marketing potential, and consumer reactions to new products

Project Participants l Entomology Harvey Reissig Art Agnello l Plant Pathology Wayne Wilcox l Horticulture Terence Robinson Steve Hoying l Food Science Cy Lee John Roberts l Agricultural Economics Brian Henehan Jerry White Kristin Rowles

Marketing & Economic Analysis Objectives l Economic analysis New production systems l Marketing analysis Marketing opportunities Consumer acceptance of new products

Economic Questions l What are the costs of the new production systems? l Are the new production systems economically feasible in the processed apple industry?

Marketing Questions l What is the condition of current markets for processed apple products? l Where are the best, new marketing opportunities for processed apple products? l What are the characteristics of industry vitality?

Marketing Questions l How do current consumer trends affect the industry? l What do consumers want in new processed apple products?

Recent Marketing Research l Industry overview l Competitive analysis l Processor survey l Universe of products l Consumer trends l New product evaluation l Advisory Council

Marketing Research Plan l Focus Groups Consumers New products Preferences Chefs l Surveys Retail food buyers School foodservice

Marketing Research Plan l Foreign markets l Costs of production l Case studies/Benchmarking Apple industry Other industries

Processor Survey l Interviewed 21 processors, July to September, from New York State 2 from Pennsylvania 1 from Massachusetts 2 from Virginia 1 from Vermont

Processor Products l Apple Products Applesauce Apple Juice Cider Hard Cider Frozen Apples Cider Vinegar Pie Filling Canned Apples Apple Butter Dried Apples Baby Food l Other Products Juice drinks/ades Spring water Iced tea Frozen fruit Fresh fruit

Processor Apple Purchases l 34.6 million bushels purchased per year l 12.4 million bushels purchased from NYS growers per year

Processors’ Customers l Retail food chains (10) l Brokers/wholesalers (9) l Foodservice (5) l Independent retail stores (3) l Direct marketing (3) l Bakeries (3) l Food processors (3) l Government (3)

Processors’ Purchasing Activity l Direct from growers (15) l Use brokers (6) l Co-op (2) l Other factors Buy in bulk trailers only Track pesticide records Diverse geographic range Grow our own apples West Coast apple prices Year round

Preferred Suppliers l Long-term relationships l Loyalty l Honesty l Dependability l Quality l Pesticide records

New York State Factors l Electric rates l Proximity to growers l Freight l Size of crop l Long-term relationships l High acid?

Major Strategic Challenges l International trade l West Coast competition l Labor availability l Loss of growers and processors l Lack of investment in marketing l Consolidation of customers l Oversupply l Environmental regulation

Technology l “Nothing revolutionary on the horizon” l Packaging innovation l Need for better storage to support year round operation

Processors’ Outlook l 8 Negative, 4 Neutral, 2 Positive l Concerns for future Profitability Oversupply Foreign competition Lack of innovation Stiff price competition Consolidation Productivity