Today’s economic crisis is having a tremendous impact on countries around the world. Global economies are now so intertwined that the conditions affecting one major market can strongly influence many others. The recession in the US has had this type of effect.
In the US, consumer confidence is at an all-time low. In January, the Conference Board’s Consumer Confidence Index registered only 37.7 out of 100 – well below the prior year’s 87.3. And at 8.1 per cent in February, unemployment in the US is now the highest in 25 years.
Understandably, many US workers – approximately one-quarter – are scared about losing their jobs, according to the December 2008 Rasmussen Employment Index. This makes them extremely cautious about purchases. Future financial security is also vanishing. Since October 2007, more than US$1 trillion in stock value held in 401(k) plans has been wiped out.
When will this end? A majority of economists interviewed in February by the Wall Street Journal and the Financial Times believe the US decline will continue until the third quarter, then improve only slightly – less than 0.75 per cent. During the fourth quarter, growth should increase to 1.8-2.1 per cent.
In response, consumers are changing their buying behaviour. In the US, shoppers have reduced food expenditure, down 3.7 per cent between the third and fourth quarters of 2008. This is the steepest decline in the 62 years the government has recorded these figures.
Part of that decline comes from key changes in restaurant patterns. US consumers are eating out less; those that are still eating out are eating at lower-priced restaurants, and consumers are selecting less expensive menu items. As a result, this year will be one of the worst in decades for US restaurants. A National Restaurant Association executive recently noted that “real growth is negative, more negative than in any other recessionary period in the last 40 years”.
Yet, less eating out means more eating in; US consumers are spending 5 per cent more in supermarkets than they did a year ago. The good news for our business is that when people eat at home, they tend to eat more fruits and vegetables than when they go to a restaurant.
Even so, we are seeing numerous changes in consumer buying behaviour at retail, including less impulse shopping. At the beginning of last year, about 40 per cent of all food buying decisions (not just produce) were made in the supermarket. By the end of the year, this number was down to 25 per cent – and it is expected to go even lower during 2009, according to an analyst at Information Resources Inc. Overall, this trend is not good for fruit and vegetable sales since they depend on impulse purchases.
Consumers are also looking for the best deal they can find. With lower gas prices, they are more likely to go from store to store to get the best prices. They are using coupons and shopping promotions more often in order to find the best deals. We also find that supermarkets are advertising and running promotions on more basic items.
Just as people are moving to lower-priced restaurants, this same trend is occurring at a retail level. Sales at certain high-end supermarkets are declining as some of their consumers shop more in traditional supermarkets, and, in turn, certain store networks are losing some of their consumers to the discount and club stores, whose sales are increasing.
Across the board, 2009 will be a year of challenges – but with every challenge comes opportunity. The key is to see and capitalize on them.
For instance, responding to consumer needs doesn’t necessarily mean all consumers expect price cuts. Provide them with other value incentives – such as coupons, cross promotions, and tools to safeguard their investment (think selection and handling tips, and product use ideas that fit today’s fast-paced lifestyles). But be aware: don’t sacrifice produce quality, or we risk losing consumers in the long-term.
Now’s the time to differentiate your company by providing unique value to your customers, whether that’s higher service, more consumer and business data, new product offerings, or greater commitment to food safety and sustainability. Meanwhile, foodservice operators can add more produce to their plates, thereby reducing plate costs while giving customers the eye appeal, flavour and healthiness they demand.
Experts call days like these business cycles for a reason. Smart businesspeople will look for the upside of the downturn and plan for the future.
Nancy Tucker is vice-president of global business development at the US Produce Marketing Association (PMA). This report is an excerpt from a presentation given by Nancy at the Expo Antad 2009 trade show and conference event held in Guadalajara, Mexico, on 11-13 March.
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