Fourth quarter 2008 consumer food spending met its steepest decline in more than half a century, according to data from Commerce Department's Bureau of Economic Analysis. Spending on food at retail and restaurants fell 3.7% from the previous quarter, with consumers are increasingly swapping their Starbucks for homemade Joe, and trading in name brands for generic products.
Sales of alcoholic beverages saw one of the largest declines at 10.9% from the previous quarter; sugar/sweets, cereal and coffee/tea saw declines at 5.1%, 4.3% and 2.1% respectively. Financial woes at the end of 2008 also prompted consumers to curtail spending on pricier proteins. Beef and veal purchases were down 3.4%; poultry spending was down 3.2%. Fish and seafood spending was also down 3.5%.
But it’s not all bad news. Analyzed separately from restaurants, says Todd Hale, Senior Vice President of Consumer Shopping & Insights for The Nielsen Company, retailers fared better. Sales at retail were actually up quite significantly for canning and freezing supplies at 11%; sales of alcoholic beverages were up at 7%. Even fresh meat saw gains in 2008.
“We’re seeing more demand for beef in retail as consumers are cooking more,” says Meghan Pusey, Associate Director of Communications for the National Cattlemen’s Beef Association. “Beef sales were up by 5.8% for the fourth quarter of 2008 – a 3.2% increase in pounds sold, and up by 2.2% for year-end 2008. Consumers can stretch their dollar with the endless meal possibilities beef offers.”
While 2008 unit sales were down 1.3% across the retail store from 2007, the largest declines came from non-edibles, like toiletries and grooming aids. Sales abroad reflect similar trends. A recent Tesco survey found that six out of 10 people have cut down their grocery bills to an all-time low in an effort to save money; three out of four shoppers have quit buying ‘luxury’ items.
“Since rising gas prices became problematic a couple of years ago, consumers have been telling us they are staying home more and eating more meals at home,” says Hale. “That trend has been accelerated since our economy weakened at year-end. And, as our economy slowed, private label growth accelerated across many categories.”
Brand name still matters to more than nine in 10 consumers (92%), but a majority (53%) are now purchasing private label brands, according to the National Grocers Association. Although branded food captures the lion’s share of total store sales, says Hale, private labels are performing well, and reached a 16.6% dollar share across all departments (food and non-food) in 2008.
Growth of lower priced alternative brands is having an impact on big name manufacturers too. Kraft Foods Inc. recently lowered its earnings forecast slightly for the year, citing that consumers are trading-in, trading down and channel shifting.Richard D. Buino, spokesperson for Kraft Foods, points out, however, that despite a difficult and changing environment in 2008, the company is well positioned going forward.
“Consumers are looking for value, so we’re letting them know they can get great values from a number of our brands. We grew both our top and bottom lines and we saw share gains in Mac & Cheese, Pizza, Cookies, Chocolate, Maxwell House andCapri-Sun, says Buino. “We’re continuing to invest in our marketing, innovation and quality.”
As many consumers turn back to basics to feed their families, Hale says that 2009 should present some big opportunities for retailers – with some clear challenges, of course. The changing economic landscape, he says, will require retailers and food manufacturers to compete on more than value alone.
“Where retailers will struggle, as they did in 2008, is in the ‘nice-to-have,’ not ‘need to have’ categories. Convenience and variety will take a back seat to value retailing in 2009.”
Buino adds, “A number of our businesses are benefitting when consumers are eating at home more often. Things may continue to be tough in the near term, but everyone has to eat.”