Update on the Food Industry | Trade and Industry Development

Update on the Food Industry

Sep 30, 2005 | By: Trade & Industry Development

Despite dire predictions of escalating food price inflation in the wake of the busiest hurricane season on record in 2005, the inflation rate for food consumed at home will likely wind up just a bit more than 2 percent higher than in 2004. In addition, sales at the nation’s grocery stores were running over 4 percent above the previous year’s levels through the fall of 2005 – outpacing that inflation rate by 2 percent. Meanwhile, sales at the nation’s eating and drinking places were up 6.8 percent before inflation, and up over 3.5 percent from 2004, according to The Food Institute Eating and Drinking Place Index.

At the same time, alternative retail formats, such as Wal-Mart Supercenters and Costco warehouse clubs have been booming, with sales running well over 10 percent above previous year levels. This signifies the major inroads these formats have made in the retailing sector over the past decade. Considering that about half of these sales are from food products, it is apparent that these alternative retail formats pose as significant competitors to the traditional supermarket.

The competitive environment in food retailing has evolved dramatically over the past decade as supercenters and dollar stores have chipped away at the territory once championed by the traditional supermarket. Traditional grocers continue to grow in volume but are losing share to the faster-growing, non-traditional grocery sector.

However, don't count out traditional grocers just yet. One area of growth is limited-assortment stores, where brands are beginning to find ways to systematically displace private labels by delivering more of what the retailers "want to give to their customers." In addition, there is also some strength below the surface within conventional supermarkets where we see the growth of the natural/health food stores.

Interestingly, while the impact of Hurricane Katrina was devastating to the Gulf Coast, the loss of food sales in this area caused barely a blip in the overall national sales total since the area affected accounts for only a small portion of the overall U.S. total.

The food and beverages industry is among the most competitive and globally-linked of all business sectors, according to The Food Institute’s annual Food Industry Review. Market research shows that many of America's best-known food packagers, such as Heinz, get 30 percent, 50 percent, and even higher percentages of their total revenues from outside the U.S. In 2004, Coca-Cola attributed over 70 percent of its revenues to foreign operations. American brand names, such as Coca-Cola and Starbucks are known worldwide, as are European brands such as Nestle. Vast amounts of processed foods and agricultural commodities trade occur on a global basis each year.

At the same time, supplies of food products are available from sources all over the globe and decreases in supplies in one major producing region can often be offset by increases in another. Indeed, many nations that were viewed as enormous markets for U.S. products, such as China, are now competing with many U.S. producers for a piece of the U.S. food dollar.