Green Premium achieved for zero fossil fuel produce.
With the end of our first season, the time has come to reflect on the sales and data.
Leading up to the launch of our NZ0 cherries, we had hypothesised that a green premium could exist for products and producers that are proactive about climate change. If we do right by the environment, it becomes a true team effort and a strong link between producer and consumer forms. If we can create highly sustainable products and food choices, consumers will support this movement to ensure that the spread can continue and the pressure to change our industry for the better increases.
Our hypothesis was that if given the opportunity of choice, climate conscious products are the consumers preference. The consumer is willing to pay a green premium for these climate conscious products, but how much was to be determined.
How did we test this hypothesis?
As mentioned in a previous blog post, in order to test the hypothesis, we applied for, and were successful in obtaining a grant from AGMARDT. This grant allowed us to bring forward our first harvest of cherries for market testing which normally would not be commercially viable for another couple of years due to our foundation orchard being in its infancy.
While selling through Farro, a series of price variables were tested that investigated how much of a green premium consumers were willing to pay for climate conscious produce. This was tested across three price premium ‘tiers’.
Price Premium - Tier One
For the initial price trial, NZ0 cherries were trialled at a 50%-60% premium to the generic retail cherries sitting on the shelf next to them. During this tier one trial, approximately 50% of the unit volume of zero fossil fuel cherries were sold, compared to the generic, non-sustainable cherries. (This meant for every 10 boxes of non-sustainable cherries sold by Farro, 5 boxes of NZ0 cherries were sold).
Price Premium - Tier Two
For the tier two price trial, our price premium was lowered to 25%-32% higher than that of the non-sustainable cherries. This achieved an 85% NZ0 unit volume move, compared to generic, non-sustainable cherries. (This meant for every 10 boxes of non-sustainable cherries sold by Farro, 8.5 boxes of NZ0 cherries were sold).
Price Premium - Tier Three
For the final price trial, our price premium was lowered to just 2% higher than the market rate. This resulted in our climate conscious produce becoming a clear favourite, achieving 35% higher unit volume than non-sustainable generic cherries. (This meant for every 10 boxes of non-sustainable cherries sold by Farro, 13.5 boxes of NZ0 cherries were sold).
Based on these trials, it became clear that the sweet spot for climate conscious consumers, and their willingness to pay a green premium was between the tier two (25%) and three (2%). Being conservative, and averaging the difference between these two tiers, we are confident that zero fossil fuel produce can command a 10%-15% premium over non-sustainable options.
Several other key takeaways from the data were also obtained:
- NZ0 sales had a slightly higher (+4%) appeal to females over males. This is consistent with our social media insights appealing to a more female based audience than male.
- For both NZ0 and non-sustainable cherry sales, over 78% were to consumers over the age of 40. Interestingly, this flew in the face of our initial assumptions that the core target audience would be in the 25 - 45 year old range.
- NZ0 produce had a slightly higher proportion of sales (+3%) towards the under 20, and 70+ age range, when compared to the non-sustainable cherries. There are a range of potential explanations to this, but for the under 20’s it may be that the sustainability aspect of NZ0 cherries was more appealing than the non-sustainable offerings. For the 70+ demographic, the size of the NZ0 cherry offering (450g) may have been more suitable to this demographic than the non-sustainable 800g offering.
- NZ0 had a much higher RFM, (Recency, Frequency, Monetary). This showed that not only was NZ0 the preferred choice, but that there is a community of shoppers who wish to purchase our products repeatedly, and on each occasion they shop.
Post Lockdown Exodus
It is important to note that the price trial period of 31st December - 3rd January (specifically the first half), coincided with the mass exodus of Aucklanders out of the Auckland region, after the post covid lockdown was lifted. This resulted in significantly reduced consumer sales across all Farro Fresh stores when compared to previous years.
Importantly, our sincere thanks and gratitude again to AGMARDT for their support and grant to allow us to conduct this first season of trials. Without their support, we would never have been in the position to be able to run these trials.
While this initial trial only covered the key factors of zero fossil fuel produce, and price, other factors will need to be measured and considered moving forward. These include whether the produce quality, size and location where the produce is grown, affects the consumers decision making process.
In conclusion, we felt that there is demand for change. Focussing only on the two factors of zero fossil fuel produce, and price, this demand is supported by consumers that are willing to vote with their wallets by paying a slight premium of 10% - 15% for climate conscious NZ0 produce, over non-sustainable alternatives.
Taking into consideration the green premium, and climate conscious produce, we believe these factors will grow considerably more important as emerging climate conscious generations, and therefore consumers, become the largest category of shoppers in the near future.