Consumers are suffering from sticker shock when they visit their local retailer or favorite restaurant. The pace with which the higher costs experienced by processors is being passed to consumers has quickened and prompted consumers to alter their food purchasing patterns. The challenge for food manufacturers is to assess and understand how purchasing patterns are changing.
According to the U.S. Department of Agriculture, the Consumer Price Index (C.P.I.) for all food is projected to increase between 5% and 6% in 2008 as higher commodity and energy costs are passed to consumers in the form of higher retail prices. The C.P.I. for food increased 4% in 2007, which was the highest annual increase since 1990. Prices for food consumed at-home rose 4.2%, while food eaten outside the home increased 3.6% in 2007.
With a bleak economic outlook for the balance of 2008 and uncertainty expected to extend well into 2009, consumers are finding ways to economize. The Hartman Group, in collaboration with the shopper survey group, the National Research Network (N.R.N.), has been monitoring how consumers are coping during these turbulent times. The N.R.N.’s report, "Consumer Cutbacks in Today’s Soft Economy," finds consumers are cutting back to stretch their dollar.
There are a number of tactics consumers are using to downsize the financial squeeze they are feeling. About two-thirds, 66%, of consumers are eating away from home less often and when they do dine out, half are choosing less expensive items.
While the roller coaster price of a gallon of gas has garnered much of the media attention for the better part of 2008, almost every facet of consumers’ lives have been impacted to varying degrees depending primarily on income level, presence of children in the home and region of the country.
When Hartman Group researchers, for example, talked recently with consumers in Indiana, the issue of heating one’s home was top-of-mind in July (and cold weather was still months away). Home energy costs are just one aspect of a struggling economy. In other regions of the country, consumers may economize by driving less, carpooling or taking some form of public transportation. But in Indiana, you may only turn the thermostat down so far in the winter. Knowing that you face rising heating bills forces one to economize in other ways — like groceries.
In other Hartman Group interviews on the economy, consumers talked about stockpiling firewood and plans to seal off rooms of their home in anticipation of managing costs this winter. Many consumers have a budget established to pay their heating bills that are spread out over the course of the year. Consumers have seen those monthly budget amounts increase substantially, between $100 to $200 per month, already this year.
When disposable income shrinks, home values decline, and credit card debt rises, something has to give and for many consumers, especially lower income households, spending less on food is an immediate solution. The "Consumer Cutbacks in Today’s Soft Economy" report finds one in two families have cut back on buying and preparing some types of food or dishes to save money. A disproportionate number of these people are under 34 years of age and earn less than $30,000 a year. About four in 10 consumers are buying fewer organic foods or no longer pay extra to be "environmentally responsible" in an attempt to save money.
Other strategies include buying milk and eggs directly from local area farms or buying sale items in bulk from co-ops such as cases of juice, olive oil, or 50-lb bags of brown rice.
While consumers may be scaling back in some areas, there are still some items that are necessary indulgences. In the face of economic uncertainty, consumers find some version of necessary mini, small and "doable" indulgence. One woman, for example, buys Breyers ice cream as an economizing tactic because it is a less expensive alternative than going to the ice cream shop with her family. Another woman said she buys Cappuccino Coolers from the grocery store, which keeps her from driving through Starbucks and spending more. In both instances, consumers feel they are nurturing their indulgences without feeling deprived.
Laurie Demeritt is president and chief operating officer of The Hartman Group, Inc., a consulting and consumer insights firm specializing in the analysis and interpretation of consumer lifestyles, and how these lifestyles affect the purchase and use of today’s products and services in tomorrow’s marketplace. Ms. Demeritt may be reached at FBNEditor@sosland.com.
This article can also be found in the digital edition of Food Business News, September 30, 2008, starting on Page 40. Click