For an industry where market share is the preferred measure of how a brand or even company is doing, the food business needs to understand the continuing downtrend in share occurring in recent years. Based on data from the Bureau of Labor Statistics, the Economic Research Service has calculated that food’s share of spending by the typical American household dropped 0.4 percentage point in the decade ended in 2013. The latter year was the most recent for these calculations. Little has been observed in the past year or more to indicate that this ever so slight food downtrend is not continuing to the present day.
The specific E.R.S. estimate is that food accounted for 12.9% of typical household spending in 2013, compared with 13.3% in 2004. While it is impossible to convert this dollar spending into physical volume, the parallel observation that food prices increased faster than prices in the economy as a whole may be translated into a volume shortfall. Prices for all goods and services rose by 2.4% per year in the same decade, while food prices climbed 2.8% annually. Based on post-World War II experience, this is a rare period of food price inflation outpacing economy-wide inflation. Executives of food companies will have no difficulty recalling the several spurts in ingredient prices happening during this period.
Since the E.R.S. makes the point that shifts in different spending categories often reflect their level of inflation, it would be natural to expect the high food price inflation to result in a larger share. That this did not occur in the decade ended in 2013 accentuates the importance of this study for the food industry.
The leadership in household spending is held by housing with 33.6% of total household spending and transportation, estimated at 17.6%. Neither of these leaders is unexpected. Indeed, seeing the relatively high spending on transportation emphasizes how these calculations are likely to decline because of the past year’s drop in fuel prices due to the collapse of the international crude oil market. This likely fall in transportation expenses must be appearing currently in the form of increased shares for one or another category. This is where the food industry must see itself competing not only with housing, at the top, but personal insurance and pensions, representing 10.8%, and health care, at 7.1%, along with still smaller entertainment, 5.8%, savings, 3.6%, apparel, 3.1%, education, 2.4%, and what’s left, 3.1%, to account for 100% of consumer expenditures. The zero sum game in which the food industry is engaged plays out in stark terms.
For an industry that a century or so ago accounted for as much as a third to even half of household expenditures, the shrinkage to the 12.9% food share merits elaboration. That comes with the further finding that just 7.8% of average household spending is for food eaten at home, while 5.1% goes to food eaten away from home. Without seeking to understand other calculations showing consumer spending on food eaten at home and food eaten away from home as the same, this breakdown underscores the massive drop in spending for home consumption. That outlay falling to less than 8% of spending presents food manufacturers with the urgent need to find a way to reverse the course of this all-important measure.
It was near the end of the 19th and at the start of the 20th century that spending on food required half of household outlays. At that time, food was scarce, its quality and even safety were poor. All that vanished as the years passed, convenience became the driving force, and health and wellness gained. Why that shift did not bring at least steadiness in food’s share of household spending is answered by food losing a bit and competing forces winning more. The time is at hand for food clarity and innovation that combined will make the industry the next winner of this never-ending race.