Dismal economic outlook affects food strategies
October 4, 2011
It certainly is correct that grain-based foods, nearly alone among all industries, in food or not, has been less inclined to build product strategies based on a belief that America is a land of ever-rising prosperity and upward mobility. This exception merits noting because realizing that the outlook for the U.S. and global economy is less than ebullient, that millions of people have experienced income reductions in recent years and that penny-pinching is more of a driving force at retail than in a long while, has suddenly been thrust upon wide swaths of industry. Coming to grips with this fundamental change has turned out to be a great surprise for many. It has encouraged not just unusual financial caution, as evidenced by the building of cash reserves, but a total re-think of how business is best done.
Hardly anything underscores the changes that are under way in response to the uncertain economic outlook than the actions taken by two of the leading retailers. In the case of Wal-Mart Stores, Inc., the world’s largest retailer of food and merchandise in general, it has reversed an earlier effort to remove products from shelves and to open aisles in order to appeal to more upscale customers. When these changes did not produce the sales increase anticipated, Walmart switched to add back merchandise in its stores. The result of this reversal is a halt to the downward trend in same-store sales and a boost in the outlook for volume in this highly difficult economy. Those conditions prompted Walmart to say “we’re starting to see jobs as the No. 1 concern among our customers.”
Target Corp., second to Walmart as a discount retailer, has managed to expand its sales by adding grocery sections to its stores and by offering an increasing array of discounts, many facilitated by use of its credit card. More discounts and attention to lower-margin foods have boosted profitability in the face of the struggling economy. Target’s main reaction has been to slow the number of store openings.
For grain-based foods, steps being taken by these leading retailers obviously affect marketing strategies. Some hint of caution when it comes to price increases came in recent consumer price calculations showing that in a recent month the index of cereals and bakery products actually declined 0.1 per cent from the prior month in contrast with the 0.4 per cent increase for all food eaten at home. Indeed, the small decline for cereals and bakery products stood out because prices for the other five major grocery store food groups all advanced. The latest month included gains of more than 1 per cent for dairy products and fruits and vegetables. This apparent pricing advantage for bakery and cereal products extended over almost the entire past year, in which the 4.3 per cent rise for these foods proved to be far short of gains of more than 7 per cent registered in meat, poultry and fish as well as in dairy products.
Thus far at least, upward moves in prices for food have not caught the same attention of American politicians as have prices for gasoline and some other products. This is different from what is happening in other parts of the world where gains in food prices have prompted severe governmental interventions. The United Arab Emirates, Qatar and Saudi Arabia all have ordered food manufacturers and food retailers to observe caps on prices, including rolling back to levels of a decade earlier, in order to counter inflation and prevent social upheavals like other Arab nations have experienced. While price controls are not new to these countries, their repercussions at a time of rising ingredient costs have been particularly severe, prompting concerns about a proliferation of market-distorting policies. Thank goodness it is quite a few decades since an American administration considered price controls as a way of easing food price inflation.