Willingness to pay more for fresh food could hinge on health, sustainability beneits

12-Oct-2023 - Last updated on 12-Oct-2023 at 14:34 GMT

Related tags Deloitte fresh food Inflation

Consumers are willing to pay a premium for fresh food to reap perceived health benefits, but rumblings from shoppers and retailers alike that suppliers have raised prices higher than necessary to offset inflation could portend a negative shift in elasticity on the horizon unless prices stabilize or drop, suggests research published by Deloitte this month.

Suppliers and retailers could hedge against this by elevating the environmental, social and governance attributes of the fresh food department, an area in which consumers and grocers told Deloitte that ESG claims matter the most and for which consumers will pay more.

For this strategy to work, however, retailers and suppliers need to know what claims and ESG attributes matter most to consumers – an area in which most grocers missed the mark, according to Deloitte’s report, ‘Fresh Food at the Intersection of Trust and Transparency.’

Fresh foods make consumers happy

For many retailers, the fresh department is an important traffic driver that can lift sales across the store, with Deloitte finding two-thirds of the 100 US-based grocery retail executives it surveyed in early summer reporting it is the “most strategically important department for their company’s sales growth plan over the next 12-36 months.”

And for good reason – consumers want fresh and often are willing to pay more for it, according to Deloitte.

Of the 2,000 US consumers Deloitte surveyed in July, 91% say fresh food makes them happy and more than two-thirds (68%) say they will pay a premium for fresh food – up seven percentage points year-over-year. On average, these consumers will pay upwards of 28% more for fresh food than frozen, canned or processed alternatives.

Main motivators for buying fresh include personal health and wellness, cited by 86% of consumers surveyed, convenience (84%) and food waste (77%), according to Deloitte.

Could price reach a tipping point?

While these values are shared by a majority of consumers, they still lag significantly behind price, which 93% of consumers said drives their purchase decisions.

As such, while “consumers may be willing to pay a premium for what they value most,” they will pay “only as much as necessary,” according to the report.

It adds rising prices have “created some skepticism,” with 85% of consumers surveyed reporting that food prices have gone up more than necessary – up 10 percentage points from 2022.

“Consumers aren’t alone in their perceptions of unnecessarily high prices,” Deloitte adds. “When asked about food suppliers, a combined 86% of grocery retail executives surveyed said either ‘several’ (39%) or ‘most of them’ (46%) were raising prices more than needed with the purpose of increasing profits. A mere 10% of these executives said their food suppliers were raising prices to keep up with rising costs.”

The report underscores: “Whether or not the facts support this finding, perception is reality for these consumers and grocers.”

ESG benefits could reinforce premium prices

Retailers and suppliers may be able to justify premium prices for fresh food to consumers by highlighting its ESG benefits, but they need to be realistic about how much more shoppers will shell out and what values they price the most.

According to Deloitte, if consumers consider fresh food sustainable, half say they are willing to pay an average of 30% more. While the percentage of consumers who agree with this is 11 percentage points lower than last year, Deloitte points out the amount consumers say they would pay is higher than what most retailers predict. Deloitte found executives estimated only 20% of consumers would pay more, and that they would pay an average of only 12% more.

Within ESG, retailers and consumers are not on the same page about which specific values are worth higher prices, according to the report.

Eight in ten consumers told Deloitte they prefer retailers source food from local farms and more than half (57%) want to shop at retailers that are “meaningfully reducing their food waste.”

The report also reveals that grocers overestimate how much importance consumers place on factors such as organic, locally grown, non-GMO and environmentally sustainable. For example, 94% of retail executives thought organic was an important purchase driver, but only 47% of consumers reported the same. Similarly, there was a 33 percentage point discrepancy between the value retailers and consumers placed on locally sourced, a 31 percentage point difference for non-GMO and a 27 percentage point difference for environmental sustainability.

Fresh food as medicine could boost sales

Retailers could further boost fresh food sales by positioning it as a health management tool, according to Deloitte.

The survey found nearly two-thirds of consumers believe “fresh food can act like medicine” – notably higher than grocery executives’ estimates, which on average pegged only four in ten consumers as believing food can be medicine.

Nonetheless, most retailers are eager to help consumers make healthier choices with 80% investing in digital capabilities to guide shoppers to healthier options, according to Deloitte.

Learn more about food as medicine business models

At FoodNavigator-USA’s upcoming virtual Futureproofing the Food System Nov. 14-16, experts across the value chain – from CPG manufacturers to retailers to public health advocates – will share how the food as medicine movement is evolving in the US and new paths to market and sales opportunities that are opening along with it.

On Nov. 15, Dr. Elizabeth Klodas, founder and chief medical officer for Step One Foods will share how she developed and tested the efficacy of her snack bars, pancake mix and oatmeal packs as a tool for managing heart health in a fireside chat with FoodNavigator-USA Senior Editor Elizabeth Crawford titled, ‘Step One’ on the path to food as medicine – How to convince consumers and insurers of healthy eating’s potential.

Following this discussion, leaders from The Rockefeller Foundation, American Heart Association, Instacart and Recipe4Health will explore the extent and impact of poor nutrition on heath, accessibility issues, and initiatives to measure and build evidence for a large-scale food-as-medicine movement in the US in the panel discussion Resetting the table to ensure equitable access to nourishing and sustainable food.

In the afternoon, a leader from the International Food Information Council will chat with FoodNavigator-USA Deputy Editor Deniz Ataman about consumer perceptions around nutrition in the fireside chat How Do Consumers Define Healthy?

The day rounds out with the panel Innovating for Women’s Health: An unmet need with opportunities across categories and life stages, including insights from Sherry Frey, vice president of Total Wellness at NIQ, Linda Alvarez, co-founder and CEO of Levelle Nutrition and Julie White, found and CEO of MenoWell Menopause bars.

Register for this free event.