Got Money?

My $42-million tax-rebate reminder letter came today and got me thinking about the economy again. One semester of ECON 101 does not qualify me as an economic expert, so I’ll assume all the actual experts predicting a recession or worse for 2008 have it right. While the general consensus is that the food business is insulated from economic downturns, consumer spending habits are not—especially of those who spend a proportionally larger slice of income on food.

Not too long ago, I mentioned cost-cutting has become a high priority for food companies due to the increasing price of raw materials, as well as anything energy-related—which includes raw materials. Bob Weeks recently discussed the need for increased R&D as investment money starts funneling into said recession-proof business. Another piece of the puzzle is a shift in consumer spending habits.

A recent USA Today story highlighted this, headlining "Consumers Cut Back on Small Pleasures," including: passing up "$1.79 PowerBars at (the) gym," sacrificing a "Starbucks Iced Mocha Latte for a home-brewed Folgers flavored with syrup," carrying "a bottle of tap water instead of buying $1.29 bottles of Evian," and packing lunches vs. McDonalds.

Foodservice is a more-immediate and more-apparent economic casualty, with many fast-casuals and quick-serves, plus those chi-chi coffee shops, reporting significant business downturns. While one remedy is bolstering "value menus," the rising cost of food doesn’t make that an effective strategy unless a business attracts the sheer numbers of customers needed to balance shrinking margins. One seemingly successful tactic to draw more customers is bringing premium down to earth, something McDonalds and Dunkin’ Donuts have done with that "Fratalian" cup of coffee.

Bottled water is in the crosshairs—not only as an economic waste, but an environmental one. While that might mean a shift to other bottled drinks, that doesn’t solve the environmental issue—it’s become tres chic to tote tap water. Plus, consumers will probably want all those flavors, colors, sweeteners, etc. at the same price point as plain old water.

Speaking of the environment, another food-industry movement is the current crop of "green" trends. This includes not just packaging, but all those other buzzwords: "sustainable," "natural/organic," "local," "terrior," etc. But, more often than not, these terms translate to "more expensive." So, while fashionistas and the well-intentioned might embrace these products, those who receive the aforementioned rebate checks might prefer to use them to pay the mortgage or fill the gas tank. (And let’s all remember what happened to Marie Antoinette when she suggested the peasants should eat cake instead of bread.)

The ramifications for product development go on and on: Do healthier foods become a financial tradeoff in more households? Convenience? Or, conversely, do some things become affordable luxuries? Whatever the result, we’ll need to become even more savvy in putting out products that meet consumer needs, including the size of their bankrolls.