A LEADING French supermarket chain has come up with a way to increase its profits by selling undesirable vegetables. Inspired by the challenge of reducing waste and increasing returns, Intermarché has launched an entirely new product range and it’s ugly.
It consists of fruit and vegetables that otherwise would have been thrown away at the farm for being too deformed, marked, or having poor colouring. Instead Intermarché is buying up this produce and selling it at a 30 percent discount to the prices of normal fruit and veg.
Its most innovative step is in the presentation: the ugly vegetables are not just dumped in a discount bin for whoever wants to save a few bucks. They have their own aisle, brand name and packaging. The aptly named “Inglorious Fruits and Vegetables” are also processed into soups and juices to get the message across that there is nothing wrong with them apart from their aesthetic characteristics.
The idea was sparked by an EU declaration that 2014 is the year against food waste, but many – in a viral social media storm that followed the launch of the products – have accused the firm of using the environmental concerns of its customers as a guise to increase profit.
These “environment or profit” campaigners are more dangerous to sustainability than a private jet of oil directors on a golf tour; Intermarché has engineered a brilliant solution that aids environmental sustainability through increased profits. These are the ideas, and impacts, that remain effective in the long run.
By creating a market for products that used to be regarded as waste, Intermarché has increased the efficiency of farming and, if the idea reaches a large scale, it will ultimately reduce the need for land.
But it is certainly no charity project – by splitting the product range Intermarché has opened up a new market for itself.
Before, only perfect vegetables were sold and a premium was charged for this perfection. Three types of customers considered the fresh produce in the store: those who were not prepared to pay the premiums for perfection and would go somewhere else for fruit and vegetables; those who did not desire perfection but paid the premium for the sake of convenience; and those who did desire perfection and were happy to pay for it.
Now the supermarket has attracted new clients for its fruit and vegetables; some of the clients who previously bought the perfect produce have switched to the second-grade type and are left with more disposable income to buy other things; and those who desire perfection carry on as normal.
The knee-jerk reaction perhaps is to think that Intermarché is losing out because customers are switching from high-price items to low-price items. But retailers care little for the sales price – they are interested in the profit margin.
Splitting the product range doesn’t change the profitability of each item, but it does expand the customer base and boost fresh produce sales so that more profit is made in total. In addition, sales of completely unrelated items will increase due to some customers having more money to spend after buying their vegetables.
Beyond contorted carrots and peculiar potatoes, this business strategy is a prime example of how economic growth can be created without needing more resources. Wealth and jobs are created by value addition instead of increased extraction.
Pierre Heistein is the convener of UCT’s Applied Economics for Smart Decision Making course. Follow him on Twitter @PierreHeistein