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Case Study: Making a case for retail

Consumers are stretching their dollars as food prices soar

By Lisa Duchene
August 01, 2008

Jim Wallace has seen recessions come and go. But this one is unique, says Wallace, VP of perishable procurement with C&S Wholesale Grocers, a Hatfield, Mass., company serving 5,000 grocery stores in 12 states.

When fuel prices skyrocketed three decades ago, fish was much more plentiful than it is today, says Wallace. With a weak dollar and strong overseas demand, it's become very difficult to secure fresh, quality seafood, leading to high prices just as consumers are looking to stretch their food dollars, he adds.

"I think everybody's kind of in survival mode right now, to be honest," says Wallace. "Supply of good, fresh product is limited."

Record high prices for gasoline, food price inflation, a slumping housing market and weak employment figures all hamper the U.S. economy. But rising from the doom and gloom is one critical opportunity for supermarkets: Americans are turning to retail to economize.

Seventy-one percent of the 2,020 U.S. shoppers surveyed in January by Harris Poll Online for the Food Marketing Institute said they are eating out less and cooking at home more. Families eat their main meal out 1.2 times per week, down from 1.3 in 2007 and 1.5 in 2006, according to FMI's "U.S. Grocery Shopper Trends 2008."

"This presents retailers [with] an opportunity to win back a share of the meal-time market long owned by restaurants," says FMI's President and CEO Tim Hammonds.

Whether that opportunity extends to the seafood department depends on whether retailers present - and consumers view - seafood as a good value.

The top-dollar items like shrimp, king crab and snow crab that typically generate a lot of sales are hurting, says Wallace. Some retailers, he says, are responding with a two-tiered merchandising strategy to appeal both to consumers who view seafood as an affordable indulgence as well as to those who are pinching pennies. They are balancing a selection of fresh and frozen products, like tilapia fillets.

"As long as we continue to portray ourselves as a value, we can compete for the center of the plate," says Wallace.

Most consumers are "trading down" in their food purchasing, says Jim Hertel, managing partner of Willard Bishop, a retail consulting firm in Barrington, Ill. As prices rise, says Hertel, consumers typically will not increase their food budget but will find ways to stretch the same spending level by purchasing less expensive products, often turning to store brands.

Everybody is affected in varying degrees depending on their household income. Consumers in the top 20 percent income bracket probably haven't changed their food purchasing all that much. People in the upper-middle class, or earning north of the median income of $48,200, are likely to have cut their visits to restaurants and might be trading down from a premium product like ahi tuna to farmed salmon. Depending on pricing, others at lower household income levels may be trading out of seafood, says Hertel.

That scenario worries Ken Chapin, meat and seafood director at Yoke's Fresh Markets, a 12-store chain based in Spokane, Wash. "What we're seeing is the beginning of a softening," he says. Sales increases are not as robust now as they have been the past few years; the retailer recently had healthy seafood sales increases after spending several years improving its seafood departments.

Chapin notes Yoke's customers are trading down as they purchase meat, but in seafood, "I don't see where there's a huge trade-down option."

While Chapin says Yokes' customers are just starting to react to the weak economy, plenty of them are still paying a non-promo price of $17.99 for whole Copper River salmon. "People are coming in and asking for it," he says. Chapin is reviewing various strategies to weather the downturn but sees no reason Yoke's should waiver from its commitment to seafood.

One seafood merchandiser at a Midwest chain has seen sales drop 7 percent compared to last year. Overall, business seems to be returning to 2005 levels, he says.

"Everybody's been double-digit, double-digit and all of a sudden the bottom's falling out," says the Midwest retailer.

Pushing the value of seafood is definitely the answer, says the retailer, who is reminding customers that there is little to no waste with seafood, and is testing per-portion pricing. Grouper fillets are advertised at $6.37 per portion instead of $16.99 per pound, so that a consumer can easily see that $13 serves two people. He is also careful to promote fewer items than he would have last year, but offer a deeper price cut on those key items.

Those steps are right in line with what Hertel is recommending supermarkets do to navigate the recession. Most retailers are looking at their mix of premium and value offerings and expecting flat sales for the near future, he says. As the cost of goods increases, Hertel suggests retailers listen to shoppers, look for opportunities and avoid simply passing on price increases to safeguard margins.

"You might want to merchandise the convenience foods offering restaurant quality with a made-at-home price," says Hertel. "Be conscious that people are going to be looking for these opportunities and make it easy for the shopper to realize that a given store has something that maybe they thought was priced out of their reach but really isn't."


Contributing Editor Lisa Duchene lives in Bellefonte, Pa.


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