Tumultuous Times For The Food Industry

Food stores have been forced to deal with economic problems not seen in decades and likely some supermarket executives were not even born the last time the industry faced similar problems.

Food stores have been forced to deal with economic problems not seen in decades and likely some supermarket executives were not even born the last time the industry faced similar problems. Just last week, the Food Institute, the trade association and information service in Elmwood Park, NJ, reported that overall  food prices-- at home and away from home --during September fell under year earlier levels for the first time since April of 1967 – over 40 years ago. 

Prices for food-at-home --  sold at retail -- meanwhile declined 2.5% from the same month last year and have now been in deflationary territory for three consecutive months. Through the first three quarters of 2009, inflation at supermarkets averaged just 1.5% after starting off the year at nearly 6% higher than the beginning of 2008. That is a precipitous decline that reflects lower prices for a number of staples --  dairy down 10% in the third quarter versus a year ago….beef and pork both down 4%....and eggs down 17%.

As a result, it has been a struggle for food store operators to keep their sales increasing from a year earlier. Indeed, during the first quarter of this year, sales at food stores fell under a year ago, and  have only managed to squeeze out  small advances in the subsequent two quarters. In the quarter just ended, food store sales were up only three tenths of a percent from a year earlier. But between late 2006 and through 2008, supermarkets had been enjoying year over year advances in excess of 5%.

But if there is a bright spot for supermarkets, it that someone else is has been experiencing similar problems or even worse ones.  Eating and drinking places have seen a steady decline in their sales growth since the second quarter of 2008 and in the latest quarter managed to post only a two-tenths of a percent growth in sales --- slightly less than that reported by food stores.

Consumers obviously have started to turn their dining room lights back on after enjoying restaurant and takeout offerings previously.  They have been taking advantage of the lower prices and increased promotional activity at many supermarkets even though the lower prices have tempered dollar sales growth at these stores.

And while prices continue to decline to drop in sales growth at both food stores and restaurants appears to be leveling off as the accompanying graph portrays. Perhaps there is some light coming at the end of the tunnel for food stores and restaurants that have managed to weather the storm thus far. But you will have to stay tuned for the details.

To find out more about The Food Institute, go to http://www.foodinstitute.com/save.cfm.