The Food Biz—It’s the Economy, Stupid

I think we can all agree now that the fundamentals of this economy are anything but strong. Watching my son’s college fund shift between paying for two years at a top state college and two years at our community college over the last several days serves as an apt barometer for the heft of consumers’ wallets and their purchasing power at the local supermarket.

We’ve seen food service struggling as customers find they have fewer discretionary dollars to spend after filling the gas tank. The same effect is influencing the grocery too. While some of those food service dollars are flowing into food purchases—and not necessarily traditional grocery stores as price becomes paramount—the market mix is changing. Private label products are up: According to AC Nielsen, over the last year, private label sales of all consumer-product goods have grown nearly 9% to $50 billion in supermarket sales, or 17.3 % dollar sales, with a similar increase with mass merchandisers and drug stores added in. The report points out that the increase is buoyed by higher-priced private label products vs. unit sales volume.

One segment that the tight economy appears to have impacted is environmentally “green” products. According to Yankelovich’s “Going Green 2,” while consumer interest in green issues continues to grow, especially among Echo Boomers and GenXers, their willingness to pay more for products that address the problem has decreased.

Similar forces are at work on the organic market. The Hartman Group conducted a consumer survey earlier this year showing that organic use has been leveling off since 2006, a trend expected to continue this year because of the economy. Market researcher Information Resources, in May, found that 52% consumers surveyed said they were buying fewer organic products because of cost, while data indicates the core organic consumer is clinging to the category.

Other recent reports from various sources indicate a decrease in snack sales, an increase in convenience store sales, and an increase in home cooking—the list of economic-driven trends goes on...

So as marketing and R&D retool to address these challenges, the old truism remains in effect,” no matter what, people gotta eat.” The challenge for each company is providing a product package that tempts consumers to loosen their grip on those shrinking dollars.

—Lynn A. Kuntz