ARLINGTON, Va. — The health and well-being of the supermarket industry is deeply aligned with the health of today's food shoppers.
Therein lies a big opportunity, said Tim Hammonds, president and chief executive officer of the Food Marketing Institute here.
“The lightbulb has finally gone off for average families that health and wellness is pretty much connected with diet and lifestyle and the food they eat,” he told SN.
Supermarkets are the most ideally suited of all competing retail channels to capitalize on consumers' newfound awareness about how to maintain their health, Hammonds noted.
“We play in this space very well because we have pharmacies, a broad range of fresh products and great new branded products that manufacturers are working very hard to make healthier.”
Figures to be released during next month's Speaks presentation at the FMI Show, May 6-8, will indicate consumers believe food eaten at home is healthier than food eaten at restaurants.
However, the safety of that food has come under the spotlight. “We have seen a significant erosion in confidence in safety of the food supply,” Hammonds said, although it appears that consumers are more confident in the safety of food from supermarkets as opposed to restaurants.
Recent reports of contaminated produce at restaurants, most notably shredded lettuce containing E. coli at Taco Bell, have hurt restaurants' reputations when it comes to food safety.
American restaurant chains also have been criticized for their high-calorie fare, super-sized portions and limited nutritional information.
The restaurant industry has responded by introducing more health-conscious meals. The casual dining establishment T.G.I. Friday's, for example, recently rolled out a smaller-portion program under the Right Portion, Right Price menu.
The latest reports from the National Restaurant Association and The NPD Group, however, indicate softening in the growth of restaurant sales and traffic during the first two months of this year compared to the same period a year ago.
NPD reported a modest 2% sales growth for the commercial food-service segment in January, a slower rate of growth than in any of the five prior months.
Consumers' perceptions about healthier eating at home are the same when it comes to their children, according to Hammonds. FMI research found that consumers believe prepared lunches made at home for kids are healthier than school lunch meals.
FMI encourages its members to promote food at home through its partnership with The National Center on Addiction and Substance Abuse (CASA) at New York's Columbia University, which draws the correlation that those who eat dinners at home with their families are less prone to substance abuse and more motivated to do well at school than those who do not.
CASA created Family Day, Sept. 24, as a national effort to promote family dinners.
“There is a lot of evidence that this is true,” said Hammonds about CASA's findings. “As people realize food at home really does give you more choice and more control and can be healthier, I think our members are well positioned to capitalize on that.”
Consumers' perceptions about healthier food at home, coupled with the high cost of gasoline that hampers consumers spending extra dollars for restaurant meals, are encouraging supermarkets to recapture food-at-home market share lost to restaurants, Hammonds said.
Sustainability is a related issue to health and wellness.
“The focus long term is what you can do now to preserve your health and lifestyle for the future. It all connects in consumers' minds under the broad umbrella of sustainability,” he explained
FMI first focused on environmental sustainability during FMI's Midwinter Conference in 2005. Then the industry saw some movement on the sustainability front coming mostly from Europe, Hammonds said.
At this year's Midwinter, Claude Hauser, CEO of Switzerland's Federation of Migros Cooperatives, addressed executives on the need for global standards for sustainability initiatives.
Hammonds said he is surprised how quickly interest in this subject has solidified over the last few months. He expects this to become a consumer-driven issue that the industry will need to take seriously.
In March, FMI formed a special committee on sustainability chaired by FMI Director Jeanne von Zastrow.
“It's a broad subject area that our members are trying to get their arms around as to what it exactly means for our industry and where the early opportunities of success would be.”
Industry mergers and consolidations continued at a brisk pace with Whole Foods-Wild Oats and A&P-Pathmark the two largest announced mergers so far this year.
Hammonds said this could contribute to a healthier industry overall, but cautioned about some mixed blessings in these deals.
“The mergers we are seeing now are for the most part strategic and not hostile takeovers. That is important,” said Hammonds, who recalled the days of big stockholder battles, proxy fights and court cases.
“We all remember the hostile takeovers, the Herbie Haft family and greenmail were very big and very disruptive to the industry,” he said. (Haft owned The Dart Group, Landover, Md., operators of Shoppers Food Warehous. The company was acquired by Richfood in 1998. Greenmail refers to a hostile strategy in which a premium is paid to a raider trying to take over a company though a proxy fight or other means.)
Hammonds admits that private equity deals are sometimes hard to judge and could cause some instability in the market, especially if restructuring eliminates jobs.
However, he still sees private equity deals continuing and offering retailers opportunities when stores are sold off.
“If you share my belief that the industry is undervalued, it does provide an opportunity to take the value of some of these companies up and to make a strategic combination that couldn't be made any other way. So on balance it has been a plus for our industry.”
While consumer trends and economic indicators generally favor a healthy retail food industry, Hammonds is prepared for the challenges of an election year where the Middle East remains a major focus.
One big concern is international trade and globalization — some presidential candidates favor closing down borders and restricting trade. “The food industry is so heavily dependent on food imports and exports, the trade dimension of the discussion about the economy in general is very worrisome now,” Hammonds said.
On the economy, which has been relatively stable, he said the nation is “repricing food in America. It's an issue that the industry will have to prepare for.”
One cause for food price inflation is demand for ethanol and biodiesel, made from corn and other crops. FMI reports that the price of a bushel of corn has doubled over the past two years from about $1.90 to $3.80.
“The big new aspect of this is the diversion of farm crop to biofuel,” said Hammonds, who expects demand will divert a tremendous amount of crop acreage into fuel. The result will be continued increases in corn prices and other products dependent upon corn such as sweetners and meats.
“We are moving the cost of food up. I don't know how high it will go, but I think you'll see a more rapid and sustained inflation on what we measure as the food component of inflation than perhaps you'll see on other goods.”
Rising fuel costs remain a concern as high energy costs impact the cost of food, transportation, refrigeration and processing, he added.
Hammonds is not sure how much FMI can achieve on legislative issues in an election year, but three big issues FMI will work on are:
Card Check Bill (S. 1041) was introduced in the Senate by Sen. Edward Kennedy, D-Mass. The bill would allow employees to organize a union by collecting signatures on a petition rather than through a federally supervised private ballot election.
“We view that as a very threatening trend that would be detrimental to workers and the economy as whole,” said Hammonds, who expects this to be an issue FMI will fight over the next two years.
The association is urging its members to voice their objections to the bill by writing their senators.
Credit Card Interchange Fees is described as FMI's biggest initiative. According to Hammonds, the issue has a more receptive ear in a Democratic-controlled Congress than under Republican control.
“That is one [issue] we have substantial opportunity to make progress,” he said. FMI and related retail associations are working to get what Hammonds calls “rational limits” on what credit card companies can charge for interchange fees.”
Organized Retail Theft is costing food retailers an estimated $15 billion a year in revenue losses. It is considered a safety risk for consumers who obtain stolen goods such as drugs that have been repackaged and may be expired. FMI would like to make such crimes a federal felony rather than just a local offense. “It would be helpful to get the FBI involved in tracking down these criminal gangs,” Hammonds said.
FMI is monitoring a federal proposal to cut reimbursements for providing generic prescription drugs to people on Medicaid and what impact that will have on the profitability of community pharmacies‥
“We don't think they are going at that very carefully or intelligently. If they aren't very careful, this could make generic drugs unprofitable for community pharmacies to fill. That would be hard on consumers in general and medicaid patients.”
FMI will try to maintain the tax breaks on capital gains and dividends it won under President Bush's tax initiatives. The Estate Tax expires in 2011. Hammonds expects a tough fight in getting permanent repeal made a reality.
As the food industry zeros in on the health of its shoppers, expect FMI to be a leading voice in the debate on health care proposals and what can be done to reduce escalating costs. “Our industry will have a voice in health care cost proposals both for the costs of covering our own employees and for what it would do to impact our customers,” Hammonds said.
“As people realize food at home really does give you more choice and more control and can be healthier, I think our members are well positioned to capitalize on that.”
FMI Show Registration, Exhibitor Numbers Up for This Year's Event
CHICAGO — It is a fait accompli. The FMI Show has changed, providing momentum for its last consecutive run here at McCormick Place, May 6-8.
Tim Hammonds, president and chief executive officer of the Food Marketing Institute, says he is encouraged as early retailer and wholesaler registration surpassed last year's numbers at this time, and there's been a 25% increase in supplier/manufacturer exhibitors. “We have more than 200 companies who have never been with us before in Chicago or at the tech show. Those are new exhibitors who are on the FMI floor,” he told SN.
FMI has tried to boost attendance in recent years by co-locating and partnering with related food shows — the Fancy Food Show, U.S. Food Export Showcase, United Fresh Marketplace and All Things Organic.
“That has been a mixed blessing,” Hammonds said. While it is good for FMI members to attend other shows, FMI exhibitors have said they lose people off the FMI exhibit floor. “So some of our members might say they like it, while exhibitors might say they haven't liked it.”
In addition to its other show partners, this year Marketechnics and the FMI Pharmacy Conference will co-locate in Chicago. In conjunction with these events, a nutrition and wellness pavilion will feature a full-size clinic, sponsored by The Little Clinic. “People will see we do have a health clinic on the show floor that does testing and counseling. I think that is very exciting and an important trend to supplement pharmacies. I flag that as a major opportunity,” Hammonds noted.
Tech Lane will join the New Product Showcase by offering demonstrations on the latest technologies.
FMI will again partner with the United Fresh Produce Association next year for its booth exhibit at Mandalay Bay Resort & Casino in Las Vegas. Marketechnics and the Pharmacy Conference are also planned to run with FMI in Las Vegas. However, other show partners may not return. SN has previously reported the Fancy Food Show will not return. In May 2009, FMI will debut its educational show at the Hyatt Regency in Dallas. The Marketechnics show will run as a freestanding show that year.