Page 26 - February2019

“This is true of the berry, apple, carrot, citrus and potato categories. However it is a great way to get conventional shoppers to try organic items,” Spezzano adds.
Similarly, when strawberries are on sale at a great price it can affect other berries; in vegetables there can be trade-offs between broccoli and cauliflower, as well as carrots with other veggies.
“Keep in mind the produce department has deep discounts on their ‘hot’ specials and great values on all other items in their ad,” he says. “Except for the EDLP (everyday low price) players like Walmart and Aldi, you create the fervor to buy more when on special because your food dollar can go so much further.”
Andres Ocampo, director of operations at HLB Specialties in Fort Lauderdale, FL, claims there are complementary relation- ships within the tropical category that can be harnessed through cross-promotions.
“From what we have done in the past, there might be a tropical push with the retailer where they might put pineapples, mangos and papayas on ad,” he says.
“Sometimes it’s a little hard to get all three items to be able to do promotional volumes and prices at the same time, but it does increase the impact of the ad. If you call it a tropical ad instead of a papaya ad or a mango ad, it does help.”
He adds that in the company’s experi- ence, limes have proven a great comple- ment to papayas as well.
“That’s probably the item they combine best with because some people like the mild flavor of the papaya but some people like to spike it with a bit of lime...there are opportunities there where they can incen- tivize consumption of both items.”
Spezzano adds the exposure of placing limes with beer – like placing mushrooms with steaks, lemons with fish and ripe avocados with chips – can increase sales by as much as 25-75%.
CRUNCHING NUMBERS
The National Mango Board (NMB) in Orlando, FL has one of the most robust data sets of any commodity board for determining price responsiveness. But rules that govern these boards mean representatives cannot speculate on future pricing, while the group has a mission to promote the fruit from all origins.
This means the NMB’s director of research Leonardo Ortega cannot comment on elasticity for mangos from different origins, but he can discuss past observations and findings.
WHEN ELASTICITY CHANGES: STAYING AHEAD OF THE CURVE
Limes are a notoriously inelastic fruit given their necessity in many cocktails. HLB Specialties, Fort Lauderdale, FL, only imports organic limes, which Andres Ocampo, director of operations, believes brings more protection against price responsiveness.
“But also in conventional limes I remember three years ago when they were hitting crazy numbers like $150 per box,” he says. “They had become staples so foodservice and some retailers had to have the limes anyway.”
“Some people were trying to replace limes with lemons, but just temporarily. They still had to have the limes as soon as they were made available. I would say with limes that threshold was very high.”
The threshold he is referring to is the point on the demand curve where elas- ticity starts to change, and this is perhaps the most complicated part of applying responsiveness-based pricing strategies; it’s where the science becomes more of an art.
“This sort of textbook illustration where we show a straight line and talk about elasticity and think people’s degree of sensitivity remains the same regardless of
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what today’s price is, I think that’s wrong,” says Brad Rickard, associate professor of applied economics at Cornell University.
“These threshold points are like little kinks in that curve, so you hit that threshold point, and all of a sudden, that line is just actually a little backwards esca- lator where it kinks in or out and that defines a new price elasticity,” he says. “That’s often how we try to model it.”
Ocampo says that threshold point where demand becomes more elastic is clearly seen in papayas.
“Let’s say we were selling papayas at $17 per box. If we got to $20-21, we don’t notice too much of a change in volume,” he says. “It seems to me that if it gets to a point where prices are beyond $23-24, then we see a significant drop.”
And the equation is often, but not always, similar in the opposite direction. You can cut price and volume doesn’t really move much, unless you’re undertaking a concerted effort to bring attention to the discount.
As is the case with bananas, Ocampo highlights the difficulties of moving extra volumes of other inelastic items.
“Let’s say the retail price for a lime is
$1 a piece. If they drop it to 90 cents or 80 cents without doing any special ad or advertising, I don’t think there’s going to be an uptick on purchases of limes,” he says.
He explains the situation for a niche product like goldenberries is similar, having really only made significant traction in foodservice.
“You’re talking about hotels and restau- rants that either use it or not,” he says. “If a chef tells his purchasing department that he needs that fruit, they are willing to make concessions and find it; only for the cheapest available price but the point is they need the product.
“The same goes the other way. If I don’t want it, I’m not going to buy it even if it’s almost for free. The more exotic the item, the less flexibility there is in price.”
Ocampo observes that elasticity can change from between seasons and sources of origin as well.
“I see that with mangos for example. During the Mexican season the prices of mangos are very low, and you can promote aggressively and move volumes,” he says. “When the season from South America is on, obviously the prices are different.” pb