‘Flat’ is the new ‘up’ in food
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
"Flat is the new up," Todd Hale says when asked about the state of the food industry. The half-in-jest comment is easy to understand if you’ve been following retail’s disappointing numbers lately.
The former SVP of consumer and shopper insights with Nielsen and now principal at his namesake consultancy notes that dollars across channels rose 1 percent during the past year, with units flat. Inflation has driven most dollar gains, although that pressure is waning with notable exceptions such as in meat and some dairy categories.
"Over the past five plus years, the only dollar growth we experienced came in 2011 (4 percent) and 2012 (3 percent) when inflationary pressures had retailers accepting manufacturer price increases as well as passing on increases on their products too," Mr. Hale said.
Most store growth (about 1,855 units) since 2005 has come from low- and high-end niche retailers such as Aldi, Save-A-Lot, Trader Joe’s, Fresh Market, Whole Foods and Sprouts, he points out. While natural, organic and specialty retailers accounted for nearly half the growth, deep discounters are in the lead, spurring mainstream supermarkets to add their own no-frills value formats.
Much of what we’re seeing today is tied to the lingering effects of the recession and the continued, growing income disparity between the haves and the have-nots, Mr. Hale said. Commodity prices and demographic variations on channel shopping and buying habits have also played a part.
Citing Nielsen numbers, he notes that, "The club channel caters to the more affluent shoppers, getting 60 percent of its sales from households with incomes of $75,000 and more. For the grocery channel, that number drops to 43 percent, and for mass merchandisers, it’s 36 percent. The ‘haves’ are spending and shopping, while those with lower incomes are struggling, with stagnant wages. I’m not surprised we’re growing this slowly; it is what it is."
Mr. Hale expects slight improvement in the year ahead. Consumer confidence is up somewhat, and while people are still paying off debt and trying to save, they’re planning to spend in discretionary categories such as electronics, vacations and apparel. This could also affect food sales, especially if wages rise by three percent or so during the next year.
"But it all comes down to spending power — where people shop and what’s important to them," he said.
Discussion Questions
Do you expect slow growth in food sales to continue? How much are income disparities to blame versus other factors?
My mother says that heading to the meat case in the supermarket is like going to the Smithsonian—you can look all you want, but you can’t take it home.
Drought-related price increases and wage stagnation are a bad combination for customers, and for grocery chains. We’re also living with the reality that NAFTA drove manufacturing jobs out of the United States: Ross Perot was right about “that giant sucking sound” being jobs moving to Mexico.
Consumers are more savvy shoppers than ever. Coupons’ wider distribution channels, private-label quality going up, specific category deflation and other factors all help drive down top-line revenue. This is a trend that will continue for at least the next 12 to 18 months, I believe.
Income disparities may be somewhat of a factor. How much food can the top 1 percent eat?
But the real underlying factor is probably demographics. As the population ages, there will be less family formation. In the next 15 years the number of people in the U.S. middle class will decline by about 10 percent. There is not a lot you can do about that.
Despite the recent drop in gas prices I do not see next year improving significantly which will lead shoppers to maintain their “tight fists” when it comes to spending. They might feel a LITTLE better in the short-term but long-term uncertainty will remain.
As long as there is stagnation in middle-class wages, how can anyone expect growth? Combine that with drought that affects crops and diseases that affect livestock and it’s amazing if there’s any growth in food sales.
While earnings increase for many businesses, too many individual families are still struggling with flat wages, under-employment or unemployment.
Happy days are not yet here again.