Consumers’ food preferences are being driven to “extremes” according to new research out yesterday (28 August).
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A new Rabobank Food Retail report has found that despite the economic decline, many consumers are continuing to be driven by factors beyond price, creating a “barbelling” trend.
“This means consumers are gravitating toward one extreme or the other, whether it’s a healthy lifestyle, convenience, price or something else,” said Rabobank Food & Agribusiness research and advisory vice president Stephen Rannekleiv.
Whole Foods, which caters to less price-sensitive consumers seeking unique gourmet and organic products, has had some of the highest gross margins of its competitors. Conversely, Kroger has cut prices and continues to outpace its main competitors in same-store sales growth.
Much of this growth has come from consumers who are increasingly opting to eat at home. Most major food retailers continued to show same-store sales growth in the first quarter of 2008 despite a lower inflation rate for food away from home, which was 4.1% (from January to May 2008), compared to 5.5% for food at home.
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By GlobalDataHowever, the average cost of a meal at a restaurant is estimated to be two to three times that of a meal prepared at home.
To date, consumers have been protected from some of the effects of rising commodity prices by the multi-year commodity hedging contracts that many food processors have in place, which locked in commodity prices before they began their rapid assent.
As these contracts draw to a close and new ones are written, processors will have to accept higher costs.
“These costs will eventually have to be passed on to retailers, and this may continue to drive food inflation into 2009 and beyond, even if commodity prices have stabilised,” said Rannekleiv.
According the report, food-at-home prices rose by an annual rate of 5.5% from January to May 2008, making it the largest increase in 19 years. Prices for key staples such as bread, milk and eggs rose even further – 14.1%, 13.5% and 30.5% respectively.
Rabobank believes the trend of rising food prices may increase consumers’ price sensitivity, forcing food retailers to further evaluate how they compete.
“Some traditional strategies may not be as effective as they once were, while others are likely to gather momentum in light of inflation and the soft economy,” added Rannekleiv.
