Organic Produce Network Exclusive with Frank Padilla: Costco Members Driving Organic Sales
MONTEREY, CA - What I would have given to be a fly on the wall during this conversation! Co-Founder Tonya Antle interviewed Frank Padilla, Vice President and General Merchandise Manager for Meat and Produce, yesterday during an exclusive event titled, What a Year it’s Been, So Far—Organics in 2020. Dropping a bombshell on the virtual crowd, Padilla explained that as one of the nation’s largest retailers, Costco and its member shoppers are driving organic sales growth with their dollars.
According to Padilla, the past five months under pandemic conditions have challenged the retailer to be “nimble” and light on its feet as it works with suppliers to meet unprecedented consumer demand. He noted that the commitment to the organic category has become a priority for many produce suppliers, and has in turn helped bolster the supply chain. He also said ideal growing conditions made for greater availability of supplies during the early stages of the pandemic.
In the beginning of the pandemic, Costco initially concentrated on core organic items, a press release explained. Now, as the supply chain continues to improve, Costco has expanded the number of organic SKUs available to its members. Two products that saw a surprising amount of sales traction during this time period was organic ginger root and organic English cucumbers.
Other staple items that saw increased sales were potatoes, bananas, and citrus, as consumers doubled down on bulk buying. As more shoppers were looking at extended periods of time at home, Padilla remarked that many were experimenting with their home cooking.
“Some of the surprises included organic Brussels sprouts, organic mushrooms, and cremini mushrooms…these are the kinds of things that people are adding to their menus,” he remarked.
Antle also asked about direct-to-consumer options that Costco has made use of, including its partnership with Instacart. Organic sales have done well in this sector, too, Padilla said, indicating that shoppers with the means to do so will continue to promote their health through their buying habits.
Its partnership with Instacart has also allowed Costco to expand its reach. How, you may ask? The shopper fulfilling the order is the one with the membership card, so non-members can take advantage of that. This has increased online sales and organic produce sales.
Although the convenience of online shopping has been extremely beneficial to the retailer and its customers, Padilla noted that brick and mortar locations aren’t going anywhere anytime soon. The “treasure hunt” atmosphere of Costco that has brought so many shoppers into the fold will continue to be one of Costco’s value propositions.
“We need that,” Padilla commented, of the feel of in-person shopping. Indeed, we do!
Obviously, due to both social distancing and health protocols, Costco has curtailed its sampling and demo programs. Since most of what the retailer sells is in bulk format, sampling has become a huge part of its strategy.
“We don’t know when that’s going to come back, but it has been impactful,” Padilla expressed.
Throughout the presentation, Padilla gave a hearty endorsement of the retail community and how it is an amazing outlet for organic suppliers. When sales are spiking, he reminded fellow industry members to stick with organic production and organic producers.
“Retailers can do organics better than anyone,” he stated. Padilla went on to encourage suppliers to get out to stores and look at what products are on the produce shelf and see how they compare to the conventional products in terms of shelf life, quality, and value. “Might benefit everyone to see how your product is standing up out there,” he advised.
The event also featured Steve Lutz of Category Partners, who discussed how well organic sales have done during the pandemic. Essentially, organic produce sales have experienced “no erosion” during the pandemic and continue to out-perform conventional sales and volume growth within the produce category.
Lutz noted that this is being driven by consumers across the category, although there is slight apprehension that the “casual organic shopper” might alter his or her buying habits as prices climb. There is indication that retail produce prices are on the rise, and Lutz said the “casual organic shopper” is more price sensitive than the committed organic produce devotee.
Antle turned to the numbers and saw that while organic produce continues its impressive double-digit growth on an annual basis, it still has difficulty capturing more than 10 percent of total produce sales. Lutz commented that this is based on availability and lack of supplies keep the category from climbing above that benchmark.
In July, however, organic produce sales represented almost 12 percent of total sales. Lutz said that this was the result of increased organic production during the summer, with some fruit categories outperforming that percentage marker simply because summer is the heart of fruit season.
At the end of the day, as the price gap between conventional and organic produce narrows, organic sales will increase. On average, Lutz remarked that the retail price of organic produce is twice that of conventional produce. Illustrating his point, Lutz noted that in high volume categories, such as bananas, carrots, and apples, the price gap is typically much smaller and organic sales do account for a far greater percentage of sales.
To see the full session for yourselves, click here!
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