Ov 4“. - _. :— .:.~I:-: u m‘wuo~.~t'°v' "" 0.. Ont ‘ ""‘~'O"Iv to. 0 no'Oo n-.. . JCNOCOQC .... 4-WHA~4W £4.199Q-QN4 .0 '- --.. 0-m~pl~lOIlO - vooa’0<.‘v~. 0"‘IQA‘QCO ‘. ~ ‘01 THE PROCESSOR To CONSUMER MARKETING CHANNEL-s. AND FLOWS or RED TART CHERRlES AND ~CHERRY Paooucrs Theasis {gr the: Degree of M. S. {\MCHIGAN yST‘ATE UNIVERSITY ‘ fié‘rmid L. Nye ' 1963 2;. ; ;;§1§-_ .Z :0-“ '. 3 um um; W!!! 1m M w W [:1 u Lg PLACE IN RETURN BOX to romovo this checkout from your record. TO AVOID F INES rotum on or bdoro date duo. DATE DUE DATE DUE DATE DUE I I __I |__:I ”m WWI—jg OWI0131 Q 6 I II I I I I MSU Is An Affirmative Action/Equal Opportunity Institution W W1 -7.—~.__‘, THE PROCESSOR TO COI‘ISUMER MARKETING CHAI‘INEIS AND FLOWS OF RED TART CHERRIES AND CHERRY PRODUCTS By Jerrold L. Nye A THESIS Submitted to M;chigan State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Agriculture Economics 1963 /\, s ‘ T , I Agproved by Li (,LzLL. léfz ( Lfigfl;LLJ'/: /(///\ Acknowledgements I wish to express my sincere gratitude to Dennis L. Oldenstadt for his supervision and encour- agement in the preparation of this thesis, as well as to many other faculty members and fellow graduate students who contributed valuable comments and sug- gestions. I wish to thank the Department of Agricultural Economics for the financial assistance and the facili- ties which made this study possible. Further, I would like to acknowledge those ‘members of the American Business community which gave the author access to rather confidential information, without which parts of the study would have been im- possible.‘ Finally, I would like to thank my wife, Marcia, for her patience and understanding, as well as her help during the progress of this thesis. ABSTRACT THE PROCESSOR TO CONSUMER MARKETING CHANNELS AND FLOWS OF RED TART CHERRIES AND CHERRY PRODUCTS by Jerrold L. Nye This study is directed towards providing benchmark data on the mnrketing channels and flows of tart cherries and to discuss potential changes in these factors. To aid in the development and discussion of these factors a flow diagram was developed which outlines the routes and the magnitude of these routes of tart cherry movement for 1961. The size of the various marketing flows were derived from statis- tics gathered by the U. S. Department of Agriculture, processor organiza- tions, and from trade publications. Further information was obtained by personal interviews and correspondence with a number of commercial pie makers and cherry processors, and from a questionnaire sent to many of the large fresh and frozen pie manufacturers across the nation. The seasonal consumption patterns and information on per capita consumption were obtained from the MSU Consumer Panel. Single equation, least squares regression techniques were employed to giVs indications of the probable trends in the consumption of various cherry products. The marketing of red tart cherries has been categorized into two primary series of flows. The first is the flow of the retail packs of canned and frozen cherries, and of fresh cherries, through retail outlets to consumers. These products reach consumers after passing through only one processing stage. Jerrold L. Nye The second series of flows are the flows of institutional pack canned and frozen cherries into intermediate processing or remanufac- turing plants which change their form from cherries to cherry products. These cherry products, primarily cherry pie, reach consumers through supermarkets, restaurants, public supported institutions and other similar outlets. The large number of substitute products give tart cherries a relatively elastic demand and therefore even a small change in price will have a large inverse effect on the quantity of cherries sold. The most significant trend in the marketing of tart cherries is the consumer preference for convenience products, even at a higher price. The cherry products showing the greatest increase in consumer acceptance since 1955 have all been convenience products. These products are fro- zen retail cherry pies, fresh cherry pie, and canned cherry pie filling. This study suggests several programs to help eliminate some of the problems in the tart cherry industry. They are: (1) Increased energy towards development of more convenience tart cherry products; (2) In- creased promotion of selected cherry products in selected areas; (3) Standardization of product quality; and (4) Greater use of new technology in the growing and processing of cherries so that growers and processors any operate on.a lower margin. TABLE OF CONTENTS Page LIST OF TABLES . . . . . . . . . . . . . . . . . . . . . . iv LIST OF ILLUSTRATIONS. . . . . . . . . . . . . . . . . . . vi Chapter I. INTRODICTION. . . . . . . . . . . . . . . . . . . 1 Problem Survey of Past Literature Objective Procedure II. THE TART CHERRY MARKETING FLOWS . . . . . . . . . 9 Introduction The Market Flow Diagrams Definition of Flow Segments Summary III. TRENDS IN RETAIL SALES OP RED TART CHERRIES . . . 21 Introduction Fresh Sales Canned Retail Cherries Commercial Pie Filling Frozen Retail Cherries General Consumer Panel Summary IV. HOME BAKED CHERRY PIE CONSUMPTION . . . . . . . . 43 Introduction Factors Associated With Household Pie Baking Regional Variations in Cherry Pie Consumption Trends in Home Baking of Cherry Pie Summary V. MARKETING OF CHERRIES THROUGH FRESH BAKED COMMER- CIAL PIES O O O O O O O O O O O O O O O O O O O O 53 Introduction Institutional Fresh Pie Regional Consumption Patterns of Institutional Cherry Pie ii TABLE OF CONTENTS - CON'T. Chapter Page Fresh Retail Pie Seasonal Consumption Pattern for Fresh Retail Cherry Pie Social and Economic Factors Affecting Pie Consumption Summary VI. ‘MARKETING OF CHERRIES THROUGH FROZEN COMMERCIAL PIE 0 O O O O O O O O O O O O O O O O O O O O O O 78 Introduction The Trend in Retail Frozen Cherry Pie Production Regional ConsUmption Pattern Seasonal Consumption Pattern The Effects of Price Changes on Pie Consumption The Effects of Varying the Amount of Cherries Daed in Pies Institutional Frozen Cherry Pie Summary VII. 'MISCELLANEOUS MARKETING FLOWS OF RED TART CHER- RIES O O O O O O O O O O O O O O O O O O O O O O O 103 Introduction Cherry Confections The Flow of Cherries to Restaurants and Institutions Government Purchases and Exports Other Uses of Institutional Pack Cherries Summary VIII. SUMMARY AND CONCLUSIONS . . . . . . . . . . . . . 115 Summary Conclusions ”Emu A O O O 0 O O O O O O O O O O O O O O O O 0 O O O 125 ”Emu B O O O O O 0 O O O O O O O O O O O O O O O O O O 138 BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . . . . . 143 iii 10. 11. 12. LIST OF TABLES The Estimated Index of Regional Tart Cherry Consumption . . . . . . . . . . . . . . . . . . . Socio-Economic Factors Affecting the Home Baking of Cherry Pie, Expressed by the Estimated Percent of Households Baking during a One Week Period . . The Average N mber of Cherry Pies Utilized per week by 132 Institutions by Size of Establishment and Source of Pies, Detroit, Michigan, 1960 . . . . . The Estimated Total Pounds of Fresh Institutional Size Cherry Pie Han factured by Region, 1950-61 . The Estimated Pounds and Value of Retail Cherry Pie Sold by Multi-Outlet, Home Service, and Grocery Chain Bakeries in 1954 and 1958 . . . . . The Estimated Consumption of Retail Frozen Cherry Pie by Region in 1961 . . . . . . . . . . . . . . The Seasonal Index of Families Serving Selected Flavors of Frozen Pie in 1959 . . . . . . . . . . The Average Index of Retail Prices Paid by Con- sumers for Frozen Cherry pie in Representative Cities Across the Nation, 1959-61 Average . . . . The Percent of Restaurants Purchasing Fruits in August and November of 1955 by Form . . . . . . . The Percent Distribution of Restaurant Purchases of Red Tart Cherries Within Regions . . . . . . . The Percent of Restaurants Purchasing and the Relative Quantity of Frozen, Canned, and Fresh Tart Cherries Purchased by Size of Restaurant . . The Estimated Total Consumption of Retail Pack Tart Cherries, 1959-61. . . . . . . . . . . . . . iv Page 23 45 59 62 66 84 86 92 107 108 108 117 Table 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. LIST or TABLES - can't. The Estimated Marketing of Institutional Pack Tart Cherries by Type of Industry, 1959-61 . . . The Estimated Consumption of Red Tart Cherries by Type Of PaCk, 1950-61 a o a a o o a o a o o o The Pounds of Tart Cherries Marketing in the Form of Frozen Cherry Pie, and the Pounds of Frozen Cherry Pie Moving into Retail and Institutional Outlets, 1955-61 . . . . . . . . . . . . . . . . The Pounds of Tart Cherries Purchased by the Government and Exports, 1950-61. . . . . . . . . The Estimated Utilization of Frozen Cherries by State and Region in 1961 . . . . . . . . . . . . The Estimated Pounds of Fresh Commercial Cherry Pie Sold in Institutions and Retail Outlets and the Amount of Tart Cherries Used . . . . . . . . The Total and the Per Capita Sales of Commercially Prepared Fresh Cherry Pies by State and Region for 1954 and 1958. . . . . . . . . . . . . . . . A Conversion Table for Determining the Estimated IAmount of Cherry Pie or Fruit from a Given Series Of Data. 0 0 O O O O O O O I O O O O O O O O O O The Estimated Percent of Homemakers Baking one or Here Cherry Pies During One week in April, May, or June of 1955. . . . . . . . . . . . . . . . . Average Per Capita Expenditure of Tart Cherries and Cherry Products by Period of 1954-1958 . . . Page 118 126 127 127 128 131 132 134 135 137 LIST OF ILLUSTRATIONS Figure Page 1. A Flow Diagram for the Marketing of Red Tart Cherries, 1961 Dat‘ O O O O O O O O O O O O O O O 11 2. Fresh Tart Cherry Consumption, 1950-61. . . . . . . 25 3. The Seasonal Per Capita Expenditure Pattern for Canned Retail Tart Cherries, 1952-58 Average. . . 28 4. The Pounds of Retail Canned Water Pack Cherries Consumed During the Period 1950-61. . . . . . . . 30 5. The Seasonal Per Capita Expenditure Pattern for Prepared Pie Filling, 1955-57 Average . . . . . . 34 6. The Consumption of Retail and Institutional Pack Canned Pie Filling for the Period 1955-61. . 36 7. The Seasonal Per Capita Expenditure Patterns for Retail Frozen Cherries, 1954-58 Average . . . . . 38 8. The Pounds of Retail Frozen Cherries Consumed During the Period 1950-61 . . . . .-. . . . . . . 40 9. The Estimated Pounds of Home Baked Cherry Pie During the Period 19 50-61 0 O O O O O O O O 0 O O 51 10. The Estimated Pounds of Insitituional Fresh Commercial Pie Consumed, 1950-61. . . . . . . . . 57 11. The Per Capita Consumption of Institutional Cherry Pie, 1950-61 0 O O O O O O O O O O O O O O 58 12. The Seasonal Per Capita Consumption Pattern for Commercially Prepared Cherry Pie for NSC Con- sumer Panel Households, 1955-58 Average . . . . . 68 13. A Comparison of the Average Price Per Pound for Retail Commercially Prepared Pies and for Institutional Pack Frozen Cherries by Quarter, 1953-57 . . . . . . . . . . . . . . . . . . . . . 72 14. The Estimated Pounds of Frozen Retail Cherry Pie Consumed During the Period 1955-61. . . . . . 81 15. The Estimated Quarterly Consumption of Retail Frozen Cherry Pie, 1958-61. a o a a o a o o o o o 82 vi Figure 16. 17. 18. 19. LIST OF ILLUSTRATIONS The Seasonal Index of Families Serving Fresh and Frozen Commercial Cherry Pie . . . . . . . . . . The Relationship Between the Quarterly Average Price Per Pound for Frozen Cherry Pie and the Quarterly Average Price for Institutional Frozen Cherries, 1958-61. . . . . . . . . . . . . . . . The Relationship Between the Price of Institutional Pack Cherries and the Amount of Government Pur- chases and Exports . . . . . . . . . . . . . . . The Average Monthly Index of Consumption of A11 Tart Cherry Products . . . . . . . . . . . . . . vii Page 88 93 112 120 CHAPTER I INTRODUCTION PROBLEM The production of red tart cherries has trended upward over the last seven years. The demand for tart cherries which had been declining rapidly after World War II leveled off around 1956 with the introduction of retail size canned pie filling and frozen cherry pies. The demand, however, has not yet caught up with the rising production as indicated by the decline in tart cherry prices after taking into account changes in quantities available for sale. The grower price for tart cherries has decreased from an average of 7.94 cents during 1953-57 to an average of 7.02 cents during 1958-62. This 12 percent decline in price represents a reduction in the total revenue to growers alone of almost 2.1 million dollars a year at the 1958-62 average price, for a normal crop of 250 million pounds of tart cher- ries. The purchasing power of the return from a pound of tart cher- ries has declined even more. According to Dr. C arleton Dennis this may be only a rather short run phenomenon.1 His research indicates that the industry is currently in the trough of a cyclical trend in tart cherry prices. Therefore, according to Dennis, prices are due to improve in the next few years and reach a high by 1980. 1C. C. Dennis, Tart Cherry Pricigggin the Long Run, Depart- ment of Agricultural Economics, Michigan State University, 1962. 2 The economic position of this or any industry is dependent on many factors. One of the most important is its ability to ad- just to changes in consumer demand. In order to make these adjust- ments, people in the industry require adequate information on the economic aspects of production and marketing. Most of the information currently being tabulated for the tart cherry industry is concerned with the production of tart cherries and data on products produced by cherry processors. Very little in- formation is available on the flows or marketing channels for tart cherries beyond the processor level. Since nearly 95 percent of all tart cherries produced annually in the United States are either canned or frozen, knowledge of their distribution pattern and uses is very important. Through increased understanding of the consumption patterns and marketing channels it may be possible to significantly influence the consumption of tart cherries by adjusting present marketing methods and through selected promotion. Therefore, this thesis is directed toward furthering the understanding of the consumption pattern and marketing channels for red tart cherries. This under- standing will be enhanced by determining and projecting past and pre- sent consumption patterns and by combining fragmented secondary data with newly obtained primary data. SURVEY OF THE LITERATURE A review of existing literature has shown that in the area of cherry consumption very little economic research work has been done 3 to date. Nor has there been a significant amount of research done on the distribution pattern of tart cherries beyond the processor level. One of the best studies available on cherry consumption is Ezends and Characteristics of Red Cherry Consumpgigg'by B. C. French.2 While it has considerable relevance to consumption patterns in the North Central and North-eastern regions of the United States it is limited in application. First, it is limited in its analysis to only retail packs of canned and frozen cherries and to fresh cherry sales. Later in this study it will be shown that these product categories make up only a relatively small percentage of total production. Second, the primary source of data was the Michigan State University Consumer Panel. This tended to further limit its application to a specific geographical area.3 However, it appears to be quite adequate for determining seasonal consumption patterns due to the frequent report- ing of purchases. 2Michigan State University Agricultural Experiment Station Special Bulletin.4l4, March, 1957. 3The Panel consisted of a sample of about 250 families selected to be representative of a Michigan city of about 100,000 population. Each week between 1952 and 1958 Panel families reported in an itemized diary the price, quantity, and expenditure for each itemIpurchased for home consumption during the week. They also re- ported all food received as a gift or home grown which was used for home consumption. Additional information about each family was ob- tained weekly and annually. For further information see G. G. Quackenbush and J. D. Shaffer, Collecting Food Purchase Data by Consumer Power - A Methodological Rgport On The MSU Consumer Panel 1951-1958, Mich. Agr. Expt. Sta. Tech. Bul. 279 (August, 1960). 4 In 1955 the United States Department of Agriculture con- ducted a survey on household consumption over the entire United States entitled Food Consumption of Households.4 The authors of this study were concerned with both purchased and home produced food items consumed in the week. This study contributes valuable information useful to a cherry marketing and consumption study such as reported here. Related to the Household Survey, and possibly derived from it, is a 1956 U.S. Department of Agriculture survey on cherry pie consumption and consumption of retail canned and frozen cherries.S The survey was centered in the cities of Dallas, Detroit, and Kansas City. It contains excellent data on the volume, acceptability, and rate of use of both home-baked and commercially prepared pies. French has also published an article concerned with the con- 6 sumption of commercially prepared pie, based on Consumer Panel data. It is subject to the same limitations as his previous bulletin. 40.8. Department of Agriculture, Agricultural Research Service and Agricultural Marketing Service, Food Consumption of Households, Household Food Consumption Survey, 1955, Report Nos. 1, 2, 3, 4, 5, and 13, December, 1956. Based on the consumption of food in a seven day period in April, May, or June, in 1955. 50.8. Department of Agriculture, Agriculture Marketing Service, Homemaker Preferences for Pies and Canned and Frozen Cherries, Marketing Research Report No. 116, April, 1956. 6B. C. French, "Some Economic Aspects of Pie Consumption," Quarterly Bulletin, Michigan Agricultural Experiment Station, Michi- gan State University, East Lansing, Mich., Vol. 41, No. 3, February, 1959. 5 A recent series of data of particular value to this study I is the 1963 Frozen Food Marketingcuide.7 This was the first issue in what will be an annual series, and it should add considerable knowledge in the future to the marketing of frozen cherries and cherry products. This information provided a breakdown of the total frozen cherry market on a regional, state, and selected city basis. This was done for both the retail and the institutional pack and for specialty foods, of which frozen cherry desserts are a part. There have been a few more studies which have considered cherry marketing in an indirect manner, but they are so limited in scope that they will not be discussed in detail. However, they will be listed in the bibliography. No other recent articles or publi- cations describing and analyzing cherry marketing channels or cherry consumption have been forthcoming, to the knowledge of this author. Earlier studies of a general nature included L. L. Roger's, An Economic Analysis of the Red ChgrgygIndustrygin Michigan With Special Emphasis Upon Pricing.8 The National Canners Association developed a study titled, The Marketing_of Red Cherries, An Analysis 2;,Problemsgghat Are o§_Mutua1_Interest, to Canner and Grower.9 R. E. Marshall studied, Production and Price Trends in the Pitted Cherry Industry_in the 1930's.10 7Quick Frozen Foods, E.W. Williams Publishing Co.,Inc., March,1963. 8Unpublished Ph.D. Thesis, Department of Agriculture Economics, Michigan State University, East Lansing, 1950. 9Division of Statistics, National Canner's Association, (Washing- ton, D. C.), January, 1940. 1oMichigan State Agricultural Experiment Station Special Bulletin 258, Michigan State University, East Lansing, Mich., February, 1935. OBJECTIVE The primary objective of this study is to describe and measure the major marketing flows of processed red tart cherries from.the processor to the final consumer. This area has not been studied before, hence this effort may produce benchmark data which will be useful to future tart cherry marketing researchers. Also this study will be of value to people in the cherry industry. Ad- justments made by people operating firms and programs in the industry require information of this nature. PROCEDURE The vast majority of tart cherries are reprocessed from canned or frozen form into dessert items such as pies, confectioner- ies, and flavorings and consumed in these forms. Cherry pie baking requires by far the largest quantity of tart cherries. According to estimates, from 85 to 90 percent of the total cherries produced each year are consumed in this form.]-~"1 With this in mind, the bulk of this study will be concerned with developing trends and relation- ships within the two major types of pie baking, commercially pre- pared pies and home baked pies. Commercially prepared pies will be broken down into two groups, the frozen commercial pie and the fresh- baked or bakery pie. Home baked pies are the most important type of pie in rela- tion to the total volume consumed within the home. Four of every 1l'Based on interviews with individuals from academic, cherry processing, and pie manufacturing fields. 7 five homemakers bake pies at home, as compared to one out of every two who buy some pies in retail stores.12 Commercially prepared pies play a very important role in the restaurant and institutional trades with over 140 million pounds of cherry pie being consumed annually.13 At the retail level the volume of frozen and fresh pies sold in supermarkets has shown substantial increases over the last few years, with about 70 million pounds sold in 1961. Due to the limited amount of data available on pie production and consumption various estimation techniques were employed to de- rive the data presented in the marketing flows and for the marketing analysis later in the study. These data were, for the most part, derived from industry totals Obtained from government or industry sources. These totals were disaggregated by determining percentages or series of percentages of the total in the various use categories. For example, given data on total pies produced and estimated data on what percent was cherry pie yielded an estimate of pounds of cherry pie produced. The industry relationships were obtained from data gathered through letters and a questionnaire sent to the major pie manu- facturers in the United States, through personal interviews with pie bakers and cherry processors, and through letters sent to the major trade organizations and publications which have done research work in 12U.S.D.A., Homemaker Preferences for Pies and Canned and Egozgg Cherries, loc. cit. p. 1. 13Average estimate of fresh cherry pie produced as reported in the annual "Yearly Production Study," Baking Industry, 1950-1962. those areas applicable to this study. The questionnaire was mailed to a list of the major fresh and frozen pie manufacturers in the United States. The primary purpose of the questionnaire was to learn as much as possible about the production costs, the product breakdown, and the market for cherries within the commercial pie industry on a regional basis. The response from the sample was very good, but the entire sample was not large enough to apply valid statistical testing techniques to the findings. But the findings will be discussed and be pre- sented in a general way in the chapters dealing with commercial cherry pie manufacture as some valuable information was gained on the manufacture of commercial cherry pie. Also, the data helped to substantiate other findings and added insight into previously un- answerable questions. The data on per capita consumption and consumption patterns were developed by applying U. S. Census figures to national, region- al, and state data. The MSU Consumer Panel was also used to deter- mine the seasonal consumption patterns and per capita consumption in areas to which it could be applied. \Jlr \ CHAPTER II THE TART CHERRY MARKETING FLOWS INTRODUCTION After each tart cherry harvest a new stock of cherries and cherry products are available for consumption during the marketing year. This stock of cherries consists of the year's pack of pro- cessed cherries plus the carry-over inventory of the previous mar- keting year.1 The movement of this stock of cherries through the marketing channels to consumers may be viewed as a flow. A model of the tart cherry marketing channels will be deve- loped in this chapter to aid in the determination and study of the flows of cherries. This model is not the main subject of the study, but it is a device to organize an analysis of cherry marketing. Through the use of this model the total marketing flow can be separated into its sub-parts for study. THE MARKET FLOW DIAGRAM \ :9 Within the market channels for red tart cherries there are four major divisions. These divisions are determined by the type of product marketed. In short, these four divisions are the marketing 1A marketing year begins on July 1 and ends the following year on June 30. 10 of fresh cherries, the marketing of processed cherries for remanu- facturing, the marketing of remsnufactured cherry products, and the marketing of cherrjes and cherry products to the consumer through retail outlets.sfign1y the-last—three divisions of the flow will be oonsidered in detail in_this study. \. ”R‘ Before discussing these four divisionsof'the flow further. } \,the market flow diagram‘will be presented so the reader may readily~7 relate the diagram to later discussions. Figure 1 shows the relative size and importance of the various flows of red tart cherries as well as the importance of canned cherries vs. frozen pack cherries. The diagram is based on data for the 1961 marketing year rather than the average of several years' data. This procedure is probably less desirable than using average data because some of the figures change in years of short and long supply. However, new areas of cherry product reporting made more data available for 1961 than for previous years. The areas which would show the greatest changes with changes in the total sup- ply are inventories, both beginning and end-year, military purchases, and non-military government purchases. For instance the 1961 crop of cherries was unusually large and the 1961 ending inventory rose to a record level of more than 50 million pounds of raw product equivalent tart cherries. This also means that the 1962 beginning inventory will be unusually large. This is not to say that other areas of the mar- keting flow are not affected by changes in the total supply of cher- ries, but rather to say that the other areas tend to be more stable in their consumption patterns and the change from year to year is not as dynamic. Figure 1. A flow diagram for the marketing of red tart cherries, 1961 data. IEAR ' S PRODUCTION (million pounds) .7 13 FRESH SALES REGINING-YEAR 11.6 ‘— INVENTORY PROCESSORS FROZEN CANNED 5,7 11.: RETAIL ourLL'rs 62.15 FRESH 20.8 COMMERCIAL CHERRY PIE /3606 ”6.6 7‘4. F—a—‘I RETAIL I INSTITUTIONAL CALLS SALES ”-1 CHERRY 2'“ CCNFLCTIONS 6.3 I 6.2 ‘ RETAIL INSTITI-TIONAL 27.0 SALES SAIES 10.1 n 2’3 MILITARY FROLEN PURCHASES CHERRY PIE MANUFACTURE 76/ : 3'0 NON-ICILI ARY 9‘5 ¢ 22.). : “.6 GOVERNMENT / 5 FUR / INSTITUTIONAL é SALES 3.1 309 / EXPORTS RETAIL 13.1; a 5.2 311135 RESTAURANTS um 10.]. 10.8 mm 5005 ‘ 6 REMANUT-‘ACTURED V . ' CHERRIES ///}3 ENL'M INVENTORIES LC 7‘" 12 The figures which are represented in the flow diagram have been computed in the chapters which will follow and an explanation of how they were derived can best be found there. However, for the benefit of the casual reader the figures which are subject to the greatest question are restaurants and institutions, miscellaneous cherry uses, and cherry confections in that order. In some cases the breakdown in the total pounds of cherries between canned and frozen packs could also be questioned. They are the areas of restaurants and institutions, miscellaneous cherry uses, and fresh commercial pie baking. These are the areas of weakness as seen by the author. The rest of the diagram is substantiated by good sta- tistical evidence. We are now ready to discuss the four divisions of the marketing flow. ‘5) The marketing flow of fresh cherries is the entire flow of cherries above the processor level. About 95 percent of the annual cherry production flows from the grower's orchard to the processor. Those cherries which are sold to processors are canned and frozen in various size containers for resale throughout the marketing yeargy This part of the market flow will not be discussed further in this study because of the numerous other studies and reports which are available in this area. About 5 percent of the fresh cherries produced annually move directly to the consumer in fresh form. This flow is limited in volume and occurs during the short period when cherries are harvested.],Even though it is small, this flow'will‘be considered briefly in this study. l ,_ I I e A v ' .n J I a A ' l. . I e . V I .4 J A . . -, . i . , .. i O . t a I .4 13 The second division in the cherry marketing flow includes the marketing of processed cherries by initial processors. These products are not sold by the initial processors directly to final consumers. The majority of them are reprocessed commercially into cherry products. These cherries, in effect, become transfers between businesses. The remainder are sold to distributors includ- ing wholesalers and retailers for resale to final consumers. These inter-business transfers of cherries are the most com- plicated of the cherry marketing flows. On the diagram they make up the entire system of arteries or cherry flows from the processor to the markets listed such as retail sales, fresh commercial cherry pie, restaurants and institutions and exports. The processor market flow can be simplified further by con- sidering the two main segments, the flow of retail pack cherries and the flow of institutional pack cherries. The retail pack goes entirely to retail outlets which are primarily supermarkets, (the first segment of the diagram). From the supermarkets these cherries move directly to the consumer to be used in the household. Compared to the flow of institutional pack cherries, this flow is relatively uncomplicated. The largest part of the initial processor market flow con- sists of institutional pack cherries which constitute the rest of the arterial flow in the marketing diagram. These cherries are all reprocessed before they are sold to the consumer. The largest reprocessors are fresh and frozen commercial pie industries. Cherries taken into restaurants and institutions and government purchases are .J 14 also made into cherry desserts before they are sold or served. The third part of the cherry marketing flow is the flow of reprocessed cherry products from remanufacturers to distributors. These remanufactured cherries are used primarily in fresh and frozen commercial cherry pie and cherry confections. These products are designated as remanufactured because they must pass through retail outlets to reach the consumer, and they have passed through two or more distinct processing stages. These flows are represented on the diagram by the flows from fresh and frozen cherry pie and cherry confections into the retail and insitutional markets. The retail sales are made primarily in supermarkets, although a considerable a- mount of fresh commercial cherry pie is sold in bakeries. The in- stitutional flows go to restaurants and similar eating establishments. In effect these flows of cherry products are a continuation of the flow of institutional pack cherries from the repnocessing indus- tries to the consumer. Therefore, the flows from the fresh and frozen commercial pie industries and from the confectionary industry to the retail and institutional markets are expressed in pounds of cherries raw product equivalents rather than pounds of finished product. The final segment of the cherry marketing flow cannot be observed on the marketing diagram, however, it can be easily in- ferred. This is the flow of cherries and cherry products from the retail or distribution sectors of the market to the final consumer. For all practical purposes the entire flow of tart cherries and cherry products eventually reaches the supermarket, restaurants and 15 similar eating establishments, military and non-military government purchases, or exports, although some product is undoubtedly lost in the remanufacturing process. These marketing channels provide the direct link with the consumer and here the market flow steps.) Therefore, if the reader can visualize these five segments linking up to the consumer and thus the end point in the consumption process, the market flow will be complete. In summary, the total marketing flow of tart cherries can be broken down into four segments. These four segments basically des- cribe the total market flow in terms of homogenous units. The first segment involves moving cherries from the grower to the pro- cessor. The second segment involves the marketing of retail and institutional pack cherries by processors. Only part of these cherries actually reach the retail market from processors. Those institutional pack cherries which are sold to the manufacturers of cherry products reach the retail segment in this form. This becomes the third segment of the flow. The last segment is the actual movement of cherries and cherry products from the retail outlets to the consumer. The last three segments and the factors which affect them become the topic for the rest of the study. DEFINITION OF THE PLOW SEGMENTS: Each of the segments of the marketing model will be dis- cussed briefly. This should be valuable to clarify the terms and the position of the segments in the market. 16 Fresh tart cherries are those sold in the fresh form. They are consumed primarily by the families of commercial growers and home gardeners with a cherry tree or two, by direct purchases by people living in or near the producing regions, and in the form of gifts by cherry growers to friends. Some are actually consumed in the fresh form, but the majority are probably canned or frozen in the home for later use. These cherries by-psss the normal cherry ‘msrketing routes because of the direct nature of the sales. This type of marketing is limited to the season of the year which cherries are harvested. Retail canned cherries are primarily water pack cherries in size 303 cans. Prior to 1955 the No. 2 can was the most popular can size, but since then the 303 can has replaced it. Despite this change there is a downward trend in consumption of cherries in this pack. Also included in this category are packs of miscellaneous glass and tin containers and some syrup pack cherries, but as a group they are relatively unimportant. This pack moves directly into supermarkets and other grocery stores. The demand for this type of cherry hears a direct relationship to the desire of house- wives to make their own dessert items, cherry pie in particular.2 Canned cherry pie filling is the only major specialized product produced at the processer level. As the name implies its primary use is a ready-made pie filling. ‘Host of the pie filling 20.8.0 A.,l§gmemaker Preference for Pie and Canned and Frozen Cherries, p. 14. 17 is packed in No. 2 cans for sale in retail stores, although some is packed in No. 10 cans and sold to institutions. The demand for pie filling is naturally dependent upon the household demand for home baked cherry pie. It has been a very popular product in re- cent years Frozen cherries for the retail trade are commonly packed in 20 ounce cartons. Like retail canned cherries, most of the pack moves directly to the retail grocery market. Because the two pro- ducts are substitutes, frozen cherries face the same demand forces as retail canned cherries. Institutional canned cherries are mainly water packed in No. 10 cans. A large part of the pack is purchased by restaurants and small bakeries. In addition, it is purchased by the federal government for school lunch programs, for the armed forces, and for veterans's hospitals. In recent years the pack of No. 10 cans has declined relative to the frozen institutional pack. Several factors are associated with this change. The frozen cherry retains most of the color and firmness of the fresh product while these properties are partially lost in the canning process. However, the canned pack is much easier to store than are frozen cherries, often making it more convenient to handle. The most common pack of frozen cherries for institutional use is the 30 pound tin. In the last few years this pack has be- come very popular. It has a variety of uses similar to those in the No. 10 can, but the most important use is in the bakery and confec- tionary industries. The primary reason for this popularity has been 18 the brighter color frozen cherries give these products relative to canned cherries. Commercially manufactured fresh pies are the most important of the baked cherry products. Fresh pies are distinguished from frozen pies because they are sold in a ready-to-eat form. Frozen pies‘must be baked before they are ready to eat. The two principal sizes of fresh pies are the 9 inch institutional and the 8 inch re- tail pie. The institutional pie is sold to restaurants and other public eating places and it is the more important of the two pies. As the name implies retail pies are sold primarily to households. Frozen pies are more commonly manufactured in the retail size for sale in supermarkets. Within this market they have enjoyed a rapid increase in sales. Some frozen institutional pies are being manufactured, but as yet they are not an important segment of the institutional market. The manufacture of cherry confectionaries is small relative to commercial cherry pie. The primary confections are jam and pre- serves, with a small amount of jelly and jelly combinations. Per capita consumption has remained fairly constant as manufacture has risen at about the same rate as the population. Production for the retail market appears to be more important than for the institu- tional trade. The Quartermaster's Corps purchases cherries for use by our servicemen at home and abroad. While the average serviceman has very limited power to determine his consumption pattern, he does 19 constitute a substantial market for tart cherries. With the excep- tion of confectionaries, military purchases are of institutional pack cherries. Canned cherries seem to be preferred over frozen cherries. 'The latter have been rising in importance, however. Other government purchases are made in support of various national and state institutions and programs. Large consumers of these cherries are the school lunch program, Veteran's Administra- tion programs, and public supported mental, penal, and related institutions. They also prefer canned cherries probably for their handling and storing qualities. Restaurants and institutions are the most important market outlets for commercially prepared cherry products. These products are sold on a per-serving basis. They also provide a market for institutional packed cherries through their own baking. Exports are a relatively minor part of the total cherry marketing flow. Work has been done in Europe to promote tart cher- ries and cherry products, but it has had only limited success in terms of increased volume of sales. The last of the intermediate marketing flows is the mis- cellaneous flow. It takes in a number of minor cherry uses. Among the most important are the manufacture of cherry drinks, cherry flavorings, and cherry fillings for bakery and institutional use. No attempt will be made to study this area because it is too small to be important relative to the total cherry marketing. Inventory is merely a residual item which is made up of the 20 cherries not consumed within the period. The ending inventory of one period becomes the beginning inventory of the next period. In general, the size of the inventory bears a direct relationship to the crop of cherries produced in the year and the expected crop in the coming year. The 1960 crop of cherries was not nearly as large as the 1961 crap, thus the beginning inventory in 1961 was not nearly as large as the ending inventory for 1961. The 1961 crop of cherries was unusually large. SUMMARY This completes the explanation of the marketing flow diagram and of its components which will be used in this study. It was found that each year there is a stock of cherries at the end of the production period. From this stock, flows of cherries develop into the various segments of the market. It is an understanding of these flows and what affects them that becomes important in the study of cherry marketing. Therefore, the remainder of this study will be devoted to an analysis of these market flows. CHAPTER III TRENDS IN RETAIL SALES 0F RED TART CHERRIES INTRODUCTION This chapter will analyze sales of fresh and retail processed tart cherries, one of the divisions in the marketing channel model. The primary processed retail packs are canned water pack, canned pie filling, and retail size frozen cherries. The 1950-61 average total quantity of fresh and retail packed cherries was 82.9 million pounds, or 30 percent of the average total cherry consumption. The most important single part of retail pack was canned water pack cherries which made up 57 percent of the total. The smallest of the retail packs was frozen cherries which made up 3 per- cent of the total. Pie filling and fresh consumption were, respec- tively, 30 percent and 11 percent of the total. According to our assumptions the processed retail packs move directly to the retail grocery market, and the fresh sales are made directly from the farm to the consumer. Some product is consumed directly on the farms where produced. The analysis will include the seasonal consumption derived from the MSU Consumer Panel, consumer preferences and reactions as noted 21 22 by the Panel and the homemaker preference study, and from general observations of trends.1 From this variety of approaches informa- tion is developed about the general marketing pattern for tart cherry products. Regional consumption patterns within the United States are not uniform, (Table 1). Per capita consumption of tart cherries in the Northeastern and the North Central regions appears to be mmch higher than in other parts of the nation. Consumption per capita in the South is about one-half the consumption in the Northeastern areas. Consumption in the West, with the exception of California, is higher than in the South, but not nearly as high as in the North- east. Per capita consumption in California appears to be similar to per capita consumption in the Northeast. Therefore, care must be used in the general application of the findings because within these larger areas there are differences in consumption on a state or sub-region basis. FRESH SALES The 1959-61 average fresh sales of red tart cherries amount-' ed to 11,835 million pounds which was 4.7 percent of the cherries lBased on the 1963 Marketing Guide of Quick Frozen Foods (pp. 136-139), the Homemaker Preference study, and from the pie bak- ing ratios of commercial bakeries in these regions as presented in a questionnaire developed by the author. 23 consumed. The trend in consumption of fresh cherries declined over the period 1950-61. Table 1: Estimated Index of regional per capita tart cherry consumption1 for 1961. Northeastern 135 .L Efl°hp North Central 125 4” 347% South 65 ~ lV/o West 75 "f1ok HOJ Source: Compiled from the computed regional indexes of consumption of retail pack cherries, fresh and frozen commercial cherry pie, and of cherry con- fections With each of these indexes weighted by the relative amount of cherries they represent. 1Computed from the consumption of all forms of tart cherries and cherry products on a regional basis throughout the United States. The figures are derived by developing an index of consumption for each cherry product in each region. The index being based upon the consump- tion per region as compared to total consumption. The index of con- sumption for each cherry product is then weighted according to the per- cent of total cherry sales each product represents. In this manner, the total index of consumption can be estimated on a regional basis. The consumption of fresh tart cherries is centered in or near the production areas around the Great Lakes. This is primarily due to the limited distribution of this type of cherry, because of a high degree of perishability and a relatively high transportation cost. Some fresh cherry consumption undoubtedly takes place in and around the minor production areas. 24 The consumption of fresh cherries is limited to that time of the year when they are in season. This time varies between production regions, but it is for the most part limited to June, July, and August with the peak coming in July and early August. When the yearly consumption is plotted on a graph and fitted with a trend line the change in consumption over time becomes clearer, (Figure 2). The consumption of cherries for farm use and for retail sales have both been plotted for comparative purposes. In both cases the decline has been relatively smooth and steady, with the exception of 1961 when a record crop was harvested. This smoothness in the consumption curve could indicate a lack of erratic demand forces. Note that since 1957 the retail sales of tart cherries have decreased’ on the average much faster than has the rate of farm use. A primary factor in the declining demand for fresh cherries could be a decline in the volume of home canning and freezing. It is unlikely that more than half of this total consumption actually takes place in the fresh form, the majority being preserved in the home for use at a later date. A decline in home processing would thus have a definite affect on the demand for fresh cherries. The increased availability of processed and semi-processed convenience foods, coupled with the higher incomes of consumers, has had an affect on the demand for fresh cherries. The homemakers increased desire for labor saving products in the home and for more leisure is a phenomenon of our times. While this may not alter total consumption it definitely affects the type food items produced and Figure 2: Fresh tart cherry consumption, 1950-61. 1 16 ~ ‘ ~ ‘ ~ fresh sales 13" r - 15.5 - .asx ‘ ~ -N n" ‘ ~~-. no A A A L A A use 1651 1932 1553 use 1933 1936 1937 1958 1959 1960 1961 Source: Annual reports of Agricultural Estimates Division, A313, USDA, compiled by Fruit Drench, Ass. 25 26 consumed. This likewise has led to a decreased desire on the part of the homemaker to do her own canning and freezing both on the farm and in the city. It is likely that the consumption of fresh cherries will continue to decrease providing that economic growth and family in- come continue to rise. The 1961 increase is more than likely only a short run effect of the large crop and may contain some statistical error. The sales of fresh cherries will probably continue to decline at a more rapid rate than farm use. This is because the decline in home processing and demand for convenience foods tends to be higher in urban areas relative to rural areas. Therefore, the amount of fresh cherries sold should continue to decrease both on a per capita basis and in total volume. Based on the data of the past few years farm use of fresh cherries may have reached a constant level and will not decline much past its present rate. In the long run fresh tart cherry consumption in total pounds will probably level off at a point near that of the present rate of farm use. CANNED RETAIL CHERRIES Homemakers purchasing water pack tart cherries in retail stores find them packed in No. 303 cans.2 This has been true only 2Water pack cherries refers to the method of preserving by which the pitted fruit is put into cans, water is added and the can sealed and heated to kill bacteria. No sugar nor other preservative is added in order to retain as much of the natural cherry flavor as possible. Thus, the name "water pack" is used to distinguish this type of cherry from other methods of preservation. 27 since 1955. Prior to that time the larger No. 2 size can of water pack cherries was the primary pack. The net weight of the 303 can is 16 ounces while the net weight of the No. 2 can is 20 ounces. In terms of pounds of raw product, the decrease in water pack cherries has been tremendous. The 1959-61 average total pounds packed was 47.3 million pounds.3 This was only 51 percent of the 1949-51 average pack of 93.1 million pounds. Since the amount packed in each can in 1961 was 20 percent less than that packed in 1950 the number of cans sold has not necessarily decreased to the extent that the poundage has decreased. This may have a very important policy implication which will be presented later in the chapter. The seasonal consumption pattern of retail canned tart cherry products purchased by the Lansing Consumer Panel families had a rather definite shape, (Figure 3). The low point was reached in the summer just prior to the harvest season. Sales rose slowly during the fall with a dip during December when mince and pumpkin pies were popular. Thenewas a rapid rise in sales through January to the peak in February after which sales declined to the summer low. The most important reasons which homemakers gave for pre- ferring canned water pack cherries were flavor (46 percent), 3Compiled from statistical reports of the National Canners Association. Figure 3: The seasonal per cqits expenditure pattern for eased retail test cherries, 1932-5! average of 250 Basin, liehigmt, W panel families. 0“ P ‘ 1 I 1m :1: :1m7mullo; 5L. 1 to a f’ ‘3 WWW. Gems“: J. D. Shaffer, e a , Coneuer Panel Bulletin 2. 29 convenience (41 percent), and cooking properties (20 percent).4 Flavor was the most important single reason for liking canned cher- ries, and it was particularly important in the South. Convenience was a particularly important reason in the North Central region and second overall. Homemakers listed cooking properties as the last of the particularly important reasons for preferring canned cherries. The washed-out appearance of the fruit was the over-whelming reason given for disliking water packed cherries. Poor cooking properties was the second importan; reason for disliking them.5 By plotting the consumption over the 1950-61 period, and calculating a regression line the average magnitude of the decline in consumption can be estimated, (Figure 4). This decline is substantial. It can be attributed to two primary factors, the decline in home baking of cherry desserts and, since 1955, the substitution of canned pie filling for water pack cherries in making cherry pie. The substitution of commercially prepared pie filling for water pack cherries has had a dampening effect on the apparent decrease in canned cherry consumption. The water pack cherries are purchased for little else than for making cherry pie in the home.6 4U.S.D.A., Homemaker Preferences for Pies and Canned and Frozen Cherries, p. 47. 51bid., p. 51. 6Ibid., p.14. Figure 4: The pounds of retail canned water-pack cherries conso Id during the period 1950-61. 130 120. 110. 100. Y I 89 s 3.8 X 10 A A . J 1950 1931 1932 1933 1934 1935 1956 1957 19§s 199 1980 1931 s(sures: Cowiled from statistical reports of the National Camera Association. 30 A 31 Therefore, increases in the marketing of pie filling are partly at the expense of the water pack market. If the 1961 packs of pie filling and water pack cherries are added together the total is approximately 71 million pounds of raw product equivalent. Even this is a 24 percent decrease in consumption from the 1949-51 average. Therefore, the decrease in consumption must be due to a stronger force than the substitution effect of pie filling. This second factor must be a decline in home baking of cherry desserts, and cherry pie in particular. Home pie baking will be discussed more fully in the next chapter, and it will be shown that in fact a decline in home baking is the primary reason for decrease water pack cherry sales. It is improbable that water pack cherries will ever become dominant again in tart cherry sales. Even if there were an increase in home baking, it is unlikely that the demand for water pack cherries 'would increase preportionately. The substitution effects of superior products such as pie filling and frozen cherries would likely absorb most of the gain. In the short run it might be possible to increase water pack cherry consumption or at least to prolong its decline by again chang- ing can size. It was noted earlier that because of the decrease in can size, the number of cans of cherries sold has not declined as rapidly as the number of pounds sold. Therefore, the retail water pack market perhaps is not being used to its fullest advantage. 32 Studies indicate two factors of primary importance.7 First, consumers prefer the larger No. 2 can over the 303 can. Second, the average homemaker cannot easily distinguish between the sizes unless they are side by side. This second finding may explain the rising popularity of the 303 can. Grocers could charge from three to five cents less for a 303 can than for the No. 2 can. The homemaker, often under the assumption that she was buying the same can size, would tend to purchase the cheaper of the two. Thus, sales of the 303 can rose while sales of the No. 2 can fell. Assuming that a basic preference for the No. 2 can still exists the question arises whether processors should attempt to shift back to the No. 2 can? The 20 percent difference in raw pro- duct content would indicate that such a change would result in in- creased tart cherry sales providing customers continued to purchase the same number of cans. However, two problems arise to complicate matters. First, would the increased cost to the consumer caused by a slightly larger can decrease sales enough to destroy all gains made in volume per can? Second, would the cherry processors all consent to this proposal? A few canners packing in 303 cans could cause severe competition to those canners packing in No. 2 cans. The answers to these questions will not be found in this 7B. C. French, "Trends and Characteristics of Red Cherry Consumption," Quarterlyibulletin and U.S.D.A., Homemaker Preference for Pie and Canned and Frozen Cherries. 33 thesis, but they are questions of considerable interest to tart cherry producers. A corollary of these two questions is, what are the real costs and returns to the industry of introducing and sell- ing a smaller package in order to gain a short run competitive ad- vantage through a lower unit cost? If the new package size does not satisfy the consumers'desires, he may shift his purchase to an alternative product. Or he may conclude that the smaller package is really more expensive and reduce his purchases for monetary reasons. COMEERCIAL PIE FILLING Pie filling is the only pack of all the canned cherry products which has shown an upward trend in consumption in the 1950-61 period. Among retail cherry products it is the only product that has shown a significant increase in consumption. The 1962 production of 45 million pounds of raw product equivalent is over three times the 1955 production of 13 million pounds. This increase, as noted earlier, was due primarily to a substitution of pie filling for other cherry pro- ducts and does not represent a significant increase in total cherry consumption when compared to previous figures. Based on Consumer Panel data the per capita expenditure for pie filling reached a peak in late April, and the low was reached in late August just after the year's crop has been harvested (Figure 5). Convenience was rated by homemakers as the overwhelming reason given for buying pie filling. Of the homemakers interviewed 83 percent gave this as the most important reason. Next in Figure 5: The seasonal per capita expenditure pattern for prepared pie filling. 1955-57 average. ..L .021, .0ch .0131, .010. .001 zfii‘ii—‘F'fi—Tbfilr—Ig {our week periods beginning Jan. 1 Source: J. D. Shaffer, Egggume; Purchasg Pattgrgg go; IndiVidual ngsg, lrgggg. gag Canggg Fggggg agd Vegetables, Hichigan.Agricultural Ix- pari-aatal Station, Consumer Panel Bulletin No. 8, 1962. SA 35 importance was flavor with 21 percent8. Flavor was also given by 53 percent of the homemakers sampled as the primary reason for not liking pie filling, and 21 percent gave expense as the reason for disliking pie fillingg. A regression line through the yearly production figures from 1955-61 indicates a significant upward trend in the use of pie filling, (Figure 6). The 1962 production figure indicates even a sharper in- crease. It is not likely that pie filling consumption will increase at the 1961-62 rate, however, it is likely that consumption will con- tinue to increase at a fairly rapid rate for the next few years. The emphasis on convenience in.American homemaking will be an impor- tant factor in this increase since it promotes the substitution of pie filling for other forms of retail cherries. However, the con- venience trend which has tended to perpetrate the growth of pie filling may also limit its expansion. The convenience trend will also increase the consumption of commercially prepared pie and cherry desserts relative to home baked pies and desserts, thus lowering the total market for pie filling. It will be some time, however, before this significantly limits the growth of pie filling consumption. High average incomes also affect the tendency of homemakers to buy pie filling. As income increased among Consumer Panel members the percent of households buying pie filling went up. Also younger 8U.S.D.A., Homemaker Preference for Pies and Canned and Frozen Cherries, p. 49. 91bid., p. 51. Figure 6: The coast-option of retail and institutional pack canned pie filling for the period 1955-61. 35 30" Y '- 16.!) + 2.381 25*. 5; 1923 l9“ 1957 1958 1959 1960 1961 Source: Canned from the statistical reports of the Ihtional Canners Association. 36 37 homemakers were found to be larger buyers of pie filling than older homemakers10 . Therefore, continued increases in national incomes and continued papulation increases which increase the number of young homemakers, should have a favorable effect on the consumption of pie filling. FROZEN RETAIL CHERRIES The frozen retail pack has never been very important in re- lation to total retail cherry consumption. Consumption has increased from.0.8 million pounds in 1950 to a 1959-61 average of 2.6 million pounds. This increase has been very slow for the most part, and there have been large fluctuations in consumption from year to year. The seasonal consumption pattern for frozen cherries differs markedly from the consumption patterns of other processed cherries. Consumption remains fairly constant during the year except for June. During June it rises rapidly to a peak in July and August after which there is a sharp decline to a low in October (Figure 7). Most other processed cherry packs hit their low points during July and August. Bargains occurring in retail stores as packers and distributors try to lower their year-end stocks could be an important cause for this. The summertime appeal of frozen foods is probably the most important reason for the consumption increase. Flavor was rated first by homemakers in the reasons why they 10B.C.French, "Trends and Characteristics of Red Cherry Consumption", p. 5. Figure 7: frozen cherries, 1954-58 average. The seasonal per capita expenditure patterns for retail .030- .023. 432% .011 .010. .m,b '. i i i i (T 1 s 9 lo 11 12 13 four week periods beginnim Jan. 1 Source: J.D. Shaffer, Cong; gurghagg Parts“ {0; lg}. gxidua], Frggh, F 4 a V a , Hichigan Agricultural Ex- periment Station, Consumer Panel Bulletin lb. 8, 1962. 38 39 prefer frozen cherries with 72 percent of the homemakers interviewed indicating this reason. Appearance was second with 20 percentll. Inconvenience was rated first in undesirable characteristics by 33 percent of the homemakers. Expense was rated second with 23 per- centlz. A regression line of past consumption indicates a slight up- ward trend, (Figure 8).7 However, the level of consumption is too low to make frozen cherries very important relative to total consump- tion. Why consumption of frozen retail pack cherries has remained low is one of the mysteries of cherry marketing. In the Consumer Panel it was noted that as incomes increased household consumption of frozen cherries increased. Even more important the preference intensity was highest among families consuming frozen cherriesls. In other words they had the highest level of repeat purchases. As noted earlier it was also a superior product in flavor and appearance. Why then did retail frozen cherry consumption remain low? Lack of publicity is a major factor, but there are undoubted- ly other important reasons. Homemaker awareness of frozen cherries was low throughout the U.S.D.A. sample, particularly so in the Southlé. 11U.S.D.A., Homemaker Preferences for Pie and Canned and Fro- zen Cherries, p. 48. 12 Ibid., p. 51. 13B. G. French, ”Trends and Characteristics of Red Cherry Consumption", p. 5. 14U.S.D.A., Homemaker Preference for Pie and Canned and Frozen Cherries, p. 2. Hillier: Panda 6. S. S.‘ C. 2. - 1. Figure 8: The pounds of retail frozen cherries consumed in the United States duriq the period 1950-31. .230 1351 1552 1553 1554 :55: 1936 1557 miss 1939 1650 1961 Source: Compiled from the annual reports of the fictional Association of Frosen Food Packers. £0 41 This could have a significant effect upon consumption which could be reduced through added advertising and promotion along with more favorable packaging. The fact that frozen food cabinet space is high priced means only the high profit, fast turn-over items will be placed in them. A minor item such as frozen, unprepared des- serts may not have the necessary qualifications. GENERAL CONSUMER PANEL FINDINGS Without going into detail, a few of the particularly relevant conclusions from the Consumer Panel regarding retail tart cherry consumption should be presented. The consumption of tart cherries is centered in a relatively small percentage of the total population. The 25 percent of the families with the highest consumption rates consumed 74 percent of the cherries. Household consumption of cherries increase as income, family size, and age of the homemaker increases. It decreases as the percentage of homemakers employed 15. The effects of each of these are outside the home increases obvious. Price likewise does not appear to be associated with changes in consumption of retail pack cherries according to the Panell6. This may appear to be inconsistent with economic theory which maintains that an increase in price will decrease the quan- tity purchased, with the amount of the decrease in quantity deter- mined by the elasticity of demand. A decrease in price will {53. C. French, "Trends and Characteristics of Red Cherry Consumption", p. 4-5. 161bid., p. 16. 42 increase the quantity sold. This apparent inconsistency can be ex- plained by two factors. First, a decline in the grower price may not be passed on through the market to the consumer. In other words, retail prices remain fairly constant despite changes in quantities available for sale, indicating a relatively high price elasticity of demand. Second, the consumer is not aware of small differences in the retail price. His price threshold for tart cherries is wide. The relative power of each of these to increase or decrease con- sumption cannot be determined from the data available. SUMMARY Throughout the 1950-61 period the total consumption of retail packed cherries has declined. Not all products making up the retail cherry market have declined however, canned pie filling has had a very dramatic increase in consumption. This increase came pri- marily at the expense of other retail cherry products. The most noticeable of which was retail canned cherries. With the present trends towards increased use of convenience foods and commercially prepared foods in the household it is unlikely that the consumption of retail pack cherries can be made to rise. Commercially prepared desserts have replaced part of the home baking market, thus forcing down the level of home baking. This is the pri- mary factor in the decrease in retail pack cherry purchases. How long and at what rate this increase in the demand for commercial des- serts will continue is a matter of Speculation. CHAPTER IV HOME BAKED CHERRY PIE CONSUMPTION INTRODUCTION Pie is the most popular dessert in the United States. Ex- cept for children it is the most pOpular dessert among both sexes in the nation as a wholel. Cherry pie is second to apple pie in over- all popularity among consumers. Its popularity between regions varies, as does the consumption of all types of red tart cherries. Home baked pies constitute the majority of the pies consumed within households. While this should remain true for some time to come the amount of home pie baking is declining. It has been esti- mated that in 1954 seven of every eight pies consumed within house- holds were home baked. By 1958 this estimate had fallen to five of every sixz. Since 1958 the amount of home baking, based on the increased sales of retail commercial pies, has undoubtedly decreased even further. 1U.S.D.A., Homemaker Preferences for Pie and Canned and Fro- zen Cherries, p. 43. 2Quick Frozen Foods, "Has Frozen Fruit Pie Sales Hit It's Peak", January 1958, pp. 91-92. 43 44 However, the importance of home baked cherry pie in the marketing of tart cherries has not declined proportionately. The amount of cherries in a home baked pie is greater than the amount used in a retail commercial pie. Therefore, even though the number of home baked pies have decreased relative to commercial pies, their impor- tance in tart cherry marketing may not have decreased proportionately. Measurements of the characteristics of home baked pie consumption are difficult to determine. This is because of the limit- ed number of studies which have been made in this area, and the limit- ed quality of these studies. Therefore, most of the information presented in this chapter will be observations rather than trend movements . FACTORS ASSOCIATED WITH HOUSEHOLD PIE BAKING Urban and rural homemaker baking patterns are considerably different. Family consumption characteristics such as income, number of members in the family, and the age of the homemaker also affect the rate of home baking. It is interesting to note the effects of these changing social factors on pie baking or, more generally, on the willingness of homemakers to do home processing of food products. The effects of these family characteristics vary with the re- gion of the United States being discussed. For summary purposes Table 2 contains all these variables and the way in which they affect pie baking. The figures given are the estimated percent of house— holds baking cherry pie during a seven day period in April, May, or June of 1955. TABLE 2: Social-economic factors affecting the home baking of cherry pie expressed by the estimated percent of households baking during a one week period. All Households Income Under 2000 2000-3999 4000-5999 6000 & over No. in House- hold 2 Persons 3-4 Persons 5 or more Persons Homemaker Age Under 30 30-49 Years 50 Years and Over United North- North States east Central South West Urban Rural Urban Rural Urban Rural Urban‘Rural Urban Rural ------ Percent - - - -7- - 3.9 8.0 2.5 7.7 5.1 9.5 4.1 7.0 4.3 7.2 3.6 7.3 3.9 6.3 5.3 8.2 3.2 6.6 2.4 9.6 4.1 8.9 2.0 10.3 5.4 10.1 4.6 7.6 5.6 8.4 4.5 8.4 2.6 6.8 6.4 10.0 5.3 7.2 4.8 6.6 4.0 8.3 3.7 5.7 4.8 9.6 3.5 8.7 3.9 5.6 3.5 7.3 2.4 7.3 4.9 7.9 3.6 6.9 3.1 6.2 4.1 8.3 2.6 8.1 5.1 9.5 4.4 7.7 5.5 5.6 5.1 8.5 3.4 7 7 6.7 10.4 5.1 6.6 5.3 10.1 4.3 7.5 2.7 8.0 3.2 9.7 4.3 7.2 4.5 7.5 4.1 8.3 2.8 7.1 2.9 9.0 4.4 7.2 4.6 7.2 3.8 8.3 2.6 9.1 3.5 9.1 3.9 7.5 3.6 8.2 Source: Computed from U.S.D.A., Food Consumption in the United States, Household Food Consumption Survey, 1955. 4S 46 For the United States as a whole the urban pie baking rate is only half that of the rural baking rate. In both sectors pie baking is greatest in the middle income groups. Increases in family size tend to increase the pie baking rate. As homemaker age increases in the urban sector pie baking decreases, but in the rural sector it increases. Northeastern urban families had the lowest pie baking rate in the nation, it being only one-third the rural baking rate in that re- gion. The«éfects of income, number in household, and age of home- maker on the rate of pie baking for the most part are erratic in both sectors. Each level of each factor seems to be unique in it- self rather than indicating an observable pattern. In the North Central region pie baking was again centered in the middle income groups. Increasing family size was associated with a higher rate of pie baking. Middle aged homemakers had slightly lower baking rates than did younger or older homemakers. The overall level of pie baking in both the rural and urban sectors was higher than in any other region. Homemakers in the South and West were similar in many re- spects in their home pie baking habits. The difference in urban and rural baking diminishes in these two regions compared to the Eastern states. This is due, most likely, to the relatively smaller portion of the population living in cities, and the subsequent failure of a division to develop between the urban and rural sectors. Except for the rural West, pie baking is most prevalent in the middle income 47 families. Pie baking in the Western rural sector is centered in the low income households. In both the South and West increases in family size are associated with higher rates of home pie baking. Rural homemakers bake more pies as they become older, but urban homemakers bake fewer. The reader should not confuse the above statements about home baked cherry pie with previous statements about the general level of tart cherry consumption. The fact that one segment of cherry consumption may be low or high in one region of the nation does not necessarily imply that the total cherry consumption is low or high in that region. Therefore, the statement that in the Northeastern region home baking of cherry pie is low does not destroy the con- sistency of the statement that in the Northeast total cherry con- sumption is the highest in the nation. Another variable which affects the consumption of home baked cherry pie is the education of the homemaker. The higher the educa- tion of the homemaker the more often she bakes a cherry pie3. Home makers with college and high school degrees baked more cherry pies than those with less education. This may have been due to a bias in the sample because of variations in regional cherry pie consump- tion and education level. The education level of women is higher 3U.S.D.A., Homemaker Preferences for Pie and Canned and Fro- zen Cherries, p. 11. 48 on the average in the North Central and Northeastern regions than the other two regions. These are also the regions of highest cherry consumption. Therefore, the relationship between education and cherry consumption may not be important. It was also noted in the study and partially summarized in Table 2 that the middle and high-income households consumed more cherry pie than did lower-income households.4 REGIONAL VARIATIONS IN CHERRY PIE CONSUMPTION The importance of cherry pie relative to total pie consump- tion in various regions of the nation varies considerably. In general, the closer to the production area the more important cherry pies become relative to total pie consumed. The primary production and consumption areas are centered around the Great Lakes. The Northeastern and North Central regions of the United States have the highest per capita consumption in the nation. These regions also contain the vast majority of the nation's population, which is fortunate for the tart cherry industry. Exceptions in per capita consumption in the South and West are Texas, Oklahoma, Washington, D.C., Colorado, and the Pacific Coast. These five areas have fairly high rates of per capita tart cherry consumption.5 It follows that in areas of high per capita consumption of tart cherries the consumption of cherry pie relative to total pies 41b1d., p. 11. 5Computed from the "Marketing Guide for 1963", Quick Frozen Foods, March, 1963, pp. 119-72. 49 consumed should be higher than in areas where cherries are less popular. The U.S.D.A. Homemaker Preference study and a questionnaire sent to commercial pie manufacturers across the nation supports this hypothesis. In the North Central and Northeastern regions fruit pies are the most popular of all pies. Apple pie is first in total popularity and cherry is second. Lemon cream and chocolate cream follow in that order, but the rest of the important pies are fruit pies. In the South cream pies, especially chocolate and lemon, are more popular than they are further NOrth. They rate second and third, respectively, behind apple pie. Cherry pie ranks fourth in home pie baking popularity in this region. Two factors are very important in explaining the relationship between production and consumption. First, consumer awareness of and, more important, experience with cherries declines as we move out from the producing regions. Second, an individual's tastes and preferences tend to favor locally grown, commonly consumed products rather than products shipped in from the outside. While there are exceptions, such as bananas, both relative price and availability are important in this respect. Therefore, for much the same reason that pecan pie is not popular in the North, cherry pie is not pOpular in the South. The exact effect that the price of cherries has on home pie baking cannot be fully determined. It was noted in the last chapter that according to the findings of the MSU Consumer Panel, price does not affect the purchases of retail pack cherries. These are the 50 principal source of cherries for home baked pie. It will be shown in the next chapter on commercially prepared pies that price is an important factor in that market. It does not seem consistent with economic theory to say that there is no price effect in the home baking of cherry pie. In other words, the price elasticity of demand is high. However, with the data which are available it is difficult to determine what the affect of price changes really are. TRENDS IN HOME BAKING OF CHERRY PIE The trend in total home baked cherry pie is definitely de- clining. If it is assumed that home baking of cherry pie is a func- tion of the consumption of retail packed tart cherries then the total volume of cherry pies must be a function of the total consumption of retail cherries. If we assume that 90 percent of the retail packed cherries and fresh cherries are consumed in the form of cherry pie, and that on the average 14 ounces of cherries are used per pie then it is possible to derive an estimate of the total number of cherry pies consumed in a given year (Figure 9). Although the actual values are open to question, the trend is definitely downward. The available data are not sufficient to determine in what sectors or regions of the market the changes in home cherry pie baking are taking place. Figure 9: The estimated pounds of home halted cherry pie during the period 1950-61. 1301? no. 110+ 100. T and ‘ sol. r - as - 1.0851 20.. 10.. 1' 1““1- 191 1952 19:3 19§I_1"—TT§"W955 195 s ' Source: Sum of the retail packs of cherries and fresh cherries multi- plied by the estimated percent of cherries going into cherry pie (.9) and seaming ll: moss of cherries per pie (.875). Sl 52 SUMMARY Due to the limited amount of data available it is very diffi- cult to indicate more than simple regional variations in home pie baking, and some simple basic analysis. Cherry pie baking in the home is definitely decreasing. But it cannot be determined how this rate of decline compares to that of other pies. Factors affecting home pie baking are urbanization of the population, changing family size, changes in income, and education of the homemaker. The relative importance of these factors cannot be determined until further studies are done on the economic aspects of home pie baking. CHAPTER V MARKETING OF CHERRIES THROUGH FRESH BAKED COMMERCIAL PIES INTRODUCTION Commercially prepared ready-to-serve, or fresh pies, are the most important type of commercial pie produced. They are used pri- marily by restaurants and institutions. In 1961 an estimated 112 million pounds of fresh cherry pie were consumed in these two mar- kets. Approximately 80 million pounds of fresh cherry pie were also sold in the retail markets. This represented a marketing of an estimated 46.6 and 36.6 million pounds of tart cherries respectively. The size of commercial pies varies with the market being served. For the institutional and restaurant trade the common siZes are pies nine to ten inches in diameter and weighing from 40 to 48 ounces. The home baked is generally a nine inch pie. Institutions prefer these large pies because they give a reasonably large slice of pie when it is cut into six pieces. Retail sized pies can vary from four to eight inches in dia- meter. The largest selling retail sized pie is an eight inch pie weighing 24 pounces. This will be the retail pie which is referred to in this chapter. In terms of all pies manufactured, cherry pie ranks second 53 54 to apple pie. It makes up approximately 25 percent of the total pies manufactured. There are regional differences in the manufacture of fresh pies due to differences in consumer tastes and preferences which do not necessarily make this 25 percent figure true through- out the nation. In the Northeast cherry pie may be 33 percent of all pies produced, and in the South it may be only 15 percent of all pies. Frozen cherries are used almost exclusively by bakeries for ‘making cherry desserts. This is due to the brighter, more natural color which frozen cherries give relative to canned cherries. There- fore, fresh pie sales are an important market for frozen institution- ally packed cherries, and nearly all the cherries consumed in this industry can be assumed to come from frozen cherries. Tart cherries are the most costly single ingredient used in the manufacture of cherry pie.1 Therefore, the price of cherries is an important consideration in the marketing of fresh commercial pies. The amount of cherries used in a pie varies to an extent between in- dividual manufacturers, but on the average 8 ounces of cherries are used in a 24 ounce retail pie and 20 ounces of cherries in a 42 ounce institutional pie. If converted into percentage figures 33 percent of the weight of a retail pie is made up of cherries and 48 percent of an institutional pie in cherries. The difference in the percent of pie 1Based upon the findings of the questionnaire used in this study, and interviews with commercial pie bakers in the Lansing, Mbhigan, area. 55 which is fruit is due to the amount of pie crust which must be used. The smaller, shallower eight inch retail pie requires nearly as much pie crust (14 ounces), as the larger, deeper nine inch institutional pie (18 ounces). Therefore, the additional weight must be made up of pie filling which is primarily fruit. By multiplying by the average price of cherries in 1961 we can derive approximate cost of the cher- ries used in each pie. By dividing the cost of cherries into the approximate cost of the total cherry pie we find that the cherries used in the pie make up 35 percent of the cost of a retail pie and 50 percent of the cost of an institutional pie. In either case it is the most costly ingredient. Institutional-sized pies will be discussed separately from retail-sized pies in this chapter. The reasons for this are because the markets are different and subject to different forces, and be- cause the data in each case are of a different nature and of vary- ing degrees of completeness. INSTITUTIONAL FRESH PIE The restaurant and institutional pie market can only be dis- cussed on a limited basis because of limitations of the data. The only source of data on the national and regional manufacture of fresh pies on a yearly basis is the Baking_;ndustgy, a trade magazine. The only other source of data is the United States Department of Commerce, Census of Manufactures which is published on a four year basis. Both these sources of data are so broad in their scope that 56 only trends can be computed and compared. Some additional infonma- tion was obtained from interviews by the author and from a study of Detroit bakeries by W. Smith Greig and Noel W. Stuckman.2 The total manufacture of commercially prepared pies has re- mained remarkably constant throughout the 1950-61 period which is be- ing studied. This has tended to be true of regional pie manufacture also. The trend is slightly downward sloping because of the declining production since 1955 (Figure 10). However, the deviation from the mean is only three percent at the maximum. This rather constant level of manufacture is not what it may appear to be at first glance. By dividing the yearly production by the population to derive per capita consumption it becomes clear that per capita consumption is declining (Figure 11). During the 1950-61 period per capita consumption fell 18 percent. Per capita consumption of commercial fresh baked institutional pies may have declined, but it does not necessarily mean that pie consumption in restaurants and institutions have fallen by the same amount. As the size of restaurants and institutions increase in terms of number of meals served the proportion of commercially pre- pared pies purchased decreases relative to total pies consumed, (Table 3). This obviously has definite effects on the growth of the 2Market Potentials for Dehydrafrozen and Dehydrocanned Apple Slices, Agriculture Economics Mimeo 801, Department of Agriculture Economics, Cooperative Extension Service, Michigan State University, East Lansing, Michigan, (September, 1960). 13$ “3..“ in I. I) I'- llln'l". ‘U.‘ I | C luv... Figure 10: The estimated pounds of institutional fresh commercial pie construed during the period 1950-61. 11' ---- - -- ------- Y I ll4 " .OlSX 4.9 million pounds «I U! 43 pa 1930 11:51 1552 1'93: 1354 1935 1936 1937 1953 1939 1980 1961 Source: Coaputed from the annual Industry Production Study of gaining lndugtm. 57 Figure 11: The per capita consumption of institutional cherry pie, 1950-61. 1.2.. 1.0” Y ll .73 r .0083)! L 4 L J j j e L A A J_ 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 Source: Computed by dividing the'values in Figure 10 by the population of the United States for each year respectively. 58 59 TABLE 3: The average number of cherry pies utilized per week by 132 institutions by size of establishment and source of pies, Detroit, Michigan, 1960. Made all pies ‘ Number Served Total Size of of Pur- Pur- Cherry Establishment Establish- Number 10f total chased’chased Pies (No. of meals served) ments of Pies Pies Baked Frozen Served 150-875 25 14 131 55 33 102 900-1500 27 55 362 70 18 143 1600-2788 25 62 332 89 22 173 3000-7000 27 299 64% 86 61 446 7500-60,000 + 28 594 76% 90 36 720 Source: W. Smith Grieg, Market Potentials for Dehydrofrozen and Dehydrocanned Apple Slices, Agriculture Economics Mimeo. 801, September, 1960, pp. lO-ll. commercial pie industry. A restaurant serving 900 meals a week may purchase more fresh pies than an establishment serving up to 60,000 meals per week. The trend in average restaurant size appears to be increasing rather than decreasing. Therefore, as the number of meals served by the average establishment increases, the restaurant may bake its own pics rather than buy them. Thus, the market for bakery pies may be reduced even though the total number of pies served may be increasing. A reduction in the consumption of high calorie dessert may also be responsible for part of the decline in consumption of cherry 60 pie in fresh institutional form. The sense of weight consciousness which members of our society have developed has an effect on con— sumption of high calorie food. But the upward trend in meals eaten out may tend to offset this per capita decline in pie consumption by raising the total number of consumers. In 1960 an estimated 20 per- cent of the meals were eaten away from home, and by 1970 an esti- mated 30-50 percent of the meals in the United States will be eaten away from home.3 Therefore, although per capita consumption of cherry pie in restaurants may have decreased, the increased number of patrons may have more than offset it in total consumption. Thus, the total amount of fresh pie consumed in restaurants and institutions may not be decreasing at the rate indicated by the sales of pies by commercial bakeries. In fact, it may be increasing. REGIONAL CONSUMPTION PATTERNS OF INSTITUTIONAL CHERRY PIE The regional consumption of fresh institutional cherry pie with- in the United States varies considerably. The consumption of fresh bakery pies is a function of the population within the region, the fre- quency with which the population eats away from home (which is in part related to income), and a function of the personal preferences of the population within the region. Mostof the differences in regional bakery pie consumption can be relatedto these three variables 3W. Smith Greig, Market Development for Cherries, A mimeo- graphed speech, Department of Agricultural Economics, Michigan State University, East Lansing, Michigan. 61 For purposes of convenience the same regions used in the 235; ing Industry reports will be used in this study.4 This regional breakdown is different than those generally used, but this is not im- portant. The per capita consumption data used in the discussion were taken from the Census of Manufactures.5 Within Area A an average of 16 million pounds of fresh cherry pie were sold per year, 1950-61, by bakeries to restaurants and insti- tutions. The trend was a small but steady decrease in sales over the 1950-61 period. In terms of pounds of cherries this amounted to an annual average marketing of approximately 7 million pounds of cher- ries. Per capita expenditure throughout the region, with the excep- tion of California, is among the lowest in the nation and between 1954 and 1958 there was a 5 percent decrease in per capita expenditure (Table 4). The North Central region of the United States makes up most of Area B. This is the heart of the cherry producing area, and the second most populated region in the nation. Pie manufacture in this area has been sporadic over the 1950-61 period, but the trend in production has remained constant. This area rated second in the na- tion in expenditure per capita with 29 cents being spent for commer- cially prepared cherry pie. There was a 10 percent decrease in per capita expenditure from 1954 to 1958. l'lindustry Production Study", Baking Industry, Glissold Publishing Company, (for the years 1950-62). 5Bureau of the Census, Census of Manufactures, United States Department of Commerce, Washington, D.C., (1954 and 1958). TABLE 4: cherry pie manufactured by region, 1950-61. The estimated total pounds of fresh institutional size 62 REGION YEAR A B C D - - - Million Pounds - - - 1950 17.6 23.7 56.5 8.3 5.3 1951 17.7 23.9 58.0 8.7 5.3 1952 17.8 24.1 57.7 8.9 5.2 1953 17.7 24.0 57.8 9.4 5.3 1954 17.1 22.8 56.7 9.6 5.3 1955 16.7 25.0 61.5 9.6 5.3 1956 16.6 22.6 55.8 9.6 5.3 1957 15.9 22.8 57.5 9.6 5.3 1958 15.6 22.3 55.9 9.5 5.3 1959 15.9 22.4 55.8 9.5 5.3 1960 15.7 23.1 55.9 9.6 5.3 1961 15.8 22.9 56.0 9.6 5.3 Source: Compiled from the annual Survey of Industry Production, Baking Industry, 1950-62. Area C has the largest total consumption and the largest per capita expenditure in the nation of institutional cherry pie. The 1950-61 average annual consumption of commercial cherry pie was 52.3 million pounds which amounted to a marketing of 23.7 million pounds of cherries. However, the trend in consumption has a slight downward slope. An aver- age of 47 cents per capita was spent in the region for cherry pie, with Massachusetts having the highest per capita expenditure in the nation with 68 cents per capita spent on fresh commercially prepared cherry pie. Areas D and E can be discussed simultaneously. Total consumption in both areas has remained constant throughout the period, but they have the lowest consumption in the nation. The total consumption averaged 64 9.5 and 4 million pounds of institutional cherry pie, respectively. The average per capita expenditure is only about 15 cents, and it is the lowest in the nation. The range in expenditure is from 36 cents per capita in Kentucky to 9 cents in Oklahoma. These regional differences in bakery sales of fresh institu- tional cherry pies further supplement the findings of the preceding chapter on home cherry pie baking. First, both total pie consumption and per capita pie consumption is higher in the Northeastern and North Central regions of the United States, and they are significantly lower in the South and West. Second, cherry consumption, both total and per capita, is higher in the Northeast and North Central regions and lower in the West and South. These data also indicate that consumption of institutional- sized bakery pies is highest in regions having areas which are largely urban and much lower in the predominately rural areas. Regardless of their location in the nation states with large urban populations have higher per capita consumption than more highly rural states. Discussion of the other relevant characteristics in the in- dustry and of policy questions will be withheld until the retail fresh pies have been discussed. The characteristics and policy questions for both will be similar. FRESH RETAIL PIES The data on fresh commercially prepared retail pies are a bit paradoxical when compared to data on institutional pies. For 65 institutional sized pies only total production data could be obtained, but for retail pies the only data available are on variables affect- ing consumption and very little on total production. This will prove valuable later in the chapter when both types of pies are dis- cussed together as there is a certain amount of overlap between the two sets of data. The principal problem in tabulating data on the production of fresh retail cherry pies arises from the large number of small single shop bakeries which are located throughout the country. Their large number and relatively small output makes everyone reluctant to take the time and bear the expense required to gather the data on their production. Data on the larger parts of the retail market can be obtained from the Census of Manufactures. These data are limited to the years 1954 and 1958, and therefore it is difficult to make comments about the total manufacture of retail cherry pie. Some very elementary in- dications about the trend in production can be made. The Census meas- ures the production from three retail fields, retail multi-outlet bakeries, home service bakeries, and sales by grocery chains (Table 5). Retail multi-outlet bakeries are as the name implies a bakery chain where one central bakery may have several retail shops located in the surrounding area. Estimated total cherry pie sales were down nearly 20 percent from 1954 to 1958. The total pounds of cherry pie fell from an estimated 5.6 million pounds to 4.6 million pounds. 66 TABLE 5: Estimated pounds and value of retail cherry pie sold by multi-outlet, home service, and grocery chain bakeries in 1954 and 1958. 1958 1954 Pounds Value Pounds Value (000) (000) (000) (000) Multi-outlet 4,617 $1,908 5,621 $1,335 Home service 4,141 1,627 4,260 1,518 Grocery chain 11,274 2,999 5,782 1,661 Source: Computed from the Census of Manufactures, United States Department of Commerce. Sales by home service bakeries during the period 1954-1958 have surprisingly remained fairly constant with 4.2 million pounds of cherry pie being sold in 1954 and 4.1 million pounds in 1958. Home service bakeries employ the door to door selling method. It would seem likely that the growth of urban shopping centers and im- proved transportation facilities would result in declines in this method of selling. Sales in grocery and supermarket chains have increased subs- tantially during the 1954-58 period. Production over the four years increased from 5.8 million pounds of cherry pie to nearly double that amount, 11.3 million pounds. A substantial rate of increase has probably carried over since that period. Much of this increase in pie sales has been due to the development of private brands of bakery products by the large national supermarket chains. These 67 bakery products are then given large display areas within the super- market which greatly aids in their sale. It is likely, however, that much of the increased sales in this area have taken place at the ex- pense of other retail bakery outlets. While no reliable data are available for single shop retail bakeries it is likely that their sales have been declining. The competition is becoming more intense as one-stop shopping becomes more common. The rate of decline cannot be determined because of a lack of reliable data. SEASONAL CONSUMPTION PATTERN FOR FRESH RETAIL CHERRY PIE Per capita consumption of fresh retail cherry pie has a definite seasonal pattern as measured by the MSU Consumer Panel. This pattern is applicable to most of the primary consumption areas of the North Central and Northeastern regions of the United States, but only to the extent that the Consumer Panel is representative. The peak in consumption is reached in February at a time when cherries get special promotion because they are symbolic of Washington's Birthday (Figure 12). The low is reached in September when fresh apples are just beginning to come into season and the consumer's thoughts turn to apple pie. The drop in consumption late in the year is due to competition from the seasonal favorites at that time, mince and pumpkin pies. There is a slight increase in consumption when the new crop of cherries becomes ripe in July, but not as much as might be anticipated. This is due partly to the limited availability of Figure 12: prepared cherry pie for D80 Conan-er Panel households, 1955-58 average. The seasonal per capita const-ption pattern for comnercially .30.} .204- .10.» J I l a l j A a a 2 3 4 5 6 7 8 9 10 11 four week periods beginning Jan. 1 Source: Computed from data of the MSU Consmer Panel. 68 12 13 69 fresh cherries and a limited willingness of the homemaker to use them. This may also be partly due to the seasonality of total pie consump- tion. Pie consumption appears to be higher in the fall and winter than the spring and summer. The influence prices have on seasonal consumption cannot be determined with certainty, but it would appear that it has little effect. Figure 13 depicts the seasonal price pattern for cherry pie. It will be noted that the times of lowest consumption are also times of lowest price and times of highest consumption are times of highest price. This does not follow economic logic in consumption, but it may be due to other factors which have not been mentioned. SOCIAL AND ECONOMIC FACTORS AFFECTING PIE CONSUMPTION Consumption of commercially prepared retail pies appears to be associated with income, size of family, age of the homemaker, and the employment status of the homemaker. These conclusions are reached by observations from the MSU Consumer Panel during the 1953-57 period.6 These data have the same limitations as noted earlier with the Consumer Panel data. Per capita consumption increased from lower to middle income levels. Beyond the middle income level further increases in income did not cause any significant increase in consumption. As incomes 6B. C. French, "Some Economic Aspects of Pie Consumption," ‘anrterly Bulletin, Volume 41, No. 3, Michigan Agricultural Experi- ment Station, Michigan State University, East Lansing, Michigan, February, 1959, p. 498-502. 70 increased there appeared to be a tendency to substitute a certain amount of commercially prepared pies for home baked pies. By the time the family has reached the middle income strata their income is sufficient to buy all the commercial pie they desire so further in- creases in income have little effect on consumption. Per capita consumption also increases as the age of the home- maker increases and when the homemaker is employed outside the home. It is rather surprising that homemakers under 40 would buy fewer pies than those who were older. Rising commercial pie consumption with rising homemaker age is most prevalent in the lower and middle income group. Per capita consumption in households where the homemaker is employed is nearly twice the level in households where the homemaker is not employed. Per capita pie consumption tends to decrease with increases in family size, but total household consumption remains fairly con- stant. It would appear that family size does not affect the total number of pies purchased, but the increased size of the household would make each member's share less, thus decreasing per capita con- sumption. Per capita consumption of commercial pie should increase in the future according to the above findings. Within the United States the trends appear to be for average household income to be increasing, for the average family size to be decreasing, and for the number of women employed to be increasing. All these factors lead to increased 71 per capita consumption of commercial pie. Even during the six year period studied by the Consumer Panel, per capita consumption of commercial pies increased. The trend toward the consumption of fewer calories may, however, over-ride this result. PRICE AS IT AFFECTS PIE CONSUMPTION Price is a very important factor in fresh pie consumption. If the price of a given pie rises relative to other pies this can cause a substantial decrease in consumption of that pie as consumers will buy more substitute pies. The demand for any given pie is elas- tic because of the large number of substitutes.7 For all pies it may be elastic also. Therefore, even small changes in price may give large changes in the volume sold. The effect of prices on the consumption of fresh commercial cherry pie will be discussed from three points of view. The effect of a change in the price of processed cherries on the price of cherry pie will be considered. Also the affect which a change in the price of cherry pie has on cherry pie consumption must be considered. Last, the pricing policies of commercial bakeries will be discussed to some extent. The price of retail cherry pie reflects some changes in the price of frozen cherries at the processor level. In Figure 13 are plotted the price per pound for commercially prepared cherry pies 7Where price elasticity of demand refers to the percentage change in quantity of a commodity divided by a one percent change in its price. gee ounces.— hiosolsowu scorn—Senses- .auam nesamgunmaenulowu zooms seeds..— eqm «season 33 33 33 an: 33 Quad «HenuuenuucnuaenN.—enuu course‘s seesaw A in” < /./\z ii. {ON :on :Ix .BAns 639.... r. Its-so flue—u no... 18383:: won 1' as: mew-nah.— hzeuuaelu :saeu sou mason use sue!— emewsss sea as ensues: 4 an enema.- 72 73 purchased by the Consumer Panel and the price per pound for institu- tional packed frozen cherries. There appears to be a negative correla- tion between the two. An increase in the price of cherries at the processor level occurred at times when the price of retail cherry pies decreased. Based upon interviews of fresh pie bakeries, there appears to be two primary reasons which explain this unusual correlation. First, there was evidence to suggest that at least the full benefits of down- ward shifts in cherry prices were not being passed down to the bakeries by the brokers and selling agencies. This may also be true for upward shifts, but it is less likely. This policy of sellers not passing _down all the price changes from the processor would tend to dampen the fluctuations in cherry prices. Second, there appears to be a suf- ficient profit margin on cherry pie that the bakeries can operate in- dependently of cherry prices at least in the short run. Therefore, yearly cherry price variations are not extremely important to the bakery operators. Within the Consumer Panel it was found that consumers are very price conscious. Interviews with bakery operators tended to support this. Cherry pie sells on the average for about one cent per pound less than the average price for some other favorite commercial pies. This gives it a slight competitive advantage to begin with. French's statistical analysis of the price of all fruit pies indicates that a one cent change in the price paid will cause an inverse change of 74 .076 pounds of pie purchased per household.8 It is likely that a similar price - purchase relationship is true for cherry pie. Commercial bakeries use a composite pricing system in which the price of all pies to the buyer are similar although the cost of manufacture of different flavor pies varies. Low profits or even negative profits from one type of pie are covered by high profits from another type of pie. The prices are adjusted in a manner which will make the average profits sufficient to operate the business. Therefore, under this system some types of pies could be sold at a lower price and still return a satisfactory profit. Cherry pie is one of these. Other parts of the pricing policies obtained by interview- ing bakers do not agree with the findings in Figure 13. The bakery operators indicated that if the price fell they might run cherry pies as a "special" at a lower price to draw customers. Generally, how- ever, they would not change price, but would average their profits over time as the price of cherries fluctuated up and down. Figure 13 shows that neither of these are actually followed by the majority of pie bakers, or that in the aggregate these tendencies are eliminated. Other methods of reacting to changes in the price of cherries which were discussed were changing the pie formula by using fewer cherries, or changing the output of cherry pie. None of the pie bakers indicated that they would change their formula. Because they face a 81bid, p. 496. 75 rather constant demand for institutional cherry pie they also indicated that they could not change their output to react to changes in the price of cherries. How bakeries really react remains somewhat of a mystery. It is the author's conclusion that both price and output are the mechanisms used when bakeries react to changing cherry prices. They are interrelated reactions. If the price of cherries increases and bakeries increase the price of their cherry pie it will tend to reduce the amount of cherry pie they will sell whether the bakery plans to decrease its manufacture of cherry pie or not. Therefore, the price and output would be interrelated. THE MARKETING OUTLOOK FOR COMMERCIAL FRESH PIES The institutional fresh cherry pie market will most likely remain about the same over the next few years. Restaurants and in- stitutions are faced either with the prospect of baking their own pies or purchasing them. Unless it is a fairly large estab lishment which serves a large number of pies each day the per unit cost of baking pies may be greater than the cost of buying them. As long as the average in- come of the population remains high it is unlikely that the demand for restaurant meals will decline, and subsequently, the demand for insti- tutional pies will not decline. The market outlook for fresh retail pies is not nearly as good as that of institutional fresh pie. Retail frozen pies are providing stiff competition in both price and quality. The effect of price on pie marketing has already been discussed. Fresh pies purchased from 76 retail bakeries in the Lansing area sold on the average for approxi- mately 65 cents for an eight inch cherry pie while a retail frozen pie of the same size had an average cost of only 39 cents in the spring of 1963. Fresh cherry pies sold by supermarkets under their brand name have tended to decrease their average price to compete with the frozen pies they carry. How long retail bakeries can continue under this type of competition is a matter of speculation. Fresh retail pies, especially supermarket brands, face tough quality competition also. Bakers themselves admit that, while the storage life of a fresh pie is about three days, pies loose half their flavor in just a matter of hours after they are baked. Most pies sold by supermarkets are a day old when they are sold, and probably two days old when they are consumed. It is therefore doubtful that they can compete in flavor to fresh home baked or frozen pie. SUMMARY Fresh commercial pies are a very important method of market- ing red tart cherries. The principle type of cherries which are used by this market are institutional pack frozen cherries. This is be- cause they give a higher quality product. Institutional sized pies are the largest selling fresh pies with an excess of 100 million pounds of cherry pie being sold annually representing 46 million pounds of raw fruit. The retail size fresh pie does not have as large a market, and this market appears to be declining. The Northeastern and the North Central regions of the nation 77 have the highest total and the highest per capita consumption of fresh cherry pie. This is true of both retail and institutional sizes. Price is the most important factor which influences consump- tion, as price decreases consumption increases. Other socio-economic factors which increase fresh pie consumption are rising income, rising age of the homemaker, and a rising number of homemakers employed outside the home. There appears to be a negative correlation between the current price of cherries and the current price of fresh cherry pie. This makes the methods pie bakers use to adjust to a change in cherry prices uncertain. But it seems likely that changes in price and output are still the primary methods. CHAPTER VI MARKETING OF CHERRIES THROUGH FROZEN COMMERCIAL PIES INTRODUCTION Frozen commercial cherry pie is manufactured almost entirely from frozen institutional pack cherries. Most frozen cherry pie is sold through the retail market. Some institutional frozen pies are being produced for the restaurant trade, but as yet this trade is only a minor part of the total. Today's standard retail sized pie is eight inches in diameter and has a net weight of 22 ounces. There are miscellaneous sized pies being produced which range in weight from 10-1/2 to 24 ounces, but even as a group they are not very important. The total retail market absorbed an estimated 56.9 million pounds of frozen cherry pie in 1961, which is equivalent to an esti- mated 22.4 million pounds of frozen tart cherries.1 Instituional frozen cherry pie in 1961, which was equivalent to an estimated 4.6 million pounds of tart cherries, totaled an estimated 10.1 million pounds.2 1Computed from the "1962 Frozen Foods" Almanac published by ,Quick Frozen Foods assuming 25 percent of all frozen pies are cherry pies and assuming a standard of 6.5 pounds of cherries per dozen 22 oz. pies. 2Computed from the "1962 Frozen Foods Almanac" published by Quick Frozen Foods assuming 25 percent of all institutional pies were cherry pies and that 1.15 pounds of cherries were used per 42 ounce pie. 78 79 Since 1954, when frozen pies were first manufactured in quan- tity, the principal size of the manufactured pie has changed twice. The first size was a 10.5 ounce pie which would serve one or two per- sons. In 1956 the size was changed to an eight inch, 24 ounce pie which was large enough to serve a family of six. The diameter of the pie has remained constant, but the weight was reduced around 1958 to 22 ounces. In this study only the 22 ounce pie will be discussed since it now comprises the bulk of the frozen pies manufactured for which some data are available. Considerable quantities of good data are available on the marketing of frozen pie on a national, regional, and state basis. This may be due in part to a willingness of the industry to make these data available. Little information, however, is available on the factors which affect the marketing of frozen cherry pies. Mom: of the studies which have been referred to previously were completed be- fore frozen cherry pies became very important in household expenditures. Therefore, they are of little value in the study of this product. THE TREND IN RETAIL FROZEN CHERRY PIE PRODUCTION Frozen cherry pie is becoming a very popular item in our diet. During the seven years since 1955, when frozen cherry pies were first reported, production has increased 4.5 times from an estimated 12.1 million pounds to 56.9 million pounds in 1961.3 The total production 3Computed from the annual Frozen Foods Almanac published by ,Quick Frozen Foods. 80 of retail frozen pies has been rising at a steady and rapid rate as seen in Figure 14. Evidence from recent reports on 22 ounce pies since 1958 indicates that the production may be leveling off slightly (Figure 15), although it still continues to increase at a substantial rate. It was noted earlier in the study that much of the rise in demand which certain cherry products are enjoying has come from a substitution between cherry products. This substitution between cherry products should not be confused with an increase in the total demand for cherries. While there has undoubtedly been a certain amount of new demand created by frozen cherry pie, most of the increased con- sumption of frozen pie has come from substituting it for home baked pies and commercial fresh pies. It is likely that the demand for frozen cherry pie will remain at a high level during the near future because it incorporates many of the good features of both home baked pies and commercially prepared pies. Frozen pie combines the convenience of commercial fresh pie with the freshness of home baked pie. In addition, several pies can be easily stored in the freezer for future use. These factors combine to make frozen cherry pie a superior product in many respects to both fresh commercial pie and home baked pie. They should combine to give frozen pies a continued popularity. Among frozen food distributors frozen fruit pies are considered to be one of the top selling frozen food products for the near future.4 aFruit Pies, French Fries, and Dinners Lead as Potential Top Sellers in 1962“,_Quick Frozen Foodg, February, 1962, p. 156. mdlliom pounds Figure 14: The estimated pounds of frozen retail cherry pie coasts-ed annually during the period 1955-61. 600 i 50+ 301- 20" 10"- ! - 11.2 + 7.88! + l A I A A J A 19 55 1956 1957 1958 1959 1960 1961 1962 1963 Source: Compiled and computed from "Frozen Foods Almanac", Quick Wis. 195541- 81 million pounds 21 20 19 18 17 16 15 14 15 12 ll 10 1958 Figure 15: The estimated quarterly consumption of retail { oxen cherry pie, 1958-61. ’4 1 1959 2 3 4 l 2 3 4 l 2 3 4 1960 1961 Courtesy of Petrits Division of the Pet Hulk.Company. 82 83 This appeared to be particularly true in the South and West where 33 percent of the frozen food distributors picked fruit pies as their top sellers. This was in comparison to 20 percent of the distributors in the rest of the nation. While this was noted for all fruit pies it should be true to a large extent for cherry pie because of the large percentage of fruit pies which are cherry and the usually favorable price position of frozen cherry pies. An increase in the consumption of frozen cherry pie in the South should be of particular interest to the cherry industry. This could be the beginning of a strong entry into a market which previously has not reached its potential in cherry consumption. It could open this market to greater sales of other cherry products. REGIONAL CONSUMPTION PATTERN The Northeastern and East North Central regions of the United States lead in both total and per capita consumption of frozen cherry pie. With the exception of the Pacific Coast, per capita consumption is nearly double that of any other region (Table 6). Residents in the Pacific states are particularly strong in consumption of frozen cherry pie relative to other cherry products. The South and West are low in per capita consumption as was true for other cherry products. The reference table in Appendix A will show that per capita consumption is highest in the states, as well as the regions, with large urban populations. This is similar to the findings in the last chapter on fresh commercial cherry pie and indicates a tendency for urban home- makers to buy more frozen pies than rural homemakers. 84 TABLE 6: The estimated consumption of retail frozen cherry pie by region for 1961. Sales Estimated Total Per Total Pounds Pounds Sales Capita Pounds per of (000) (Cents) (000) Capita Cherries 12m New England 1,235 12 3,155 .30 1,243 Middle Atlantic 4,618 14 11,799 .35 4,649 East North Central 3,956 11 10,109 .28 3,983 West North Central 956 6 3,443 .16 963 South Atlantic 1,283 5 3,278 .13 1,292 East South Central 258 2 659 .06 260 West South Central 943 6 2,410 .14 950 Mountain 340 5 868 .13 342 Pacific 2,429 12 6,205 .30 2,444 Grand Total 16,019 9 40,928 .23 16,124 Source: Computed6 from the 1963 Marketing;Guide published by Quick Frozen Foods. 6Computed by multiplying the sales of each region by 25 percent to get cherry pie sales. Divide this figure by .39 (average price for pie) and multiply by 1.375 (to convert from number of pies to pounds of pie) to determine pounds of cherries. Divide both figures by population to determine per capita consumption. Pounds of cherries determined by mul- tiplying pounds of pie by .394. The states with high per capita frozen pie consumption also tend to be states with above average per capita incomes. The level of income 85 reflects the ability of the household to buy frozen cherry pies, but it also reflects the ability of the household to buy a freezer or the more expensive refrigerator-freezer necessary to store large quantities of frozen foods. Both of these influence the amount of frozen foods, including cherry pie, a household will buy. The inability to buy a freezer could explain part of the low consumption in the South and parts of the West where average income is very low. It is interesting to note that Kentucky which had a relatively high level of per capita fresh pie consumption was among the lowest in per capita frozen pie consumption. This could indicate a regional pre- ference in the type of pie consumed besides the other factors affecting consumption. There are states with lower per capita average income and less urbanization which have a higher per capita consumption of frozen cherry pie. In light of the relatively large per capita consumption of fresh cherry pie one possible hypothesis is that in this region fresh pies are preferred to frozen pies. This may be also true of other regions. SEASONAL CONSUMPTION PATTERN The consumption of frozen cherry pie has a very definite seasonal pattern. This pattern is shmilar to that found for fresh pies and dis- cussed in the last chapter. The seasonal high for frozen cherry pie occurs in the April - June quarter of the year. The low is in the following July - September quarter (Table 7). For comparative pur- poses some of the other popular fruit pies have been added to the table. 86 TABLE 7: Seasonal index of families serving selected flavors of frozen pie-1959. (Annual Average 8 100) QUARTERS Flavor Jan. Apr. July Oct. Mar. June Sept. Dec. Cherry 116 123 77 84 Apple 97 78 113 111 Peach 97 78 154 71 Blueberry 88 115 120 78 Mince 131 46 20 200 Strawberry 78 150 94 83 Source: Courtesy of the Petritz Division of the Pet Milk Company. The high point of the seasonal consumption pattern of the other fruit pies in Table 7 occurs when the fruit is being harvested. This is not true with cherry pie. The majority of tart cherries are har- vested in the month of July during the lowest part of the seasonal consumption cycle. This is very interesting from the standpoint of cherry marketing. The major reason for this can be explained by the large percentage of tart cherries which go to the processors. Approxi- mately 95 percent of the tart cherries are sold to processors while a much smaller percentage of most other common fruits are marketed in this man- ner. Therefore, a large majority of the consumers do not realize when the cherries are being harvested. Nor do they particularly care, since it does not alter the form in which they buy cherries anyway. 87 A close correlation exists between the seasonal consumption patterns of fresh cherry pie and frozen cherry pie. In Figure 16 the seasonal index of consumption of fresh cherry pie has been computed from the MSU Consumer Panel, and this index has been superimposed upon the frozen pie seasonal index from Table 7. In both cases cherry pie appears to be a product which is consumed in the winter and spring rather than the summer and fall. This was also true for canned cher- ries and commercial pie filling which are used extensively in home baked pies. Thus, the consumption of all cherry pie must be asso- ciated with the winter months. THE EFFECTS OF PRICE CHANGES ON PIE CONSUMPTION Pie manufacturers can react in many ways to a change in the price of frozen tart cherries. Three principal ways would be to change the price of cherry pie, change the output of cherry pie, or change the number of cherries within a pie. In a questionnaire sent to frozen pie bakers around the nation these three possibilities were presented. Their reports indicated that the primary reaction to an increase in the price of frozen cherries is to decrease the output of cherry pie relative to total pies. Frozen pie manufacturers use an average margin system in pricing their pies similar to that used by fresh pie bakers and other multi-product merchandisers. By reducing the number of cherry pies the manufacturer will decrease the size of the loss in normal profits because fewer of these low margin pies will be produced and sold. Less than a 5 percent change .3 1:: a: no I333.— .35: no 5.03.33 0.:— soup—u Sauna wag-I8 9%. Iowa 3A 2 “gm chug R— HHH an H a .13. gan—«mud it.» 3003.3 nu 3 S 3 a a n o n c n N a oh 3m bur—0&0 gm . on 03 . 0.3 g Joann ‘ 6: on“ on.— Su 83 I can»... anon—.5 .3.— Eeau ”Jon-I80 Inseam was '96 $.ng noggin us «can: ands-Ion .5. .3 0.93.... 88 89 in the price of cherries is sufficient in most cases to change the output of cherry pies. A second method of reacting to a change in the price of frozen cherries is to raise the price of cherry pie. This was the second most popular method among manufacturers. The majority of the manufacturers, however, were reluctant to change the price of their pie, or at least to change it upward. Homemakers are extremely price conscious with respect to frozen pies. In a consumer survey it was found that 64 percent of the homemakers are highly percep- tive of price changes in fruit pies.5 This makes pie manufacturers reluctant to change their prices upward relative to the price of their competitors' pies. The above two methods of reacting to an increase in the price of tart cherries cannot in reality be discussed independently because according to economic theory one implies the other. If you change the output of cherry pie, there will also be change in the price. The amount of this change will be dependent upon the elasticity of demand. Conversely, if you change the price there is automatically a change in output. Because the demand for frozen cherry pie is relatively elastic the change in output becomes the primary reaction to a change in tart cherries prices because a large change in output can be made with only a small change in price. Conversely, a small change in price will cause large changes in the quantity sold. Several pie manufacturers 5"Consumer Attitudes Towards Frozen Foods", Quick Frozen Foods, October, 1960, p. 90. 90 stated in their remarks that the low price of cherries, consequent- ly lower manufacturing costs, during the last two years have been instrumental in the expansion of cherry pie output within the frozen pie industry. The last method, one used by only two of the manufacturers responding, was to change the formula of the pie by reducing the amount of fruit used in the pie when the price of cherries increased. Respondent manufacturers using this method used it exclusively rather than in combination with one of the other two methods. The average price for frozen cherry pie at the retail level has been close to 39 cents throughout the nation the last two years. This is considerably lower than the price of commercial fresh pie. This price difference has been very important in the growth of the frozen pie industry. Within the frozen pie industry price differences exist between the different brands of frozen pie, but price does not appear to be used as a method of competition. The price differences for the most part are small, and they exist mainly because of quality differences. A known, high quality frozen cherry pie may sell for slightly more than another brand of pie having slightly lesser quality, but neither attempts to exploit their advantage with cut-throat price competition. This lack of price competition may, however, be due to previous keen competition which has forced prices down to the point where further reduction in the margin could not be undertaken without all parties suffering serious losses. Therefore, the present price is such that 91 further price competition is very difficult. Between regions, however, there are significant differences in the price of frozen cherry pie. The average price of cherry pie is lowest in the Great Lakes area and it becomes higher as the manu- facture radiates outward from this center. The difference between the lowest price at St. Louis and the highest price at San Francisco was four cents per pie. Converting the monthly prices of frozen cherries into an average price index for the years 1959-61 gives a price structure which is easier to compare (Table 8). The difference in price is probably due to the cost of transporting cherries from the Great Lakes centers to the area in question. Exceptions to this cost scheme are Seattle and Philadelphia because of the Washington and Eastern tart cherry producing regions which supplement the Great Lakes production. The cost of the cherries used in frozen cherry pie makes up the largest single cost of manufacturing, about 30 percent of the total cost. Yet the price of frozen cherry pie over time does not reflect changes in the wholesale price of frozen institutional pack cherries. The wholesale price of frozen cherries and the average price per pound of frozen cherry pie has been plotted on Figure 12, and little correlation exists between the two prices. This may be due to a change in the output of cherry pie, a change in the amount of cherries per pie, improved technology, and a number of other factors which have reduced cherry pie prices. Regardless of increases in raw product prices in the short run, at least, there appears to be little correlation between 92 TABLE 8: Average index of retail prices paid by consumers for frozen cherry pie in representative cities across the nation, 1959-1961.1 City ‘ Index Miami, Florida 97.2 St. Louis, Missouri 86.9 Seattle, Washington 90.3 Philadelphia, Pennsylvania 90.6 San Francisco, California 100.0 Houston, Texas 88.1 Source: Compiled and computed from monthly reports of Quick Frozen Foods. 1The highest priced market, San Francisco, is the base. price of cherries and the price of cherry pie. This cannot be said for the long run, a further change in cherry prices upward could bring an upward change in the price of cherry pie. The actual reaction of frozen cherry pie prices to changes in the price of cherries in Figure 17 appears to contradict the responses some manufacturers gave on the questionnaire. This is not necessarily the case, because it should be remembered that the price of cherry pie used in Figure 17 is an average price based on all manufactures in re- gions covering the nation. Therefore, it would be possible for some manufactures to change price without affecting the average price to any great extent. | I'l- ‘ CCQCI 30 28 26 24 22 , 13_ 16 14 20 # Figure 17: The relationship between the quarterly price per pound for frozen cherry pie end the quarterly price per pound for institurionsl frozen cherries, 1958-61. retail frozen cherry pie r institutional pack frozen cherries . l . . A . L n- l - 4 I 7 3 6 E 2‘ 3 ”4’3 '1 z 43-"l 1958 1959 1960 1961 Source: Compiled and computed from the annual and monthly reports of Mamas. 93 94 THE EFFECTS OF VARYING THE AMOUNT OF CHERRIES USED IN PIES The amount of cherries which manufacturers use in the same size frozen cherry pie varies widely within the industry. It was noted in the last section that cherries were the most expensive item in the average cherry pie. Thus, there is an incentive for manufac- turers to lower their costs, and increase sales and profits, by using only the minimum amount of cherries in their pies and charging a re- duced price. This is not to say that all manufacturers or even the majority endeavor to use the least cherries possible, but the varia- tion in fruit between pies cannot be ignored. The cherries used in frozen pies come exclusively from frozen cherry packs, generally 30 pound tins. The number of retail pies made from a 30 pound tin varied from 30 to 65 pies among those manu- facturers answering the questionnaire. If converted in ounces of cherries per 22 ounce pie, this would be a variation from 13.6 ounces to 6.3 ounces. The average appears to be around 8 ounces. Findings by Mary Zehner, Agriculture Economics Department of Michigan State Uni- versity, in an independent study indicates a similar variation in the amount of cherries used in retail pies, but the average of the six brands she studied was only 5.9 ounces of cherries per pie. It is interesting to note that from findings of the questionnaire manufac- turers located nearest the primary producing area around the Great Lakes used the least amount of cherries, while those located much further away in the South and West used the most cherries. This may 95 be because further from the producing areas cherry pies are not as popular, and it takes a higher quality product to get many sales. Mary Zehner measured the change in the ingredients in her study on frozen fruit pies. Although her study is not yet completed, the data indicates that from the beginning of 1963 to mid 1963, the number of cherries used by different manufacturers varied. The amount of variation in the number of cherries used varies from large changes to changes small enough to be merely chance variations in manufacture. The study is not yet complete enough for further comment. This lack of uniformity within the industry and the small amounts of fruit in some brands of cherry pie have caused considerable concern within the industry and within government regulatory bodies. Comments expressed by manufacturers on the questionnaire and from numerous articles in Quick Frozen Foods give the impression that these people feel the lack of uniformity is seriously affecting the poten- tial of the industry. Consumers who buy these "fruitless" cherry pies are generally dissatisfied consumers whose experience makes them reluc- tant to buy more frozen pies. This causes criticism and may lower sales. On the other hand, the fact that prices are lowered may permit even the low income consumers to purchase this dessert, thereby expanding the market. Where the optimum balance between low price and fruit content will occur remains to be determined. Michigan Senator Philip Hart has recently begun to press for government action against those manufacturers who persist in the mis- labeling of their products. This may bring a slight price rise in 96 cherry pie due to the higher manufacturing costs if more fruit is re- quired in each pie. If the price change is negligible it could raise substantially the number of pounds of cherries marketed through fro- zen pies. If one more ounce of cherries had been added to each of the approximately 41.4 million retail frozen cherry pies sold in 1961 it would have meant a marketing of another 2.6 million pounds of cherries. Closely related to the problem of variations in the amount of fruit within a cherry pie is the problem of changes in the standard weight of frozen fruit pies. In 1958 the standard size of the retail frozen fruit pie decreased from 24 to 22 ounces. This had a definite effect on the amount of cherries used within a pie, and a subsequent effect on the price of cherry pie. The diameter of the pie did not change, nor did the package size, and the slight flattening of the pie was not easily noticed by the consumer. Therefore, the consumer on the average did not realize a change had taken place. At the pro- cessor level the change was very significant becauSe it allowed them to cut back costs in a greater proportion than the change in weight. Most of the two ounce reduction in weight came from the expensive fill- ing rather than the relatively inexpensive crust. In crust there was only a k ounce reduction, but the amount of filling was reduced by 1-3/4 ounces.6 Filling makes up approximately 35 percent of the cost of a frozen pie, while the crust makes up only 16 percent of the cost. Thus the reduction in filling allowed the manufacturer to enjoy more 6"Price Line Fruit Pies Become a Reality", Quick Frozen Foods, September, 1959, p. 110. 97 than a proportional reduction in costs. This allowed the manufacturer to establish a nearly uniform price of 39 cents for frozen fruit pies. The net effect of this reduction in the amount of filling, and thus number of cherries, cannot be accurately assessed because the in- crease in cherry pie sales due to the lower price may have more than off-set the decreased use of cherries in each pie. It is impossible to say what the sales of 24 ounce retail pies, at a higher price of course, would have been, and therefore it is impossible to determine the actual total effect of the reduction in retail pie weight. INSTITUTIONAL FROZEN CHERRY PIE The sales of institutional frozen pies are not nearly as large as those of retail frozen pies. An estimated 10.2 million pounds of institutional frozen cherry pie was manufactured in 1961.7 This was less than one-fifth the amount of frozen retail cherry pie. This 10.2 million pounds of pie represented an estimated 4.6 million pounds of 8 The average sized institutional pie is 9 to 10 inches frozen cherries. in diameter and weighs 40-48 ounces. I The frozen institutional pie has not been nearly as popular among eating establishments as fresh pies. Over 11 times more fresh cherry pie was sold in 1961 than frozen cherry pie. The main factors which retard increased frozen pie popularity are that it must be baked 7Assuming 27.5 percent of the figure of 37 million total pounds reported in the 1962 Frozen Foods Almanac, Quick Frozen Foods, was cherry. 8 Assuming 46 percent of the weight of the pie is fruit. 98 before it can be used, and it requires freezer storage. It takes time and space to bake and cool a large number of pies. Many smaller restaurants buy fresh pies in an effort to eliminate this type of activity. Fur- thermore, the difference in the quality and flavor of fresh and fro- zen commercial pies on the institutional level is questionable. Thus, the small restaurant operator is reluctant to spend the time and trouble which frozen pies require. Frozen pies are not without their good points. Frozen pies have a cost advantage over fresh pies. Among those bakeries inter- viewed, the cost of a frozen cherry pie is somewhat less than that of a fresh cherry pie. This may be inherent in the industry, or com- petition from fresh pie may force frozen pies to be cheaper. Probably it is brought about by both of these factors. Also with frozen pies it is possible for the restaurant to always have an extra supply of pies on hand to meet unusually heavy demands, providing freezer space is available. By baking several times a day the restaurant can easily regulate its pie requirements with the number baked. Thus, it can always have fresh pie available and still reduce its waste. There are data which indicate that the largest users of frozen institutional pies are the middle sized restaurants serving 3,000 - 7,000 meals per week. W. Smith Grieg's study of eating establishments in Detroit in 1960 indicated that 40 percent of the frozen pies 99 consumed by restaurants was in this group.9 Smaller restaurants buy a greater percentage of fresh pies, and larger restaurants make most of their own pies. Although fragmentary, this study does give some indication of the consumption of frozen cherry pies. THE OUTLOOK FOR FROZEN CHERRY PIE MARKET It is difficult to predict the future of the frozen cherry pie industry based upon the questionnaire sent to the manufacturers, but some indications were obtained. Most pie manufacturers operate in a regional market, and therefore their responses not only reflect the total demand within the region but also the demand for their product within the region. In general, they see the total demand for commercially pre- pared pie increasing at the rate of 10 percent per year. In the South the outlook was especially good. This approximates the increase pre- dicted by the trend line in Figure 14. At this rate the consumption of retail frozen pie will soon surpass the consumption of fresh cher- ry pie. More encouraging is the fact that consumer demand for cherry pie appears to be rising relative to other fruit pies. Manufacturers feel cherry pie consumption is rising from 5-10 percent faster than consumption of other fruit pies. This increase was aided by the heavy 9W. Smith Grieg, Market Potential for Dehydrofrozen and Dehydrocanned Apple Slices, Agriculture Economics Mimeo 801, Coopera- tive Extension Service, Michigan State University, September, 1960. lOO supplies and low price of frozen cherries since 1961. This has made it possible for pie manufacturers to reduce the price of cherry pie relative to other pie prices causing consumers, in many cases, to substitute cherry pie for other types of desserts. A change in cherry prices upward would, of course, cause this trend to change. About as many pie manufacturers see the demand rising for fruit pies in general relative to non-fruit rising as those who see no change in relative demand. Those who see it rising feel that it is rising 10 percent or more relative to non-fruit pies. There seems to be no regional pattern or distribution in the responses, therefore, an overall 5 percent increase in the demand for fruit pies relative to non-fruit pies seems to be a reasonable expectation. The increased demand for cherry pie is important in this increased demand for fruit pies. The manufacturers of frozen pies have a further advantage over fresh pie bakers because their product can be easily stored for long periods. A frozen cherry pie can be stored easily for a year without appreciable deterioration in quality. This is important be- cause it allows pie manufacturers to produce large amounts of frozen cherry pies when cherries are cheap and store them for future sales. When cherry prices rise they cannot only manufacture fewer cherry pies, but they can also liquidate their stock of pies at a nice profit. Therefore, they can operate on a narrower margin of profit because they are not concerned with short run cherry price movements. This prac- tice is however, limited by the additional handling and storage which it 101 necessitates. This should continue to aid frozen cherry pie in its ability to compete in the commercial cherry pie market. SUMMARY Frozen cherry pies are a very important means of marketing red tart cherries. While total frozen cherry pie sales are not as large as total fresh cherry pie sales the industry is enjoying a rapid rate of growth. Retail frozen cherry pie sales may soon surpass fresh cherry pie sales. The low cherry prices over the last year and a half have been instrumental in this growth. Factors which tend to promote the sales of frozen cherry pie are its relative ease of preparation, its freshness, and its lower price. The fact that it must be baked limits its demand in the restaurant field. Consumption is much higher in the Northeastern and North Central regions of the nation than in any of the other parts of the nation, with the exception of the Pacific Coast. States with high urban populations have higher per capita consumption than those states which are predominately rural. The average level of income is also important in per capita consumption as consumption is higher in high income areas. Frozen cherry pie also has a seasonal pattern of consumption. The largest sales occur in the April - June quarter of the year, and the lowest sales occur in the July - September quarter. The correla- tion between the consumption patterns of frozen and fresh pies is very high. 102 A large portion of the demand for frozen cherry pie has probably come from substituting it for older, less popular forms of cherry con- sumption. However, there has been considerable amounts of new cherry consumption started in some regions which were formerly low cherry consuming areas due to the marketing of frozen cherry pie. In the future it will likely become an even more important outlet for tart cherries. CHAPTER VII MISCELLANEOUS MARKETING FLOWS OF RED TART CHERRIES INTRODUCTION Until now this study has dealt with the market flow of re- tail pack cherries, and the major marketing flows of institutional pack cherries. Red tart cherries in institutional packs have many uses other than those already discussed. This chapter will be devoted to a brief discussion of four other uses of tart cherries. These are cherry confections, direct sales to restaurants and institutions, military and non-military government purchases, and exports. In 1961 these four flows totaled an estimated 73 million pounds of tart cher- ries which as a group makes them very important in the total marketing flow. CHERRY CONFECTIONS Tart cherry confections are largely cherry jams, jellies, and preserves, and fruit mixtures of these same products. The confec- tionary industry is not a very important part of the total cherry marketing flow nor are cherry confections a very important part of the entire confectionary industry. Cherry preserves are about 4.4 103 104 percent of the total preserve sales, and cherry jelly about 3.8 per- cent of the total jelly sales.1 In 1961 an estimated 25 million pounds of cherry confections were produced, which used an estimated 12.5 million pounds of frozen tart cherries.2 Nearly all cherries used in the confectionary industry are frozen cherries. In the pack of confections about equal quantities are packed for retail sales in one pound or smaller containers and for institutional use in larger containers.3 With the exception of the West, where cherry confections are only 3.2 percent of total confections consumed, the regional varia- tion in consumption is small. The Northeast is slightly above aver- age with 4.8 percent of the confections being cherry, but the South and North Central regions are very near the mean of 4.4 percent.4 The total consumption of all confections varies between re- gions, however. Per capita consumption is highest in the Northeast and lowest in the South. The West and North Central regions gave 1Information obtained by personal letter from the Marketing Division of the J. M. Smucker Company, Orrville, Ohio. 2Computed by using a base figure of 600 million pounds of total confections, multiplying by 4.2 percent to determine the pounds of cherry confections and assuming that two pounds of confection equals one pound of fruit. 30.8. Department of Agriculture, Agriculture Marketing Service, Survey of Fruit Use by Preserve Manufacturers, Marketing Research Report No. 123, Washington, D.C., June, 1956, p. 6, 41bid., p. 39. 105 similar patterns of per capita consumption. Consumption is also higher in urban areas relative to rural areas which would help to explain much of the regional differences in confection consumption.5 Per capita consumption of confections, and thus cherry con- fections, appears to be quite stable over time. Consumption does increase slightly as households move from low income to middle in- come levels and decreases slightly as individuals pass out of their teens, but other than these factors the per capita consumption of confections appears to be quite stable. Therefore, population change appears to be the factor with the greatest influence on the total manufacture of cherry confections.6 If this continues to be the case then further increases in population will be necessary to bring about a greater total demand for confections, and thus an increase in the total volume of cherry confections. There is no information on the substitution of one flavor of confection for another, but assuming this remains constant, the amount of cherries used in the confectionary industry should continue to increase slight- ly with the present population increases. It is not likely that this increase will have much effect on the total cherry marketing flow because of the relatively small amount of cherries involved. 51bid., p. 5. 6Ibid., pp. 18-28. 106 THE FLOW OF CHERRIES TO RESTAURANTS AND INSTITUTIONS Previously we have discussed the flow of cherry products, frozen and fresh cherry pie, and cherry confections, into restaurants and institutions. We will now consider the direct flow of institu- tional pack cherries into these establishments. There are a few sales of fresh cherries to restaurants and institutions, but these sales are so small that they can be ignored, and we can deal only with flow canned and frozen packs of cherries. The bulk of the material discussed in this section came from a U.S.D.A. Market Research Report published in 1956.7 Approximately 6 percent of the total pack of canned and frozen cherries were purchased directly by restaurants and institutions. In 1961 this amounted to an estimated 18.6 million pounds of cherries. Frozen cherries at the time of the study amounted to 77.5 percent of the cherries used in these establishments. Since this time fro- zen cherries have probably gained a further advantage. There is also a seasonal variation of tart cherry purchases by restaurants as shown in Table 9. Although the table deals only with the months of August and November, its data strongly suggests a seasonal pattern similar to those already discussed for retail 7U.S. Department of Agriculture, Agricultural Marketing Service, The Use of Frozen Foods by Restaurants, Marketing Research Report No. 114, Washington, D.C., (November, 1956). 107 TABLE 9: Percentage of restaurants purchasing fruits, in August and in.Nbvember of 1955, by form. Form. 5932;; November - -Percent- - Any Form 18.8 27.7 Frozen 12.6 16.0 Canned 6.3 13.0 Fresh 1.1 0.0 Source: U.S.D.A., Use of Frozen Foods by Restaurants, ‘Marketing Research Report No. 144, p. 11. cherry packs and fresh commercial cherry pie. Additional information is necessary, however, to confirm this finding. Also there tends to be a regional variation in cherry consump- tion. The U.S.D.A. study cited above measured the regional differences between the type of packs which were used rather than the volume of consumption. The differences in relative quantities could be assumed to be similar to that of retail pack cherries. This is because restaurant consumption of cherries would be simdlar to household con- sumption within these areas. variations in the type of pack used were measured only in the North Central, Northeastern, and Southern regions of the nation. A.higher percentage of frozen cherries relative to total cherries consumed was found in the Northeastern and North Central regions. In the South a higher percentage of canned cherries was con- sumed (Table 10). Although this study was conducted several years ago it is probably still relevant with respect to regional differences in purchases and consumption. 108 TABLE 10: Percent distribution of restaurant purchase of red tart cherries within regions. Area Frozen Canned Fresh - - -Percent- - - Northeast 84.7 15.3 -- North Central 78.8 15.9 5.3 South 65.9 33.9 .2 Source: U.S.D.A., The Use of Frozen Foods by Restaurants, Marketing Research Report No. 144., p. 32. The size of the restaurant affects the type of pack and the amount of cherries purchased. The larger restaurants do more of their own pie baking and tend to use frozen rather than canned cherries (Table 11). These findings agree with thogireported by W. Smith Grieg in a Detroit restaurant study discussed inChapter 5. If the number of meals eaten outside the home continues to increase, the number and size of restaurants should continue to in- crease, and the flow of direct sales of cherries to these establishments TABLE 11: Percent of restaurants purchasing and relative quantity of frozen, canned, and fresh red tart cherry used, by size of restaurant. Percentage of Of Those Cherries Restaurants Purchased the Break- Purchasing Any down by Form Form of Cherries Frozen Canned Fresh 6-11 Employees 38.4 43.8 55.8 .4 12 or More Employees 49.4 82.9 13.8 3.3 Source: U.S.D.A., The Use of Frozen Foods by Restaurants, Market- ing Research Report No. 144, p. 18. 109 should increase, referring again to W. Smith Grieg's study presented in Chapter 5. Part of this increase will be due to a substitution of restaurant-made cherry desserts for commercially-made cherry desserts. Also there will be a substitution of restaurant made cherry desserts for homevmade cherry desserts. This increase in the restaurant flow of cherries will be particularly evident in sales of frozen cherries. However, due to the substitution of one type of cherry dessert for another it is a matter for speculation as to how much of an increase will be created in the total demand for tart cherries. GOVERNMENT PURCHASES AND EXPORTS Military and nonqmilitary government purchases will be dis- cussed together in this study because in cherry marketing they are both affected largely by the price of cherries, other things being equal, and they seem to provide a stabilizing force in cherry mar- keting. ‘Militsry purchases are, as the name implies, cherries pur- chased by the government to help feed our service personnel at home and abroad. Non-military government purchases are used in the feed- ing of inmates in our public supported mental, penal and old-age institutions, for‘Veteran's Administration programs, and in our school lunch programs. Most exports go to Europe. 110 These two market flows combined make up a rather important segment of the total cherry marketing flow. However, as will soon be discovered, this flow is subject to large and rather sharp fluc- tuations. Military purchases amounted to 11.8 million pounds and non-military purchases were 13 million pounds in 1961. This, plus the 7 million pounds of exports in 1961, amounts to 31.8 million pounds of canned and frozen institutional pack cherries.8 Canned cherries seem to be preferred over frozen cherries by the govern- ment, although the amount of frozen cherries purchased appears to be increasing. This is probably due to the relative ease with which canned cherries can be stored and transported. Exports are made up of both canned and frozen packs with the latter market developing only recently. The price of institutional pack cherries appears to have con- siderable affect on the consumption of cherries within these markets. Government buyers are faced with a budget and try to get the most possible product for the least cost. More importantly, some non- military purchases are made to stabilize prices in years of surplus production. Also the actual consumers of government cherries are not the buyers, and they have only a limited ability to express their preferences. Therefore, supply and price become important factors in government purchases. Exports must be able to compete 8Compiled from various reports of U.S. Department of Agri- culture, U.S. Department of Commerce, the National Canners Associa- tion, and Quick Frozen Foods. 111 with the domestic products in foreign countries and with exports from other producing countries. Therefore, they must be of superior quality and/or have the same or a lower price than the domestic and foreign competition. Thus, to both government buyers and exporters the price of the cherries is a primary consideration. By plotting the average yearly price of institutional pack cherries and the yearly flow of cherries into exports and government purchases the effect of price in these markets becomes clear (Figure 18). With the exception of the war years of the early 1950's, there is a strong negative correlation between price and quantity. A change in price is associated with a significant opposite change in the quantity purchased. Economic theory tells us that there is an inverse relationship between the price and the quantity consumers are willing to purchase, but often through habit, a lack of awareness of price changes, and other factors which cause a "stickiness" in consumption patterns, this price quantity effect is not as clear cut as it is in this case. In most of the other cherry packs or cherry products the price effect was not nearly as strong nor well defined. It is fortunate in a way that government purchases and ex- ports are affected so strongly by prices. Generally when there is an abundance of cherries on the market the price is low relative to years when cherries are scarce. Increased government purchases and increased exports relieve some of the strain on the market. Con- versely, high prices for cherries indicates a small quantity of cherries on the market, and sharply decreased exports and government 65 55 45 8 million pent U M 15 10 figure 18: The relationship between the price of institutional pr 'tc. cherries and the aunt of government purchases ad experts. ' price in ,_ duel P 1 p P ' price of cherries A A I\ ‘x , \ / \ v / L, ,. a \/ non—military . goverusnt military purchases ,‘ I, \ K I \ x 1’ \\ s o \ s I \ ‘s ,‘e \‘ 0' L “\ I, “s I”~.~‘~e” ‘\ .” ‘\ I, “\\o" "' \‘ 'I L. \‘ I ‘ I \‘..Q. I, .- u. .- ..0 export. by J I #1 I l J a 1950 1951 1952 1953 1954 1955 1956 1957 1938 1959 1935 1901 15 10 Source: Compiled from a series of reports prepared by Dennis L. Oldemstsdt, Depart“: of Agriculture Economics, Michigan State University, ad George McMsnus, Jr., Cooperative Extension Service, Traverse City, lieu... 112 113 purchases again relieve some of the strain on the market. Therefore, these market flows provide an important stabilizing force in the market. OTHER USES OF INSTITUTIONAL PACK CHERRIES Institutional pack canned and frozen cherries have many uses other than those already discussed. Among these uses are various cherry flavorings, drinks, various dessert items, cherry sauces, and other miscellaneous uses. For the most part data on these flows are incomplete or non-existent. Therefore, the unaccounted portion of the tart cherry flow will be assigned to this entire group collectively and no attempt will be made to separate the flows. In 1961 this un- assigned portion of the flow of institutional pack cherries amounted to 21 million pounds, or approximately 6 percent of the total pack —of red tart cherries. This is the amount assigned to the collective flows of the miscellaneous uses of tart cherries. SUMMARY Individual red tart cherry use by the confectionary industry, restaurants, the government, and exports is not sufficient to make them major market flows, but as a group they are very important in the marketing of tart cherries. Different factors appear to have primary effects on each market. The population changes appear to have the greatest effect upon the amount of cherry confections sold, and subsequently the amount of cherries the industry uses. The size of the restaurant 114 largely determines the amount of cherries a given establishment will purchase. Government purchases and exports are influenced primarily by the supply and price of cherries. Through the close relationship of price and quantity government purchases and exports provide an important stabilizing function. The rest of the tart cherries are consumed as miscellaneOus products, and the factors which affect these flows are not determined. CHAPTER VIII SUMMARY AND CONCDUSIONS SUMMARY This study has been devoted to determining the important marketing channels and marketing flows of tart cherries and cherry products for 1961. Within this study the marketing of tart cherries can be categorized into two prumary series of flows. First is the flow of the retail packs of canned and frozen cherries and of fresh cherries through the supermarket and on to the consumer. The second primary series of flows are the flows of institutional pack canned and frozen cherries into intermediate processing or remanufacturing plants, which change their form from cherries into cherry products. These cherry products, primarily cherry pie, are then sold to the consumer in supermarkets, restaurants, public sup- ported institutions, and other similar outlets. Therefore, the flow of retail pack cherries is the flow of cherries as they are originally processed to the consumer while the flow of institutional pack cherries becomes a flow of remanufactured cherry products to the consumer. The flow of retail pack cherries is the smaller of the two flows. The trend in total retail cherry consumption has been sloping llS 116 down over the 11 years this study has included. The primary reason appears to be a substitution of commercially prepared retail cherry desserts for cherry desserts made in the home from retail pack cherries. For purposes of comparison, and in summary, the estimated consumption of the various types of retail cherry packs for the last three years can be found in Table 12. A more complete table can be found in the appendix. Of the four retail flows the only one which has shown a sustained increase in consumption is canned pie filling. The frozen retail pack has shown an increase over the last few years, but the level of consumption has been so low that it cannot be con- sidered very important. Most of the increase in canned pie filling appears to be due to a substitution of this product for water pack canned cherries. Retail pack cherries pass through supermarkets and related stores on their way to the consumer. The cherries move directly from the processor to the supermarket and other retail outlets and fin- ally to the consumer. The demand for this product probably depends heavily on the desire of homemakers to make their own desserts. The flow of institutional pack tart cherries is more compli- cated than that of retail pack tart cherries. Institutional pack cherries are purchased by the consumer in the form of a cherry pro- duct rather than in the form of processed cherries as such. Therefore, the flow of cherries from the processors to the product manufacturers or remanufacturers must be considered. 117 TABLE 12: Estimated total consumption1 of retail pack tart cherries for the years 1959-1961. 1961 1960 1959 - - million pounds - - Total Consumption 89.6 76.9 102.5 Water Pack Cherries 40.1 37.8 64.2 Canned Pie Filling 31.1 27.7 25.5 Fresh Cherries 13.7 10.2 11.7 Frozen Cherries 4.7 1.2 1.1 Source: Compiled from yearly reports of Quick Frozen Foods, National Canners Association, and Agricultural Estimates Division, AMS, U.S.D.A., Compiled by Fruit Branch, AMS. 1Beginning inventory plus year's pack less ending inventory to give an estimate of total consumption. Without differentiating between canned and frozen cherry packs the entire market flow of institutional pack cherries can be broken down into its sub-flows in a manner similar to the breakdown in Table 13. The reader should exercise caution in the use of these figures. For the most part they are only indicators of the actual flow of cherries since they are computed estimates of the total product flow rather than actual measurements of the flow of cherries. The largest part of the institutional pack of cherries is used in the manufacture of commercial fresh and frozen pies. The majority of restaurant and government purchases are also made into cherry pies. The frozen cherry pie industry and parts of the fresh retail pie industry are the only parts of the institutional pack market now showing 118 TABLE 13: Estimated marketing of institutional pack cherries by type of industry, 1959-1961. 1961 1960 1959 - - million pounds - - Total marketing of institutional pack cherries, canned and frozen1 195.4 166.4 183.4 Fresh institutional cherry pie 46.5 45.1 45.1 Fresh retail cherry pie 36.7 36.8 36.5 Frozen retail cherry pie 22.4 20.5 17.6 Frozen institutional cherry pie 4.6 3.1 -- Total government purchases 24.9 13.1 28.1 Direct institutional sales 18.6 15.0 16.6 Cherry confections 12.5 12.5 12.4 Cherry exports 7.0 3.5 5.2 Miscellaneous uses 12.1 8.1 12.5 Cherries unaccounted for 10.1 8.7 9.4 Source: Compiled and computed from yearly reports of Quick Frozen Foods, Baking Industry, and Agricultural Estimates Division, AMS, U.S.D.A., U.S.D.A. Marketing Reports 123 and 144; and a series of reports by D. L. Oldenstadt and George McManus, Jr., Michigan State University. 1Beginning inventory plus year's pack less ending inventory to give an estimate of total consumption. ' a substantial increase in production. This increases the cherry market- ing within these areas, but primarily at the expense of some other mar- kets. These increases in the consumption of commercial cherry desserts come largely from a substitution of home-baked desserts for commercially 119 prepared desserts. The gain in the sales of retail dessert items off-sets much of the decline in the consumption of retail pack cherries discussed previously. The market flow of all tart cherries and cherry products is affected by regional variations in consumption and seasonal varia- tions in consumption. The total and the per capita consumption of tart cherries is much higher in the North Central and Northeastern regions of the nation than in the South or in the West. Thesetwo regions are also the center of the tart cherry production so the average consumer is more acquainted with tart cherries and transportation cost, and hence prices are lower. This may to a large degree explain the regional variation. However, states with large urban populations generally have a higher per capita consumption than states with a predominately rural population. For nearly all cherry products there appears to be a typical seasonal consumption pattern (Figure 19). This pattern of consumption has an unusual characteristic. The consumption pattern of most fruits shows a sharp increase in consumption near the harvest period, but for tart cherries the low point in consumption is reached just prior to the harvest period. The consumption of cherries is low throughout the June to November period. The high point in the consumption pattern is not reached until February, a full half year after the harvest. Cherries and cherry products have an elastic demand caused, in part, by a large number of substitute fruit products. Therefore, even a small change in the price of tart cherries relative to other fruits Figure 19: Average monthly index of consumption of all t; ': cherry products. mi 1 l 1 s 1.. 11 l ‘a .. 7 1 3 5 i 3 ‘o 5 's 3 16 11 :2 Somrce: Based on the findings of the MSU Consumer Panel, 1952-57. 120 121 tends to cause large changes in the amount consumers are willing to pur- chase. Price, therefore, becomes the factor which has the largest effect on the amount of cherries households will consume. When the price of cherries falls relative to other fruit substitutes there is undoubtedly a considerable amount of substitution of cherries for other fruits on both the retail and the institutional level, although no statistical measurement isavailable. This, of course, works both ways. The flows of each of the types of cherry packs and cherry pro- ducts are affected by unique factors and have their unique characteris— tics which are too numerous to discuss in this brief summary. This com- pletes a discussion of the general characteristics within the total mar- keting flow of red tart cherries. CONCLUSIONS The above summary has provided a brief sketch of the cherry marketing flows as developed within this study. This study represents an attempt by the author to determine and measure the previously unex- plored flows of processed tart cherries and the flows of cherry products in an effort to provide benchmark data to the people in the cherry in- dustry. The prime concern of this industry is to develop an increased demand for tart cherries and cherry products which would increase both sales and income. As a result of this study five hypotheses are pre- sented regarding ways of increasing the market for tart cherries and cherry products. First, the trend in our society is towards more convenience 122 products and a lessening of the work within the kitchen. Furthermore, the disposable income within the household is increasing at a rate that allows the average household to enjoy a multitude of convenience goods. Therefore, in keeping with this trend the develOpment of "convenience" and "work saving" cherry products must be increased. We have already seen how the demand for convenience cherry products such as prepared pie filling and retail commercial pies has increased in the last few years. The same potential also lies in other areas of the cherry market. Therefore, the cherry industry must become more aware of this trend and look ahead in their product and market deve lopment programs . One suggestion is for the cherry industry to take greater advantage of the public and private organizations at their disposal in attempting to develop new products. The United States and state departments of agriculture, colleges and universities, and many pri- vate organizations are willing, in fact often eager, to apply their resources and experience in the developing and testing of new pro- ducts and the improvement of existing products, if given the ideas and encouragement. In some cases the services are free or the cost nominal, but if the cherry industry is to continue to develop it must be willing to pay a price, and the returns can be high. Second, the public awareness of some cherry products within some regional areas appears to be low. Therefore, the promotion of some select cherry products should be increased. Promotion of the 7" 123 popular and potentially papular cherry products would increase public awareness of these products and increased sales of not only these pro- ducts, but possibly all cherry products. Special promotion during times when the seasonal consumption pattern is high would probably give the highest returns for a given promotional outlay. Selected promotion of select cherry products should return high dividends, especially in those regions of the country where consumption is now low. Third, the amount of fruit in retail cherry desserts should be standardized at a reasonable level. It would mean that the average product quality would be more uniform, and the product image in the eyes of the consumer should be improved. This more uniform product quality should increase the total marketing of cherry desserts over the long run which would, in turn increase the marketing of tart cher- ries. The marketing of cherries will also be increased, if the amount of fruit within a given dessert is raised by the standardization level. Of course, additional study is needed to determine consumer preference for various amounts of fruit. Fourth, greater use must be made of the new technology in the growing of tart cherries. Wider use of our present technology would allow growers to enjoy a reasonable profit on a lower price for tart cherries. Mechanical harvesting is probably the best example of this new technology which is available. By use of mechanical harvesting the picking cost for cherries can be reduced, and therefore, the grower can make the same profit on a lower price for cherries. Other 124 forms of labor and money saving devices are being developed which will further out the cost of growing and harvesting cherries. If this re- duced cost of producing cherries were passed on to the consumer, the demand for cherries and cherry products would increase substantially. Last, increased urbanization of the population should cause some increase in the consumption of tart cherries. In the study it was noted that urban areas have a larger per capita cherry consump- tion than rural areas. This is because the growing area of tart cherries is limited, and thus most of the consumer contact with tart cherries and cherry products occurs in the supermarket or in public eating establishments. Urban households tend to make greater use of these facilities than do rural households, and therefore, they have greater contact with and are more likely to buy tart cher- ries. They appear to be particularly receptive to commercially prepared cherry products. These five conclusions should aid in reducing the pressure which large cherry crops have put on the market the last few years, problems of low cherry prices to growers, and some of the anticipated problems which large crops in the future may bring. Through an educated, forward-looking effort many of the problems of the tart cherry industry can be reduced. 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WNW“... mm NH s H OH mma.sa 0mm.NN 0mm.m mow.s moNNms ems.woN mass N N N sso.os oNo.NNN Nmsa N N N NNN.ss st.NNN same oms.Ns NNN.8NN mmsa ansNNa Nmm.NN www.m 8mm.NN ssN.os NNN.NHN smsa N N N NsN.Ns NNMNmNN mmsa N N N msmNNs soN.sNN Nmsa N N N ssNNNs mssNNNN Hmsa N N N Nssts ass.NNN omsa n nucoflm>wnvo posuoum 3m» weapon ooo.~s a moguumco mcwoso oUfi>uom moauso mowuuozo mam Apnoea use» mo zuoUOuo oaom tenant mo HumoHusuwuucH mogsom mocnom mocaom mmNam Nasuom Nsuoe wauou use ducofiuauwumcfi :« mace own Apnoea How cfimma mwflhhmfio UHQU MO UGDOEN 05H Huh—Q MUOHUDO uuoeeoo smoum «0 amazon moumeaumo 059 «mg Manda 131 H F TABLE 19: The total and the per capita sales of commercially pre- pared fresh cherry pies by state and region for 1954 and 1958. 132 1958 i 1954 Area Total Per Total Per Sales Capita Sales Capita (000) Sales (000) Sales - -Dollars- - NEW ENGLAND Conn. 957 .38 1,176 .53 Mass. 3,660 .68 3,172 .65 Total 5,026 .48 4,689 .48 MIDDLE ATLANTIC N. Y. 8,008 .48 6,195 .39 N. J. 1.810 .30 1,911 .37 Pa. 5,999 .53 5,925 .55 Total 15,817 .46 14,031 .44 EAST NORTH CENTRAL 111. 3,620 .36 3,872 .43 Ind. 899 .19 883 .21 Mich. 2,021 .26 2,370 .34 Ohio 3,593 .37 2.821 .32 Wis. 396 .10 422 .12 Total 10,527 .29 10,368 .32 WEST NORTH CENTRAL Minn. 429 .13 464 .15 Mb. 845 .20 896 .22 Total 1,724 .11 1,897 .13 SOUTH ATLANTIC Fla. 634 .13 536 .16 Geo. 650 .17 619 .17 Mo. 1,085 .35 936 .36 N. C. 1,039 .23 464 .11 Va. 415 .11 627 .18 Total 4.610 .18 4,041 .18 EAST SOUTH CENTRAL Ky. 1,093 .36 620 .21 Tenn. 1,190 .33 1,510 .45 Total 3,087 .26 2,277 .20 TABLE 19: Continued WEST SOUTH CENTRAL La. 358 .11 317 .11 Okla. 212 .09 502 .23 Texas 1,312 .14 1,298 .15 Total 1,915 .11 2,202 .15 MOUNTAIN 723 .11 735 .13 PACIFIC Cal. 6,084 .39 5,316 .41 Greg. 280 .16 407 .24 Wash. 577 .20 514 .20 Total 6,940 .33 6,237 .34 GRAND TOTAL 50,368 .28 46,477 .29 Source: Computed from the Census of Manufactures, U. S. Department of Commerce. 133 mucus m.¢~ on.a so. .uo ¢.wH .No Nq .c« o fimcofiuaufiumcu mucoo mm on.a on. .No c.w .No mm .cw w Hamumm mam cmuoum mquo mm mm.~ ma. .uo ma .No No .:H a HmcoNuzuwumCH momma oq mo.~ mm. .No o .No «N .cN w Hamumm mam oomph mom mo uwauh own uwsum mo own we owm we owm oowum \ONA \uwzum ucsoE< unwwmz umuoEmwm mo make owmum>< mo oNuum we owuwm ommum>¢ ownuo>¢ .mumu mo magnum co>ww m Eoum uwauw no man xuuozo mo ucsoam woumEMumm ecu wcHCwEuouom pow manna newmuo>coo < "om m4m< "mm mqm