Viewpoints

New Data Illuminates Economy's Impact on Food Retailing

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“The economic indicators can't officially tell us if we're in a recession and the economists can't predict when business will turn up. But there's one fact you can count on: Consumers are now shopping for price.”

The above paragraph nicely describes the situation that supermarkets find themselves in today. Yet, that paragraph was written 6½ years ago, as the opener to my column of Oct. 15, 2001, titled “Be Warned: The Price Must Be Right.”

If history is repeating itself, note that this time around many retailers haven't really reported significant negative impact from inflation and the current downturn. This was confirmed by the latest company to report financial results, Kroger Co.

A broader picture of the market, however, is emerging from a number of other sources. It provides mounting evidence that consumers are strapped and are beginning to change behavior.

  • A conference call last week sponsored by Citi Investment Research found trading-down behavior across a range of retail and foodservice channels. The upshot: Consumers are switching to private label goods, lower-priced products and less expensive retail channels.

  • Information Resources Inc. noted in a report that consumers are buying less or shifting spending in categories with the largest price increases.

  • The consultancy TNS Retail Forward, in a February survey, found that 51% of consumers are not purchasing food items that are “just too expensive,” and 39% are increasing their use of coupons for food purchases.

If consumers are highly concerned about prices, why haven't we heard more of this from retailers? Well, we're starting to hear bits and pieces. Retailers have referred to consumers switching from steak to chicken and from brands to private label, for example.

A more comprehensive survey of retailers was recently conducted by SN and appears in the March 18 issue, shedding more light on the situation. Close to 90% of respondents have seen some evidence of consumers switching to less expensive products, with 50% citing “a few products here and there” and 36.4% “a lot of products.”

The SN survey indicated that close to 60% of retailers will make changes in their advertising to reflect the new concerns about price, with 52.3% pursuing “a little more” price-focused advertising and 6.8% “a lot more.”

These responses show a measured reaction to what is apparently a moderate shift in consumer behavior. Retailers will make modest changes in advertising to reflect price concerns without remaking their entire proposition, which would be a mistake. Things can always be adjusted if consumer trading-down accelerates.

The SN survey and other reports indicate that consumers are switching more spending from restaurants to in-home meals. That's an important plus for supermarkets. Trading down can also have a positive impact on these retailers, most of which have lower-priced private-label options.

All told, the economic situation could be a wash or actually a net benefit for many supermarkets. That may explain why we've heard little concern from some of the bigger chains. All of this remains to be seen, but for now supermarkets are in an envious position among retailers.

Contributors

David Orgel

David Orgel is executive director, content & user engagement, of Supermarket News (SN) and its website, SupermarketNews.com. Orgel delivers his opinions on industry trends through a bi-weekly...

Carol Angrisani

Carol Angrisani is an associate editor at Supermarket News. Along with covering the packaged goods beat, she also manages SN’s annual private-label and ethnic marketing supplements. Carol...
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In their Viewpoints columns, SN editors give their perspectives on current industry issues.

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