Playing It Safe

MATTHEW ENIS

The widespread impact of the recession was the biggest story of 2009, and while food retail had its own share of difficulties, it proved to be one of the more resilient industries during the prolonged economic downturn. Shoppers were watching their household budgets more carefully, and for many, this meant dining out less and eating at home more often.

Of course, those shoppers were also looking to save money during their grocery trips. Several studies this year indicated that more shoppers were using coupons, shopping with lists and opting for items on special. And, several retailers told SN that their customers were buying more staples and cutting back on discretionary purchases in their fresh food and floral departments.

Fortunately, for shoppers and retailers alike, wholesale costs for many fresh foods eased significantly this year, off of highs reached in the summer of 2008.

In other news, the Obama administration this year took significant steps to overhaul the nation's food safety and traceability systems. The U.S. House of Representatives passed the Food Safety Enhancement Act of 2009 this summer, and the Senate appears likely to pass a companion bill next year — as soon as Congress gets the health care debate resolved.

The new laws would significantly increase the oversight, inspection and recall powers of the U.S. Food and Drug Administration, and this additional oversight will likely be paid for by fees assessed on farmers and suppliers. But, after a spate of years where massive foodborne illness outbreaks became more common and recalls remained headline news for weeks upon weeks, most industry associations, and many suppliers, have voiced support for the new legislation. If faster recalls can be achieved, it could benefit everyone.

Fresh Foods Help in Recession

AS THE ECONOMY continued to darken this year, it was difficult to hold sales steady, but perishables often saved the day, retailers told SN.

Consumers clipped coupons, came to stores armed with shopping lists, shunned impulse buys, bought mostly featured items, and often bought a smaller amount of an item to avoid any waste.

A recent study from Chicago-based Mintel indicates that half of supermarket shoppers were clipping coupons and a third have been stocking up on items that are on special. Meanwhile, customers jammed the aisles at Wal-Mart and Winco.

“Our customers went to Wal-Mart for canned goods and HBC, but they came back to us for perishables,” said Tanney Staffenson, advisor to five-unit Lamb's Thriftway, Portland, Ore.

“Campell's soup was cheaper at Wal-Mart, but they wanted the quality and variety we have in produce and meat.”

This past year was one of the most difficult that food retailers have faced since the “stagflation” and recession years of the 1970s and 1980s, “when price was everything,” industry sources said.

But this time, well-honed fresh departments and consumers' heightened sophistication were a plus.

Middletown, N.J.-based Food Circus' Super Food Town units kept prepared-food sales up by emphasizing the value of on-site preparation. An emphasis on basics helped, too.

“Sales of our fried and rotisserie chicken grew,” Chef James Conroy, the chain's director of prepared foods, said.

A number of retailers said they had to do some margin trimming to keep sales on an even keel.

“I would have liked to have raised the retail on some of my labor-intensive items like eggplant parm, but I couldn't or I would have lost volume,” Conroy told SN.

Produce and floral did suffer, industry sources said.

At McCaffrey's, Langhorne, Pa., produce is down a little, said Mark Eckhouse, vice president of the three-unit independent.

“Customers kept on buying the basics, like green beans, but less fruit,” Eckhouse said. “Maybe because they view fruit more as a snack and felt they could let it go.”

Floral apparently was seen as a dispensable luxury. A consultant told SN that floral all over took a bigger hit this year than it has during any other prior recessionary period.

McCaffrey's floral sales are down 30% to 40%, Eckhouse said.

Meat sales have stabilized, even as customers bought less-expensive cuts, a just-released, independent study by Midan Marketing and Shugoll Research shows.

Indeed, fresh beef and fresh chicken both gained ground in the third quarter of this year, according to the study.

John Gerlach, meat buyer at three-unit Stauffers of Kissel Hill, Lititz, Pa., said customers kept buying meat, but that many were focusing on ground beef and boneless chicken cutlets.

“They're buying what will put the most meals on the table.”

— Roseanne Harper

Food Safety Overhaul Begins

SINCE 2006, America has watched as massive recalls of spinach, beef, seafood and, most recently, peanuts became national news stories that dragged on for weeks at a time, eroding the public's confidence in the nation's food supply.

This year, the Obama administration began the first significant overhaul of the nation's food safety oversight systems in almost 50 years, unveiling a plan to form a Food Safety Working Group to concentrate on changing food safety laws. Obama also announced he would seek $1 billion for more food safety inspectors and upgrades of testing laboratories, and federal officials pledged more cooperation among government agencies responsible for food safety in the United States, improved surveillance and enforcement, and a focus on prevention of outbreaks of foodborne illnesses. To enhance coordination, two new posts were created at the Food and Drug Administration and at the U.S. Department of Agriculture.

In July, the Food Safety Enhancement Act of 2009 was passed by the U.S. House of Representatives, and, in November, the Senate Health, Education, Labor and Pensions Committee passed the companion legislation, which could ultimately give the FDA increased oversight of the food supply with the power to order recalls, increase inspection rates and require all facilities to have a food safety plan in place.

Industry associations have been mostly supportive of these efforts.

“The House of Representatives overwhelmingly passed bipartisan legislation that [the Food Marketing Institute] supported,” said Jennifer Hatcher, group vice president of government relations at FMI.

“FMI testified in support of food safety legislation during a November hearing of the Senate HELP Committee. The legislation was passed and is awaiting floor action in the Senate. We expect food safety legislation will be one of the first items brought up for Senate consideration after health care reform next year.”

Despite the committee's bipartisan vote, differences between the House and Senate versions of the bill will have to be resolved, such as how the new laws will be funded.

“We were pleased to see the House version come down from $1,000 to $500 [in annual registration fees] per facility, but that is still very expensive,” said Kathy Means, vice president of government relations and public affairs at the Produce Marketing Association. Means noted that some PMA members have hundreds of facilities.

“We'll be interested to see how that works out in conference. The Senate bill does not have any registration fees. It certainly has other fees. We believe that food safety is a public good and should be paid for out of public funds.”

— Amy Sung

Fresh Food Prices Finally Return to Earth

A DIFFICULT economy and rising unemployment took their toll on many American families this year, but there was one silver lining for consumers — in a variety of categories for a variety of reasons, food prices fell from highs reached in 2008.

Companies throughout the supply chain benefited from lower energy and transportation costs, as the price of oil collapsed from highs of almost $150 per barrel during the summer of 2008, and remained in the $60 to $80 range for most of this year. The price of ethanol followed, forcing many ethanol processors into bankruptcy. And, as a result, demand and pricing for corn eased, significantly reducing the price of animal feed for egg, dairy, beef, poultry and pork producers.

In addition, economic problems around the globe curbed U.S. agricultural exports. Combine that with sluggish demand from the U.S. restaurant industry, and many food producers were faced with surplus inventories. All of these factors placed downward pressure on wholesale prices for meats. Dairy producers faced a serious oversupply situation that caused farm-gate and wholesale prices to plummet.

Fresh food departments are accustomed to fluctuations in the price of food — it's the nature of the business. But, these year-over-year price swings have been unusually severe. Several retailers did what they could to explain what was happening in 2008. For example, last year Wegmans published several columns in its circulars detailing how fuel prices and other factors were leading to price increases. This year, retailers had better news, and many publicized significant price drops across entire categories, or ran ads contrasting current prices with prices from last year.

Of course, wholesale prices will go up again. They always do. As usual, dairy and beef producers culled their herds this year in an effort to bring supply back in line with demand, and when demand goes up — through an increase in exports and restaurant traffic — prices will follow.

During this respite, lawmakers in Washington should keep in mind two key factors that have caused this wild ride: ethanol mandates, which managed to link the price of corn to the price of fuel in recent years, and non-commercial speculation in the commodity markets, which drove the price of fuel and agricultural commodities ever higher, even as the rest of Wall Street was enduring a severe crash.

— Matthew Enis

Local Trend Grows Even Closer to Home

THE POPULARITY of locally grown foods and farmers' markets continued to build in 2009. And, the year produced many signs that a growing number of consumers are interested in where their food comes from, and may even want to be involved in the process of growing or harvesting it.

And as interest has grown, many retailers have moved beyond offering a selection of locally grown produce, and have begun experimenting with new ways to connect their customers with local growers.

Supermarkets such as Dayton, Ohio-based Dorothy Lane Market developed partnerships with Community Supported Agriculture groups, offering farm “shareholders” a central location to pick up weekly deliveries of freshly picked, local produce.

Others took locally grown a step further. Sunflower Farmers Market started its own two-acre farm this year in the Longmont, Colo., area. A greenhouse was added this winter, and company officials have said they plan to expand the farm to 12 acres next year. Produce from the farm is sold in Sunflower's stores in the Denver area, although company founder Mike Gilliland told SN that the farm is primarily intended to be a learning center, offering tours and classes for interested customers.

Similarly, many customers are learning about growing food at home — the popularity of home gardening has been on the rise, and many retailers are working to tap into the trend.

For example, retailer Meijer, Grand Rapids, Mich., began carrying vegetable and fruit pre-potted plants this year. The line of certified-organic plants, called Urban Gardener from Elzinga & Hoeksema Greenhouses, Kalamazoo, Mich., allows urban dwellers to grow a mini-crop of vegetables and fruits in the smallest of spaces, including balconies, porches and windows.

Even the occupants of the White House have gotten involved. First lady Michelle Obama, who has been a clear advocate of the benefits of eating fresh produce, joined Tom Vilsack, secretary of the U.S. Department of Agriculture, and students from a local elementary school to break ground at the White House's new garden in April — the first White House Garden since the 1930s.

The Obamas' garden covers 1,100 square feet of the South Lawn and was planted with 55 fruits, vegetables and herbs. The Bancroft Elementary students came back to the garden in October to help the first lady harvest some of the vegetables.

The USDA also announced a new local agriculture initiative in September called “Know Your Farmer, Know Your Food,” which was created to promote the consumption of locally raised foods. The program initially received $65 million in funding.

“Americans are more interested in food and agriculture than at any other time since most families left the farm,” Kathleen Merrigan, deputy secretary of agriculture said at the launch of the initiative. “‘Know Your Farmer, Know Your Food’ seeks to focus that conversation on supporting local and regional food systems to strengthen American agriculture by promoting sustainable agricultural practices and spurring economic opportunity in rural communities.”

— Amy Sung

Drought Continues in California

BY NOVEMBER this year, the U.S. Department of Agriculture had granted 53 of California's 58 counties agricultural disaster designations due to a drought that began in 2006. A report from the National Aeronautics and Space Administration last week revealed that “since October 2003, the aquifers in California's primary agricultural region — the Central Valley — and its major mountain water source … have lost nearly enough water combined to fill Lake Mead, America's largest reservoir.”

And, California's Sacramento and San Joaquin drainage basins “have shed more than 30 cubic kilometers of water since late 2003.” A single cubic kilometer is more than 264 billion gallons.

California's farmers have survived many multi-year droughts in the past. And, a representative from the Western Growers Association told SN last spring that the region's growers have used roughly the same amount of water every year for decades, and have still managed to increase yields by 89%.

With California as the current provider of about half of the fruits and vegetables consumed in the U.S., though, any emerging crisis in the state's agriculture industry merits attention from food retailers and produce department managers.

Of course, short of cloud seeding, little can be done to replenish ground water and reservoirs. California's Department of Water Resources is drafting a 5-year statewide drought contingency plan, and is already warning the state's citizens and farmers to plan for another dry year in 2010.

— Matthew Enis