Tart Cherry Economics and Niche Marketing - Utah State ...

Tart Cherry Economics andNiche MarketingBy James E. NugentMichigan State University Extension

Michigan Tart Cherry AcreageSource:MichiganFruitInventory2000-2001

Michigan Tart CherriesYear1978198219861991199419972000Acreage41,02846,71944,00038,19036,00033,50030,800No. of Farms1,6771,3831,183933846705615

Tart Cherry Yield Trends - MichiganYield (lbs/a)9,0008,0007,0006,0005,0004,0003,0002,0001,0000'72-'76 '77-'81 '82-'86 '87-'91 '92-'96 '97-'01

For the past century the trend inagriculture has been to increaseproduction efficiency through:• Increased yields• Increased mechanization

Total Cost for 10 Acres1996@7,000 lb/a2002@7,000 lb/a2002 @8000 lb/aGrowing$7,123$6,512$6,512Harvest, handling &promotion5,6235,7805,980Overhead7,1739,2649,271Total19,91821,55621,763Cost/lb.285.308.272Change -- $/lb--+.023-.013

Effect of yield on cost/lb.1.21Cost ($/lb)0.80.60.40.202,000 4,000 6,000 7,000 8,000 10,000 12,000 14,000Yield (lb/a)

Average Tart Cherry Income & Cost ofProduction in Michigan60.0Price received/lb50.0Average productioncost/lbPrice/lb (cents)40.030.020.010.00.074 76 78 80 82 84 86 88 90 92 94 96 98 00

Avenues to Success• Low cost producer in a globalcommodity market• Market at higher value

Where will future cost savingscome from?• Increasing yields• Increasing equipment and laborefficiency• Decreasing $$ for external inputs

Marketing at a higher value• 1. Collective (industry) efforts:–CIAB– CherrCo– Promotion – CMI– Research aimed at improving markets:• Health benefits• Specialty product opportunities

Growers’ Returns with and w/o FMOStudy by Dr. Donald Ricks, Ag Econ, MSU$0.250$0.200$0.150$0.100$0.050$0.0001997 1998 1999 2000 2001 Avg.

Marketing at a higher value, cont.• 2. Individual firm efforts– Develop products &/or niche markets athigher value– Unique and different appeal in segments oftoday’s market

Montmorency growth markets•Dried•Juice• School lunch• Future nutraceuticals?

BALATONWhat is the future?

Balaton -- backgroundUjfehertoi Furtos• 30% of Hungarian market– Fresh, preserves, juice & export• Introduced to U.S. in 1984 by Dr. AmyIezzoni• Commercial plantings in ’90’s

Balaton characteristics•Red juice• Higher soluble solids• Ripens one week afterMontmorency• Dry stem scar• Cracks in water whenimmature

Michigan Balaton acreage by yearplanted4504003503002502001501005001995 &before1996 1997 1998 1999 2000

Growers and processors met April 2000Formed Balaton Marketing CommitteeNo $$$Work through existing organizationsMarketing and R&D alliance

Balaton Marketing CommitteeProcessors/Marketers - 3Grower/Processors - 2Growers - 4MSU Extension - 3Suttons Bay Rotary - 1Cherry Marketing Institute - 1MSU Horticulture Dept. faculty - 1

Balaton Marketing CommitteeObjectives• Develop production projections• Identify market segments• Foster new product development• Differentiate from Montmorency• Achieve premium pricing

Balaton market segments2000FrozenFreshNutra.WineFresh2001WineFrozenConc.

Research• Identification & positioningstrategies for high value-addedniche markets• Funding sources:–USDA, MDA, MDA/MSU ProjectGREEEN,– MI Cherry Committee, MI HortSociety

Focus of Balaton research• Glass pack (growthmarket)• Fresh retail• Other consumer products

Cherry MarketResearchBridget Behe, Greg Lang, andAmy IezzoniDept. of HorticultureMichigan State University

Market Research Strategy• Our initial strategy focused on marketsegmentation, a fundamental marketingprinciple to develop knowledge aboutproduct expectations and potentialcompetition• Our secondary strategy will focus onconsumer characteristics in one or moretargeted market segments

Market Segmentation1) Large chain retailers (>500 stores) withnational presence and large footprint (sq.ft. of store >50,000 sq.ft.). N1, N22) Medium chain retailers (

Fresh cherry price per pound (Lansing)Week of July 2Price (in $/lb)$3.50$3.00$2.50$2.00$1.50$1.00$0.50$0.00$2.99$2.99 $2.99$1.98$1.97Kroger N1 Meijer N2 Randal's S1 L&L R2 Horrock's F1Stores

Pilot Study• We selected two “S” type retailers inthe Ann Arbor area to test marketfresh Balaton cherries• Stores were supplied with 20-30 clamshell containers of washed Balatoncherries on two weekends in August• A consumer survey with businessreply envelope was included in eachcontainer

Pilot StudyIn Week 1 (8/2 to 8/5)• Store A sold 70% of the containers• Store B sold all containersIn Week 2 (8/16 to 8/19)• Store A sold 60% of the containers• Store B sold 89% of the containers

Pilot StudyConsumer responses• Received 25% completed surveys• All ate Balaton cherries fresh• Only 2 reported buying freshcherries for baking or other uses• More than half reported sweetnessas “just right” between “too tart” and“too sweet.”

Preliminary Implications of theFresh Market StudyFresh Michigan `Balaton’ cherries will be competingwith late fresh sweet cherries from the PacificNorthwest, a time when retail cherry prices arerelatively highWhen priced similarly to PNW sweet cherries inspecialty markets, fresh `Balaton’ sales wereencouraging

Future ResearchFor 2003, a full-time market researchposition is currently being advertised• Refine market segmentation studies• Expand consumer trait studies• Large-scale Balaton fresh marketstudy• Develop Balaton market reputation asa foundation for future sweet cherry,Danube, etc. high value strategies

Balaton Marketing Summary• Foster profitable new products• Make available commercial quantities• Aim for premium markets with highestvalue• Support product & market developmentfor future larger volume market• Differentiate from Montmorency

Conclusion: Successful high valueniche marketing• Market VALUE, not PRICE• Serve well defined needs and wants withgood profit growth potential• Cater to customers• Develop a clear, innovative, well reasonedmarketing strategy