The apple industry has undergone a dramatic changing of the guard in its leading varieties over the last decade or so. This article details the extent of the change and the impact it has had on demand for different varieties. However, it argues that much of the churning in apple varieties has missed the main reason why any industry resorts to new product development, namely to enhance overall demand for its products.
NORTH AMERICAN EXPERIENCE
Each year since 1995, the World Apple Report has conducted a mail survey of North American retailers to get their ratings of different suppliers and varieties in the previous season. The last decade has coincided with a major shift in the availability of different varieties in North America. The survey has enabled us to track changing retailer perceptions of older varieties such as Red Delicious, Golden Delicious and McIntosh and newer varieties such as Gala (including Royal Gala), Fuji and Braeburn.
A decade ago, growers and shippers were still learning how to best handle the newer varieties, and retailer ratings reflected that learning curve. Newer varieties usually rated well below the established favorites. However, over the decade, ratings of the newer varieties have gradually improved, while those of the older varieties have slipped. By 2005, our survey showed that the changing of the guard was almost complete. Newer varieties (Gala, Fuji, Braeburn, Jonagold, Pink Lady® and Cameo) occupied six of the top seven spots. Just one older variety that has been rejuvenated, Granny Smith, sneaked into fifth place. Red Delicious, number one 10 years ago, fell to eighth place, Golden Delicious to ninth and McIntosh to tenth.
Production trends in North America have mirrored the retailer ratings. In 1995, Red Delicious, Golden Delicious and McIntosh accounted for 59 per cent of US apple production. In 2005, these three varieties will account for about 43.5 per cent of the total. In contrast, production of Gala and Fuji has gone from 6.7 per cent in 1995 to about 20 per cent in 2005. Gala could soon pass Golden Delicious as the second most important US variety. In Canada, production of Gala and Fuji is confined mainly to the western province of British Columbia, but these two varieties now account for over 30 per cent of provincial production.
MAJOR VARIETY SWINGS IN EUROPE
In the European Union, the switch to newer varieties began earlier than in North America, but has proceeded more fitfully in recent years. Jonagold and Elstar both expanded rapidly in the 1980s at the expense of older varieties. In 1995, Golden Delicious was still the leading variety with a 38.4 per cent share of EU-15 production. Its share in 2005 is expected to be about 34 per cent.
The combined production of Gala, Fuji and Braeburn has gone from 3.8 per cent of the EU-15 total in 1995 to an expected 17 per cent in 2005. Gala is now the second most important variety in the EU. Its popularity has grown in Eastern Europe as those countries have attempted to modernise their apple industries.
TRADE HAS FURTHERED THE ADOPTION OF NEWER VARIETIES
Southern hemisphere suppliers, especially New Zealand, have played a major role in the switch to newer varieties, since so much of their production is targeted to northern hemisphere export markets. In the current season, both New Zealand and Brazil have had more than 80 per cent of their production in Gala, Fuji or Braeburn. The share is also growing rapidly in Chile and South Africa. In addition, these countries and Australia are expanding production of even newer varieties such as Pink Lady and Jazz that will further change the apple segment.
New varieties have penetrated worldwide markets through trade. For example, exports of Fuji and Gala to Mexico accounted for almost zero per cent of US fresh apples shipments in 1996-97. That share was 17.7 per cent in the 2004-05 season. In the same period, the Fuji/Gala share of exports to Canada has gone from 15.2 to 32.9 per cent, in the Caribbean, Central and South America from 1.9 to 18.6 per cent and in Asia from 26.9 to 36.2 per cent. All these markets are consuming more of many other newer varieties.
The effect of all these production and trade changes has been to irrevocably alter the apple choices that consumers now face in markets around the world. The increasing importance of many newer varieties has changed the relative importance of the different characteristics (eg. colour, sweetness, texture, etc.) on which consumers make their apple selections. That process is likely to continue. In our surveys, North American retailers have consistently indicated that they plan to stock more of the newer varieties and less of the traditional varieties. They clearly like what the changing of the guard has done for their profits. Evidence from many other countries suggests that major retailers are eager to find newer varieties that can give them a competitive edge with their customers. Some are even seeking exclusives. Thus, there is continuing pressure on apple breeders, producers and marketers to innovate.
WHEN IS A SUCCESS NOT A SUCCESS?
There are a number of reasons for the apple industry to be concerned about these trends.
1. Developing and commercialising a successful new apple variety requires capital and organisational skills that are scarce in the industry and bring added risks to all involved. Major retailers may have unrealistic expectations about how easy it is to find even one good, new variety.
2. The churning of varieties that has taken place in the last decade has been accompanied by a decline in per capita consumption of fresh apples in major markets such as the US, Canada, France, Germany, Italy, the UK, Japan and Taiwan. Our data for the US and EU suggests that the newer varieties have cannibalised the market share of the older varieties rather than expanding the total market for fresh apples. Newer varieties may have contributed to consumers’ discontent with the characteristics of older varieties and depressed the prices of, and desire for, older varieties.
3. The early innovators in new varieties gained large price premiums that could be sustained for several years. Those innovators could more easily distinguish a new market space for their product. More recently, the price premiums have been smaller and shorter-lived, as there is less and less market space for each new product. Even in an era of relatively low interest rates, it has become difficult to cover development costs.
4. The natural focus of apple breeders is on genes and orchard level performance of new cultivars. However, solving the inherent marketing problem requires identification of niches in the apple consumption spectrum that are not currently served and targeting breeding efforts to satisfy these niches. Marketing expertise and guidance is needed much earlier in the cycle of developing new cultivars.
Consumers, retailers and the apple industry are now wedded to a constant changing of the guard in apple varieties. However, the ratio of costs and risks to rewards has swung strongly against the apple industry. Many breeders, producers and marketers see the use of restrictive production and marketing “clubs” as a way to make the ratio more favourable. Each club wants to recruit larger, better growers in favoured producing districts or countries. However, unless the club variety appeals to a sizable and unique market niche, few clubs are likely to be a commercial success.
NEED TO RETHINK THE PRODUCT DEVELOPMENT STRATEGY
In the meantime, most apple production will still come from many smaller, weaker growers in less favourable producing districts, supplying less satisfactory varieties. Given this situation, it will be difficult to boost overall demand for fresh apples.
Many industry organisations and concerned government bodies are looking at ways to revive the demand for fresh apples. Some are seeking to tighten product standards or mount generic promotional campaigns. However, unless they first realistically appraise which apple products are maintaining their attraction for consumers and what market spaces may offer opportunities for new apple products, the proposed programmes will not halt the industry’s central problem of declining demand and declining grower prices for fresh apples.
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