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1. The Apple in the World
Coping with Unrelenting Change
Desmond O’Rourke
November 2012

2. Major Drivers of Change
• Five major drivers:
 Consumers
 Retailers
 Competitors
 Products
 Society
• How can the apple industry adapt
to and profit from change?

3. Reluctant Consumers
Fall in Per Capita In developed world:
Consumption of Fresh  Older population
Apples, 2000-10
moving to mangos,
0
EU-15 E Japan U.S. papayas, pineapples,
-2 Europe blueberries, etc.
-4  Younger consumers
-6 reluctant to eat apples.
-8  Fewer heavy
consumers of fresh
-10
apples.
-12

4. Population Trends Unfavorable
• Population already falling in
Japan, Eastern Europe.
• Will fall in Western Europe
after 2020.
• North America expecting
another 30 million by 2020….
But birth rate now falling and
immigration slowing.
• Europe faces similar birth
and immigration trends.

5. Negative Effects of Great Recession
• Many millions have lost jobs, incomes,
pensions, homes, other assets.
• Since 2008, “thrift” has replaced
“indulgence”.
• Consumers have reduced food spending,
especially away from home.
• More are buying sale items, using coupons ,
shopping at discount stores.
• Thrifty habits may persist for years to come.

6. Economic Power Shifting
from West to East, but…..
• BRICs economies (Brazil, • BRICs: Less optimism about
Russia, India, China) surged their future markets.
since 2009.
• Trade liberalization under
WTO has stalled.
• There has been a rash of
protectionist measures.
• Political unrest in Middle
East, North Africa, South
Africa, Argentina, China,
Russia, etc.
• Many exporters looking
East, but demand growth
there may be slowing.

7. Fearful Retailers
• Prior to Great Recession, • Hard discounters have
many retailers expanded done well serving the
aggressively. price-conscious.
• Caught unprepared as • Upscale retailers have
consumers turned thrifty. done well serving
• Retailers have serious affluent, quality-
overcapacity. Many have conscious.
sold divisions, • Many mainstream
abandoned markets. retailers, neither upscale
• Many moving towards nor discounters, are
fewer, smaller stores. struggling to survive.

8. Desperate Competition for Shoppers
• Chasing any “hot” issue that might
attract new customers.
• Both pragmatic (energy efficiency)
and elusive (sustainability).
• Often contradictory, e.g. local
sourcing and global sourcing.
• Still pushing numerous standards
(like GlobalGAP) of questionable
benefit to consumers or suppliers.
• Forging joint business plans with
suppliers (covering special
products, packs, promotions, etc.)

9. Modern Retailing Spreading Worldwide
• Multinational and local
supermarket chains expanding
in developing world, increasing
retail competition.
• Mom & Pop stores and wet
markets are under pressure.
• Multinationals are spreading
their standards on food safety,
traceability, the environment,
worker rights, etc., everywhere.

10. Unrelenting Competition in Fruit
• Competition increasing World Apples: Change
within apples/ all fruits.
1994-96 to 2008-10 (%)
• Apple industry moving to 100
large, integrated grower-
packer-marketers. 80
• Intensive production, 60
automated packing, large 40
scale marketing.
• By 2020, forecast world 20
apple production up 0
24%, per capita supplies
up 12%. -20
-40

11. Supplies of Competing Fruits,
1994-96 to 2008-10
Change (%) • Supplies of competing
70 fruits all grew faster
60 than world population.
50 • That growth will
40 continue for some
30 time.
20
• Also snack & beverage
10
manufacturers are
0 increasingly invading
the healthy food space.

12. Major Apple Exporters Expanding,
Battling for Foreign Markets
Million Metric Tons Rank 2000 2010
9
8 1 France China
7
6 2 U.S. Italy
5
4 3 Italy Chile
3
2 4 Chile U.S.
1
0 5 N Zealand Poland
2000 2010

13. Apple Product Mix More Complex
• 1960s & 1970s
 French Goldens
 Washington Reds
 Cape Grannies
• 1980s & 1990s
 Gala, Fuji, Braeburn,
Elstar, Jonagold, etc.
 Premiums for Innovation
Eroded Rapidly.

14. Solution: Managed Varieties (Clubs)
• Sustain price premiums by • Few club varieties have
controlling production, met sponsors’ goals.
packing, marketing across
countries. • Could not demonstrate
superior quality.
• Difficult to control
volume and timing
across markets.
• But, the apple industry
still seeking new,
winning varieties.

15. What Many Retailers and Marketers
Want Now
1. A new variety to which they have exclusive
access.
2. Primary goal is to differentiate themselves
from other retailers or other marketers.
3. Happy with a modest price premium if the
new variety contributes to the overall
competitive advantage of their business.
4. But, the apple industry (not retailers) must
bear the costs of developing new varieties.

16. Time to Re-examine New Product
Development in Apples
PROS: CONS:
New varieties have brought Per capita consumption of
excitement to the apple all apples still falling.
category. Have consumers been
Some club sponsors have enriched or confused?
earned price premiums. Questionable payoffs to
New organizations have much of the investment.
been developed to Is there a better way to
promote specific apple enhance the apple
varieties. industry?

17. Sweeping Societal Changes
• Many countries trying to escape “debt trap.”
• Governments made promises to their citizens
that they cannot meet.
• The number of dependents has surged while
working populations shrank.
• Solutions include reduced government
employment, reduced government services,
higher taxes, or some of all three.
• Hardships and tensions for citizens ahead.

18. Populations (and Markets)
Becoming More Diverse
• Floods of immigrants • Not always so happy
(with higher birth rates) together.
have caused greater
national, racial, ethnic
and cultural diversity in
many rich countries.
• Widening gap in jobs,
incomes and prospects
between knowledge-rich
and knowledge-poor
citizens causing stress.

19. New Force for Societal Change:
“Peer Networks”
• Two dominant forces for 3. Peer Networks. Its tools
change in last 200 years are social media like
have been: Facebook, Twitter and
1. Governments You Tube.
2. Large corporations Information flows freely
Both controlled the flow of between consumers,
information through political and social
centralized processing activists, businesses,
and dissemination, governments, NGOs, etc.
working closely with No one edits information,
national media. or directs its flow.

20. Power of Peer Networks Still Unclear
• Each person controls his/her story (true or false).
• Many use peer networks to spread their philosophies,
attack competing philosophies.
• Twitter has been credited with the rapid spread of the
Arab Spring.
• Facebook could have influenced outcome of U.S.
elections.
• Marketers (from farm markets to Coca Cola and
Walmart) are trying to get peer networks to work in
their favor. Walmart claims 22 million Facebook
friends. Each Walmart store in U.S. now has its own
Facebook page.

21. Technology’s Relentless Advance
Technologies Applications in Apples
Genetic engineering Improve nutrients in fruit. Resist pests
and diseases.
Nanotechnology New chemicals for disease control. Skin
protectants.
Robotics Remote monitoring of crop development.
Harvesting delicate fruit.
Automation Moving apples by machine. Moving
machines to apples.
Neuroscience Deeper understanding of consumer
attitudes, motivations, etc.
Understand new technologies Use them to improve quality, lower
costs.

22. Apple Industry: Meeting the Challenges
• Industry is starting from much better position
than a decade ago.
• Efficiency has improved dramatically in orchards
and packing houses.
• Marketers are larger, better organized.
• Industry has wide diversity of good varieties.
• SmartFresh has improved quality from storage.
• Biggest weakness: It lacks a comprehensive,
professional approach to expanding demand for
fresh apples.

23. Biggest Challenge:
Halting Decline in Per Capita Consumption
Requirements:
1. Better information on the
wants and preferences of
different, specific consumer
segments.
2. Better information on what
will most benefit our retailer
partners.
3. How to better communicate
through old and new media.

24. Set the Bar Higher for New Varieties
• No longer sufficient for a new
cultivar to look and taste good.
• New test: “Can this variety expand
total demand for the apple
category?”
• Does it have unique appeal to
youth, females, ethnic groups, etc?
• Can it make unique health claims?
• Does it contribute to sustainability?
• Does it offer special advantages to
retailers?

25. Communicate More Effectively
with Target Consumers
• Need to change • Must be able to use old media
attitudes/ habits like newspapers and television,
of producers and new media like Facebook.
consumers. • Euro area annually produces 7m
tonnes of apples, worth 3€
billion. 5% = €150 million/year.
• Need €150 million to mount
professional market research
and promotional program.
Exporters could also contribute.

26. Keep an Open Mind on
New Technology
• No technology is good or bad
in itself, it is a question of
how it is used.
• The apple industry has
adopted many new
technologies over the
decades.
• Replace fear with objective
assessments.
• Many new technologies can
help lower costs, improve
quality, protect environment.

27. Expand Sales in
Non-Traditional Markets
• Potential markets vary: • Sales Opportunities Vary:
China, India, Indonesia, Some countries and firms
Thailand, Malaysia, differ may do better to focus
in language, culture, on domestic markets.
affluence, availability of Some may be best suited to
competing fruits, trade selling in specific export
ties, etc. Also differences markets, not in others.
within countries. Need rigorous assessments
Need professional analyses of the capabilities of your
of each potential market. country/ your firm.

28. Asia: Both Promise and Challenge
• Between 1996 and 2010, China/U.S. Dominate SE Asia
Asian apple import volume 100
up 185%, value up 261%. 90
• New record in 2010, over 2 80
million mt of apples, worth 70
60
2 billion euros. 50
• BUT, average prices still less 40
than 12€/18kg. SE Asia 11€, 30
S Asia 10€. 20
10
• Tough competition from 0
China and U.S., but Chinese
prices now rising rapidly.
U.S. China Other

29. Potential Beyond Asia
Many other opportunities
and challenges:
 Russia and neighbors.
 Middle East. Still
wealthy.
 North Africa ???
 South America. Brazil
has World Cup and
Olympics coming.

30. Conclusion
Apple industry challenges can be met if:
1. Industry is willing to provide needed funds.
2. Scientifically evaluates markets at home and
abroad, and promotes accordingly.
3. Will require fresh thinking about one’s
organization, products and opportunities.
4. Will require flexibility and commitment.
5. Payoffs will be positive if necessary
adjustments are made.
I wish you well.