The Homa Files

Excerpted from WSJ, “Consumers Cut Food Spending Sharply”  By J. Lahart, T. Martin, and J. Adamy, Feb 13, 2009

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The bad economy is hitting America right in the stomach. Consumers have cut back sharply on food spending, shunning restaurants, opting for generic products over brand names, trading in lattes for home-brewed coffee and shopping for bargains. That is hurting sales and profits at many food processors, grocery chains and restaurants.

In 2008’s fourth quarter, consumer spending on food fell at an inflation-adjusted 3.7% from the third quarter … That is the steepest decline in the 62 years the government has compiled the figure …

The big drop likely comes from two things, said Joseph Carson, an economist … First, consumers have been trading down to lower-priced items. Second, he thinks many households dug into their pantries for staples rather than going to the store, a trend that can’t continue indefinitely. “You can’t contract at this rate for long … It’s just shocking.”

Cindy Greco, a Chicago resident, said she’s shopping more at Costco and buying less expensive meat, such as chicken, shrimp and ground turkey …“I’m someone who used to never ever pay attention to the prices of groceries … But now it’s a different story.” She showed off a bottom round roast she had unearthed that was marked down to $7.21 from $18.26.

“In recent years, a lot of discretionary income has gone into buying fancier food, whether it’s Starbucks coffee or prepared dinner or restaurant meals” … Now, that trend seems to be waning.

Last week, Kraft Foods Inc. lowered its earnings forecast for the year, saying customers are cutting back purchases of snack foods and trading down to private labels. Groupe Danone SA said this week that U.S. consumers sharply trimmed their purchases of yogurt and other dairy products at the end of last year. Even makers of chocolates are worried about how well their products sold for Valentine’s Day …

Citi Investment Research warned of a “modern-day price war” based on Wal-Mart’s plan to freshen up its Great Value private-label foods and the analyst’s expectation that it will trim national-brand prices. That could force grocery stores to cut prices to compete. U.S. sales of private-label food rose 10% in 2008 from 2007, to $82.9 billion … At the same time, branded food products saw sales rise 2.8% to $416.6 billion …

When times get tough, restaurants are one of the first places where people economize … The shift has a silver lining for some companies. While supermarkets passed along last year’s high ingredient costs to customers, McDonald’s Corp. and other fast-food chains absorbed some of the expense and kept many items priced at $1. Now, some consumers consider a fast-food meal a bargain. On Monday, McDonald’s said same-store sales rose 7.1% in January, including a 5.4% increase in the U.S.

Other consumers are opting for home cooking. In Bellevue, Neb., stock broker Kevin Vaughan and his wife cook chicken to make broth from scratch instead of buying it in cans, and use all of the resulting meat for multiple dishes … another bonus from reduced food purchases, he added: less trash to take out.

Edit by SAC

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Full Article:
http://online.wsj.com/article/SB123448606475780133.html

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This entry was posted on February 19, 2009 at 7:05 am and is filed under Mktg - Consumer Behavior. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.