Value Added 2009

Commodity prices have plummeted since last summer, dragging dollar sales of many fresh food categories down with them. But, there appears to be a silver lining in the data reviewed here.

Take the natural cheese category, for example. Unit sales have been flat or down since 2006, but the category keeps showing strong dollar sales growth, as shoppers reach for the slightly pricier pre-sliced, pre-shredded or pre-grated versions of their favorites. Similarly, probiotic claims were one factor boosting the $3.7 billion yogurt category, where dollar sales were up 4% on a mere 1.3% increase in units.

And real, tangible volume and dollar growth was seen in a few highly discretionary categories like whipped toppings, premium salad dressings and refrigerated pizzas. Whipped toppings likely got a boost from Kraft's new Cool Whip aerosol can. The growth of refrigerated salad dressings ties in well with healthy eating trends, and refrigerated pizza is a happy medium between frozen and delivery. But, growth in each of these categories indicates that shoppers are cooking at home more often, and many are still willing to “trade up” for enhanced convenience and functionality.

KEY CATEGORIES

Milk

Dollar sales of fluid milk products fell more than 8% during the latest 52-week period, after farm-gate prices flirted with historic highs last summer, and then plunged to levels last seen in 2003 by the beginning of this year. The most pronounced declines were seen in skim and lowfat milk, which both dropped more than 9%. Last year's spikes and declines in the price of animal feed helped cause the current situation. As usual, in response to collapsing prices, dairy farmers have been culling herds of dairy cows this year in an effort to reduce supply and bolster prices.

Natural Cheese

Dollar sales of natural cheese rose almost 8% during the latest 52-week period, following a 12% increase in calendar 2008, and a 7% increase in 2007. However, unit sales have been flat or down since 2006, and declining U.S. exports, along with growing domestic inventories would seem to indicate that the category is headed for an eventual price correction. But the category sidestepped issues in the commodity markets that caused fluid milk prices to plunge this year. Convenience innovations have helped insulate the category from those fluctuations. Dollar sales of the shredded, sliced and string cheese subcategories have all risen about 8% since last summer, and refrigerated, grated cheese is up 22% during that period.

Rfg Juices/Drinks

Dollar sales in the $4.3 billion refrigerated juice category fell about 0.5% during the latest 52-week period, despite a 1.2% increase in volume sales. The modest decline is partly due to weak pricing in the $2.5 billion orange juice subcategory, which has seen a 4.5% decline in dollar sales on flat volume since last summer. Prices on the futures markets have been low to average this year, despite shrinking grove acreage in Florida and concerns about citrus greening disease there and in Brazil, which could point to significantly reduced orange crops soon.

Yogurt

The $3.7 billion yogurt category has gone from cash cow to mover and shaker in the dairy case during the past few years. Unit sales of yogurt were up only 1.3% during the latest 52 weeks, and category volume has been flat since 2006, when the category enjoyed a 4.2% boost in units sold. But yogurt's steady dollar sales growth — up 6.7% in 2006, 4.1% in 2007 and 7.6% in 2008 — is an excellent indication of the category's pricing power. New innovations — most recently probiotic claims — have kept loyal customers coming back, and have kept them willing to pay modest premiums for improved functionality in this better-for-you category.

Luncheon Meats

News for the $3.4 billion luncheon meat category was mixed during the past year. The good news is, dollar sales have risen 3% since last summer. The bad news is, volume declines have been accelerating, with unit sales falling 2.6% in calendar 2006, 2.8% in 2007 and 3.6% during the latest 52-week period. The increase in dollar sales can be partly credited to stronger pricing afforded by the growing popularity of new premium products, such as thin-sliced meats in resealable packages, and all-natural, low-sodium, nitrate- and nitrite-free and other better-for-you deli items. But declining volumes are harder to explain, especially since several consumer surveys have indicated that “brown bagging” lunch is on the rise due to the recession. In a recent SN feature, analysts attributed this discrepancy to a couple of different factors — shoppers are buying more premade sandwiches, including premade sandwiches at supermarkets, and they may be packing more non-protein lunches, such as salads, pasta, peanut-butter-and-jelly sandwiches and other meals that don't include lunch meats.

Rfg Fresh Eggs

After posting dollar sales gains of 4% in 2006, 27% in 2007 and 12% in 2008, it would appear from the top-line data that sales in the $3.3 billion refrigerated fresh eggs category have taken a nosedive during the latest 52 weeks, with sales falling 5.4%. But that's not exactly the case. The average national price of a dozen grade A eggs topped out at more than $2 last summer, due to the steep rise in the cost of animal feed and fuel faced by egg producers during the past couple of years. The dollar sales gains posted during the calendar years of 2006-2008 were inflationary — consumption of eggs actually fell slightly in each of those years. But with prices for fuel, corn and soybeans retreating somewhat since last summer, prices for eggs have fallen during the latest 52 weeks as well. Volume sales have actually increased by 1.6% during this period, as penny-pinching shoppers look for inexpensive and easy-to-prepare proteins.

Breakfast Meats

The $3 billion breakfast meats category enjoyed a resurgence this year, reversing a multi-year slump with a 2.3% increase in dollar sales and a 1.2% uptick in volume during the latest 52-week period. Bacon exhibited the stronger volume growth of the two subcategories, with a 2.3% increase in volume. Unit sales of breakfast sausage and breakfast ham actually declined a little less than 1%, although stronger pricing led the subcategory to a 4.5% dollar sales gain. It's difficult to pin these increases on more shoppers cooking breakfast more often at home, since breakfast sales at quick-service restaurants have continued to rise during this time. What may be more likely is that shoppers are using bacon in other meals, such as sandwiches or dinner entrees.

Rfg Salad/Coleslaw

The E. coli outbreak linked to fresh spinach in September 2006 slammed the brakes on the refrigerated salad and coleslaw category, leading to a 4.4% decline in unit sales and 0.7% decline in dollar sales that year. And according to IRI, unit sales have fallen every year since, including a 3% decline in volume during the latest 52 weeks. Still, for a $2.8 billion category that appears to have plateaued somewhat for now, the steady, year-on-year increases in dollar sales indicate that shoppers are still willing to pay a modest premium for innovations in convenience and flavor within this healthy category.

Butter

Despite significant fluctuations in dairy prices during the past year, dollar sales in the $1.3 billion butter category posted a 1.5% increase during the latest 52 weeks. Butter prices climbed steeply throughout 2008, spiking to four-year highs in November before plummeting at the end of the year, according to the U.S. Department of Agriculture's National Agricultural Statistics Service. A 2.2% increase in retail unit sales helped boost the butter category. By contrast, during the same time period, unit sales in the margarine, spreads and butter blends category declined by 3.2%. But, category innovations and new package sizes continue to help strengthen pricing in that category. Dollar sales of margarine and spreads rose 17.4%, to $1.4 billion.

Rfg Meat/Poultry Products

IRI tracks only a small portion of the $140 billion U.S. retail meat, pork and poultry sales, and the 11% dollar sales increase exhibited by their sample here is high compared with total U.S. retail meat sales. But many grocers have benefited from rising meat, pork and poultry sales, as shoppers eat at restaurants less and cook at home more often to save money during the recession. With less demand from the restaurant sector, meat buyers have been in a good position to buy higher-grade cuts of beef at relatively low wholesale prices. With demand rising and prices holding steady, 2009 will likely be remembered as a good year for meat departments. But ranchers and poultry producers have been culling herds and reducing flocks in an effort to raise prices in the face of slipping overall demand. If demand from restaurants picks up any time during the next year, price spikes could be quick to follow.

Rfg Whipped Toppings

With shoppers watching their wallets and curbing their food budgets during the ongoing recession, it's a bit of a surprise to see a discretionary, indulgent category like refrigerated, whipped toppings post 6.6% dollar sales growth to reach almost half a billion in sales during the latest 52-week period. It's especially surprising when one considers that the category posted two straight years of unit sales declines in 2006 and 2007, and remained relatively flat in terms of dollar sales during those years. But a couple of key factors may have worked in the category's favor during the past year. In May 2008, Kraft debuted a new aerosol can version of its venerable Cool Whip brand, which led to merchandising tweaks, promotions and renewed attention to that area of the dairy case from customers. And whipped toppings may just be a good fit for the times. With consumers cooking and eating at home more often, it's no surprise that they may want to have a little fun with dessert every now and then.

Rfg Spreads

Led once again by hummus and other flavored spreads, the refrigerated spreads category enjoyed yet another year of double-digit growth, posting a 10.6% dollar sales increase during the latest 52 weeks, again making it one of the fastest-growing perishables categories, with sales over $100 million. Total sales in the category now top $350 million, when one includes the refrigerated meat spreads, refrigerated horseradish and the small refrigerated honey subcategories. Growth of the hummus and flavored spreads subcategory has slowed just a little from the torrid pace it set during the past few years. In 2006, dollar sales rose almost 28%, and in 2007, they rose more than 31%. During the latest 52 weeks, the subcategory sported a 17.5% dollar sales increase, which, of course, is still far from shabby. And as suppliers like to point out, U.S. household penetration is still hovering around 5% for the fledgling category. So for now, its potential still seems limitless.

Rfg Seafood

IRI tracks only a small sample of the $16 billion U.S. retail seafood market, but sales declines have been a theme for most supermarket seafood departments since last summer. Shoppers traded down from premium seafood items to less-expensive options, or traded out of the seafood category entirely for less-expensive proteins. The number of households that purchased finfish declined 10.3% in 2008 as prices rose, according to the Perishables Group. By contrast, in the shellfish category, many shoppers swapped crab for lobster during the latest 52-weeks, as retail lobster prices declined to their lowest point in recent memory. Seafood continues to get enough positive press in the consumer media to cement it in shoppers' minds as a healthier center-plate alternative to beef or even poultry. But until the economy improves, seafood departments may be in for a challenging ride.

Rfg Salad Dressing

After enduring a few years of flat performance, refrigerated salad dressings have returned to growth mode, becoming one of the fastest-moving perishables categories, with sales over $100 million. In calendar year 2008, the category enjoyed a 7.8% increase in dollar sales. During the latest 52 weeks, growth has been even more pronounced, with sales rising almost 14%, off an 8.5% increase in unit sales. With $244 million in sales, the refrigerated salad dressing category is still tiny when compared with the $1.5 billion shelf-stable category. But the category continues to have a very promising future, as suppliers continue to innovate with new products, and shoppers continue looking for ways to prepare healthy, flavorful meals at home.

Rfg Pizza

The refrigerated pizza category has packed quite a punch during the past three years. As the economy has floundered, the $206 million category has fought its way to the top, becoming one of the fastest-growing food categories in supermarket retailing this year. After being pummeled by a 9% sales decline in 2006, the category grew 3% in 2007, 14% in 2008, and almost 20% during the latest 52-weeks, off of unit sales growth of 15%. Although refrigerated pizza sales are still dwarfed by the $2.9 billion frozen pizza category, the category's spike during the past year indicates that shoppers are still looking for quick, inexpensive ideas for making dinner at home, and that they may still be willing to trade up — in this case from frozen to fresh — if they view a deli or prepared-food item as a good value.