Industry opportunities amid consumer gloom

23-Oct-2008 - Last updated on 24-Oct-2008 at 14:20 GMT

Related tags Private label Consumer price index Marketing

Switching to store brands and buying more staples such as rice and potatoes are among steps being taken by consumers who are increasingly concerned about rising food prices, according to a new survey.

But while this is gloomy news for higher priced products marketed as luxury goods, experts predict that growth opportunities could emerge for private label goods, which are becoming an increasingly popular alternative in low-income households.

Nearly six out of ten Americans say they have had to cut back on the quantity or quality of food they buy because of increasing prices, according to The 2008 Hormel Hunger Survey, conducted by Hormel Foods Corporation.

The majority of consumers said they “have been forced to make adjustments in their food-buying habits” to help them cope with rising food costs, taking steps such as buying more generic or store brands and buying more of less-expensive staples such as rice and potatoes.

Hormel Foods said the survey findings outlined trends among consumers and added: “During the last year, rising food prices have caused nearly all Americans to change their shopping and eating habits.

“More than half (58 percent) of Americans have cut back on either the types of food they buy or the amount of food they buy because of higher food prices. And a majority of consumers have bought more store or generic brands, tried to only buy items on sale, decreased the number of meals they bought away from home, and bought in bulk when it was less expensive.”

Price index

Americans spend more than $1 trillion a year on groceries, snacks, take-away food and meals in restaurants.

The Consumer Price Index (CPI) for all food is forecast to increase five to six percent in 2008, as retailers continue to pass on higher commodity and energy costs to consumers in the form of higher retail prices.

The latest CPI summary from the US Bureau of Labor Statistics showed that the food index rose at 7.5 percent (seasonally adjusted annualized rate) in the first nine months of 2008, compared to a 4.9 percent increase in all of 2007.

The Bureau said that the larger increase reflected acceleration in all of the major grocery store food groups except dairy and related products. The cereals and bakery products index and the fruits and vegetables index rose the fastest, at a 14.2 percent and 12.1 percent SAAR, respectively.

Private label

The survey follows a recent analysis from Nielsen which said that private label products were experiencing rapid growth, particularly in the health and wellness categories, to help ease demands on the pocket.

The Neilsen analysis showed that overall dollar sales of own-brand consumer packaged goods in the US were up by 10.1 percent to $80.3bn for the year ended September 2008. Meanwhile unit sales grew by only 0.4 percent over the year, which would suggest that private label growth is driven more by higher unit pricing than shoppers switching away from traditional brands.

However, Tom Pirovano, director of Nielsen’s industry insights, said: “Recent months show growth in private label units, indicating that shoppers are beginning to switch in favor of the savings offered by store brands.”

Hormel Foods manufactures and markets consumer-branded food and meat products. Its third annual survey was commissioned to increase the understanding of issues surrounding hunger. It was conducted in August 2008 by the research firm Opinion Research Corp and 800 adults took part.