State of the Industry: Food
STATE OF THE INDUSTRY: FOODAs recession ebbs, opportunity knocks
By Pan Demetrakakes, Editor
(Click here to download Food & Beverage Processing's list of the Top 75 food companies)
It’s anyone’s game.
That’s the overwhelming message from observers in the food and packaging industries. As America struggles out of the recession, as mega-mergers shake up the industry, as grocers continue to consolidate and private label continues to thrive, the field for growth is wide open-and packaging will help.
As with any aspect of business-just about any aspect of American life, really-the biggest influence in 2010 was the economic situation. The downturn that began more than two years ago is just showing signs of abating. As the economic recovery (hopefully) continues, one of the big questions is whether, to what extent, and how long consumers will retain the behaviors they adopted during the recession.
“Unlike past recessions, where they typically leave a bruise on a consumer’s psyche, as it relates to purchasing things, this one is going to leave a scar,” says Pat Conroy, vice chairman and consumer products leader for Deloitte & Touche USA.
Eating at homeOne of the biggest such scars may turn out to be a beauty mark for the food industry. The recession led to a resurgence in home cooking, mostly by default: Consumers couldn’t afford to eat out as much, and the kitchen was the only place they could turn. According to statistics from NPD Group, restaurants in the 12 months ending last March suffered declines in traffic ranging from 3% for quick-service restaurants to 12% for fine dining establishments.
Not only were more meals being eaten at home, but consumers were rediscovering (or developing) kitchen skills, says Todd Hale, senior VP for consumer and shopper insights at Nielsen.
“I think people did take this time to get back into cooking,” Hale says. “We saw some basic categories, like baking mixes and supplies and flour, do reasonably well during this economy, as well as some packaged dry-mix dinners. So it wasn’t all about quick-and-easy meal preparation.”
Even Generation X and Y consumers, many of whom aren’t comfortable in the kitchen, are seeing the advantages of eating at home, says Lisa Feigen Dugal, advisory leader for retail and consumer at PricewaterhouseCoopers.
“As a generation, they didn’t growup cooking everything from scratch,” Feigen Dugal says. “So if they’re going to move to in-home, they’re more likely to buy the premixes or from the aisles in the grocery stores that are fresh but you put it together, as opposed to completely from scratch.”
Wherever it comes from, the impulse to cook at home is likely to endure past the end of the recession, for several reasons. Harry Balzer, vice president of the NPD Group, notes that while restaurant usage took a sharp drop last year, it remained stagnant for most of the preceding decade-after rising for almost 50 years. He attributes this to two trends in the last decade: the percentage of women in the workforce held steady, and household income stagnated. Those trends undoubtedly will endure long after the recession is a bad memory.
Balzer notes that share-of-stomach is a zero-sum game: “There will be no recession in food, there will just be winners and losers.” And since restaurants have what Balzer calls “the highest cost per calorie,” they’re at an inherent disadvantage.
Taking it personally
Price pressuresThe situation has been complicated by price pressures. Commodity price increases that took hold at the beginning of the recession led some food processors to raise their prices, leading to overall increases in revenue even while unit sales stagnated or declined. But those days seem to be over. Dollar sales in groceries, drugstores, and mass merchandisers for a 52-week period ending in mid-April only amounted to 0.1% for all merchandise (including non-food), according to Nielsen. Two major food categories showed drops: dairy (5.9%) and meat (1.7%).
Hale doesn’t see commodity inflation returning: “As long as gas don’t go up, I don’t think we’re going to see any more pressure for turning corn into ethanol, which obviously affects grain prices and meat prices.”
Even if commodity supplies do rise in price, food retailers are under a lot of pressure to keep their prices down. Hale says coupon redemption increased 27% in 2009, and much of that was driven by food, at least in the first half of the year.
“Everybody’s competing on price these days and thinking, ‘If I lower my prices I’m going to get more people shopping my stores,’” Hale says. “Typically, what happens is, retailers follow the lead retailer and everybody cuts prices, so who benefits, consumers, but retailers are having a hard time driving enough unit sales to offset the fact that they cut prices.”
The role of packagingPackaging can help tap into some of the recession-driven trends, as well as others, observers say.
“I think [packaging is] the one area with the most potential for food manufacturers that has not been exploited yet,” Conroy says.
Hale notes that the “homestyle” theme, always a popular one for packaging graphics, especially resonates when consumers are turning more toward their own kitchens as a meal source.
“In terms of packaging look, anything you can do around showing an at-home meal occasion on the package…a visualization of at-home or language around ‘home-cooked’ I think could help,” Hale says. He pointed to ConAgra’s Marie Callender’s line of frozen and shelf-stable products as an example of a product that leverages the “home-cooked” theme effectively, especially in light of a packaging innovation (carried over from ConAgra’s Healthy Choice line) that allows consumers to cook and drain pasta or rice in the same container.
This kind of convenience can go a long way toward increasing packaging’s appeal, says NPD Group’s Balzer.
“‘How can you make my life easier’ is the question, and packaging probably sits in the most direct line to making that easier without charging [consumers] a lot,” Balzer says. ConAgra’s cook-and-drain packaging for Healthy Choice and Marie Callender’s is a good example of what Balzer calls “the packaging becoming the cookware.”
Sustainability is one of the hottest packaging trends, but it’s questionable how much of a deciding factor it will be in bad economic times, Conroy says.
“Consumers appear to feel good about [sustainability], but it doesn’t appear yet to have risen to the upper echelon of an attribute that affects a buying decision,” he says.
Balzer sees packaging as a major weapon in the struggle of brands vs. private label.
National brands are “going to fight back by going to consumers,” Balzer says. “And I wouldn’t be surprised if they do it though the advertising and through innovation of their products, and packaging will certainly play a role in that. I’m sure of it.” F&BP