Flexibility is needed to meet new opportunities

by Morton Sosland
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Except for the surge of business experienced by a few of the quick-service restaurant chains and a small number of branded food products enjoying unique success, it may be concluded that the food industry is benefiting little, if at all, from the money that has fallen into consumers’ pockets as a result of the drop in fuel and energy prices. Sure, the weather extremes that ruled in the early months of this year soured buoyant retail expectations, not just in food, but in everything from automobiles to home furnishings. Commerce Department estimates of consumer purchases at the year’s start have been slightly negative instead of the upward moves expected. Yes, the record-breaking winter storms that struck the Northeast interfered with business, but it’s still disappointing not to be enjoying what was expected to be the likely beginning of an excellent year.

For those analysts who were optimistic about what extra income from much lower gasoline prices would mean to an industry like food, the hope still rules that the poor start is simply a glitch that will be erased by subsequent events. For those who worry that this beginning heralds the probability that consumers have put their additional income to savings and paying down debt, their focus is the way consumers are influenced by conservative spending that has cut the pace of food purchases for years. The fact that governmental statistics show a decline in sales in nine of twelve categories for which statistics are compiled supports those contending that the so-called “big weather effect” could not be so great as to disappoint in this manner.

While first-quarter financial reports will not be issued by food companies for some weeks yet, one senses from statements made as 2015 begins that few food industry executives are enthusiastic about prospects. Exceptions are those tied directly to the quick-service restaurants, an area where Chipotle is the single chain most often cited favorably. Health-related products, organics and new or modified foods that win the favor of specific groups of consumers appear so far to be winning the day.

Chris Nay, senior managing director of food and beverage for GE Capital, looked recently at the way both consumers and retailers are inclined to shift their focus from the interior to the perimeter of retail food stores. “There is no doubt the consumer is moving to outside the center of the store,” he said recently, adding that several major grocers have begun reducing center-store shelf space. In regard to spending of increased cash income due to lower gasoline prices, he ventures the view that this will mainly be felt in the food industry through the willingness of shoppers to purchase more premium-priced products. He also expresses the likelihood that away-from-home spending will benefit more from the income gains than foods bought for eating at home.

Besides the trends that may be attributed to forces well beyond the control of the food industry, Mr. Nay says that success in food manufacturing requires flexibility. Warning about businesses following 20-year-old operating patterns, he identifies the segment of intermediate size that he believes has the vigor to change to meet the needs of a radically different retail marketplace. He cites “the wind at the consumers’ backs” that is lessening the pull of value, which is still being well met by Wal-Mart Stores. But this is a development that makes it essential to have products that respond to a new willingness to spend money. Millennials are a hugely important part of this different demand focus in the same way that non-store retailers may no longer be neglected as an internet-related fad.

Hardly anything is more apparent amid all of these changes than the way food retailers as well as the away-from-home industry are looking for product and marketing innovations. New partnerships with food manufacturers are emerging as an important result that itself requires new flexibility at every business level.

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