June 25, 2008
Prolonged inflation to change US consumer food trends
Food-price inflation could be much more severe and more prolonged than many people are now predicting and that could result in changes in consumer food trends, according to a presentation Tuesday (June 24, 2008) by the Food Institute and Illinois-based consulting firm Willard Bishop.
Jim Hertel, managing partner at Willard Bishop was speaking during the "Future of Food Retailing Webinar: An Outlook for Store Formats," presented with The Food Institute.
Saying that a quick retreat for high food prices would not be likely, Hertel projected that consumers could be choosing cheaper meats over pricier ones as food inflation continues.
Consumers may be choosing lower grade cuts over those of a higher grade and pork and chicken over beef as food inflation range as high as 7 percent to 11 percent annually for at least the next two years, he said.
Consumers are also less likely to eat at restaurants and would purchase more of their food items from retail chains.
Inflation would be a major force in the food retailing industry for the next three years, putting pressure on weaker players, he added.
In this scenario, retail chains selling their own private brands would benefit due to their value-for-money proposition, while higher-priced health and wellness foods could suffer as inflation whittles away at consumers' wallets, he said.
Although many supermarkets would be able to handle ongoing inflationary pressures, it would be increasingly difficult for them to pass on cost increases and preserve margins, he added. One solution would also be for retailers to adopt their own private labels, he pointed out.
The good news, though, is that convenience stores and other food retailers are poised to gain an increase in trips, as consumers trade down from eating out at restaurants and instead seek out more food at retail for home consumption, he explained.
The increasing number of fresh format, limited assortment and super warehouse formats could also be in for strong growth in inflationary conditions, he stated, noting their sharp focus and value-for-money.
According to the Food Institute, the arrival of the small store format, such as Tesco and small-store initiatives such as Wal-Mart could become a regular feature of the retail landscape.
Sales at convenience store last year (those not selling gas) rose 4 percent last year.
