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Q&A: Poly Cal expert, FMI execs talk responses to food inflation

Cal Poly's Ricky Volpe and FMI's Andy Harig and Heather Garlich meet with SmartBrief for an exclusive discussion on food inflation, consumer behavioral changes and grocery retailers’ adoption of new technology.

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Though an official recession has not been declared, retailers and consumers alike have been coping for some time with the highest food price inflation the US has experienced in the last 40 years, according to economists.  The COVID-19 pandemic, labor shortages, weather disruptions and the war in Ukraine have all had devastating effects on the nation’s food supply chain, and, thus, food inflation, said Andy Harig, vice president of tax, trade, sustainability and policy development for FMI – The Food Industry Association, and those factors, along with unforeseen others, are expected to continue to impact food inflation in 2023.

Ricky Volpe, associate professor of agribusiness at Cal Poly who specializes in food retail and supply chain management, food prices and data analysis and Heather Garlich, FMI’s senior vice president of communications, marketing and consumer/community affairs, joined Harig and SmartBrief for an exclusive discussion on food inflation, consumer behavioral changes and grocery retailers’ adoption of new technology at FMI’s Midwinter Executive Conference in Orlando last month.

Many Americans are already living as if we are in a recession but what consumer behavior changes can we expect to see if the US officially declares we are in a recession this year?

Harig: If we go into a fully declared recession, that certainly puts a damper on consumer confidence. The Michigan survey on consumer confidence is in the tank, it’s very low. People are clearly feeling it. Announcements about layoffs – even if they are hitting sectors that are a little bloated anyway because they took on too many people but that increases anxiety. People get scared. I think we will continue to see some gloomy economic news come out even if the total picture and things like layoffs drive a lower consumer confidence. … But consumers adapt. You see declines in organics spending because organics are seen as somewhat of a luxury item and you see more people shift to shelf-stable products such as pasta and rice that they can more distance out of and that are less likely to become food waste. I think people get more careful about food waste because they aren’t going to buy foods to experiment with as much on the chance that they don’t figure out what to do with it and throw it away. Instead, they’re just going to make spaghetti or something they’re already comfortable with. We saw in 2008 to 2009 how consumers cut back by shifting to different cuts of meat and, in some cases, scale back how many times they eat it. Frozen and cans do really well during these times. We saw people going to cheaper kinds of alcohol and staying away from craft beers and expensive wines and obviously, that’s a big hit for retailers because those things have higher profit margins. They also make fewer trips to the store, as well, and tend to stock up when they do go. 

Volpe: Not all recessions are alike and even if one could argue that we are heading toward a recession or perhaps are already in one, there are differences. Consumers generally make a series of substitutions as the economy turns and that substitution typically starts with people no longer outsourcing labor. They buy the food themselves, they make it themselves, they navigate away from sit-down restaurants and then even from casual fast food restaurants and into the grocery store and then once in the grocery store, they tend to steer away from premium products and toward foodservice items which are just red-hot right now. That’s one reason I wonder if this time might be a little bit different because those kinds of items and that kind of shopping is on fire right now and I think a lot of that is the lingering effect of the pandemic The other big change we are seeing is this navigation toward store brands. We saw in FMI’s (Power of Private Brands) Report that consumers’ relationship to store brands is continuously changing because when all of these people who were brand loyal or raised to be brand loyal are concerned about making their budget, they switch to store brands because they are cheaper. Then they realize, ‘Oh, these are actually really good – as good as the name brands and in some cases maybe they’re even better than the store brands.’ Recessions almost always drive a long-term structural increase in-store brand loyalty.

Garlich: We also saw some swapping as well when the supply chain was hurting and some consumers tried something new because the product that they loved wasn’t on the shelf. Store brands got some boost out of that and then developed some loyalty because even when shelves were restocked, shoppers would look at the store brand and say, “ I bought that last time and it was good,’ and they would buy it again. It was a terrible thing to go through all those out-of-stock challenges but the silver lining is shoppers discovered something new that they really liked and retailers benefited from that, as well. I’m also really interested to see how people’s relationship with cooking is going to change over time because we’ve seen away-from-home (eating) kind of creep back to pre-pandemic levels but now we’re seeing people going back to eating at home more.

Andy mentioned food waste as an increasing concern in times of economic downturn. What can consumers and retailers do to reduce food waste?

Garlich: Food safety is a really big thing, too, as we look at leftovers, which more people tend to eat during a downturn in the economy. The Foodkeeper app – which FMI created in conjunction with Cornell University and the USDA – is something that is helpful because we’re going to be going through a lot of change with date labels but the FoodKeeper app tells consumers how long they can keep food and safely eat it whether it’s fresh or frozen.

Are there particular trends you see in the types of foods people have been buying?

Garlich: Seafood spiked up during the pandemic because people couldn’t get seafood in restaurants so they bought it at the grocery store to cook at home, as we found in our Power of Seafood Report, but Seafood is one of those areas where people predict it may take a big hit because people see it as an investment and they also don’t know how to cook it. It’s interesting too to see some of the trends that bore out of the pandemic – butter boards, hummus boards – canned tuna is having a moment right now thanks to TikTok. People want to try new things but they don’t necessarily know what to do with new foods like certain seafoods, for instance, and that creates an opportunity for our retail members to provide culinary education for consumers. … People are less likely to go into the store and buy salmon on a whim but they are likely to have a recipe and say, ‘Oh I’m going to make teriyaki salmon and here’s what I need to do that.’ So that meal planning piece is important as another way to budget and save. It’s a very good strategy and it’s a way retailers and consumers can work together.

Volpe: We’ve had historic food price inflation. We haven’t seen grocery price inflation like this since the 70s – and it’s not like food out of home went flat but it’s still demonstrably cheaper to eat at home. 

Do you expect retailers to slow down their investments in grocery technology this year?

Harig: I wouldn’t expect to see a huge cutback but I think you’ll see some shifts. I think there’s a lot of excitement about grocery technology and retailers are saying, ‘I don’t want to get left behind but I also don’t want to be an early adopter of brand new technology’ and that’s driving a lot of the tech trends we’re seeing. But there’s also the issue that one of the things missing in technology right now is workforce because that industry has been hit hard by layoffs so that, in turn, can result in a slowdown in new technology rolling out and, then, of course, in retailers’ adoption of it. 

How is the investment we are seeing in grocery technology different than it was 10-20 years ago?

Harig: When I started in the industry in 2003 a lot of people would say this industry probably hasn’t changed that much since probably the 50s. In the last 20 years – particularly in the last five – I don’t think that anyone could say that. You’re not just talking about formats, you’re talking about the role of technology. Sometimes there’s just a sense that we’re an old-timey industry – that we’re still the old greengrocer. This is not the case. This industry has really progressed tremendously with everything from predictive analytics to artificial intelligence to supply chain technology to looking at things like carbon capture in agriculture that’s going to help you on your carbon footprint that retailers have to think about now – all those are coming into consideration now and we’ve attracted a fair amount of investment and interest in the industry. And it’s all getting scaled really well where mid-size retailers are entering the game and can make those investments also. The amount of industry and entrepreneurship that is going into the industry right now, I just don’t know what else it compares to. 

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