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RETAIL VIEW: Strategies for a down economy

The U.S. Commerce Department has released data showing that consumer spending on food dropped almost 3.7 percent during the fourth quarter of 2008 as the effects of the sagging economy made their presence known.

The Wall Street Journal reported the news Friday, Feb. 13, revealing that spending was down pretty much across the board as consumers spent 10.9 percent less on alcohol, registered a 3.4 percent drop in beef purchases and even spent 5.1 percent less on pet food.

But there were several bright spots.

Consumer spending on fresh vegetables rose 2.3 percent. Milk and egg sales were also higher.

The Wall Street Journal reported that consumers are choosing store labels over national brands and black coffee over lattes, and bargain- shopping is the catch phrase of the day. The decline in food expenditures from the third quarter to the fourth is the greatest decline in 62 years, which brings us back to 1946, according to those government figures.

"There does seem to be a back-to-basics trend," Dick Thomas, vice president of sales for Potandon Produce LLC in Idaho Falls, ID, told The Produce News. "I don't know if you can say potatoes are recession-proof, but we had a solid year and so far this year we've done pretty well."

Mr. Thomas declined to comment on how specific SKUs are selling, but he said that there is evidence that consumers are trading down and grabbing more value-priced items. He added that foodservice sales are definitely off as it appears more consumers are cooking at home.

As a point of fact, potato products sold at foodservice tend to be more value added and do command a higher margin. "We are taking steps to try to push some of the foodservice items into retail," he said.

Longtime retailer Peter Goulet, who is now president of Pinnacle Sales & Marketing, a business development firm based in Saco, ME, said that recent research he conducted does support the U.S. Department of Commerce data.

"I just completed a project on sales trends of fresh-cut fruits and vegetables, and it does seem to validate [those] data that they are recession proof. In terms of both dollars and volume sold, there was an increase from 2007 to 2008 [in the markets he surveyed]."

Mr. Goulet said that it depends upon demographics and the exact item being considered, but the produce department does have some level of insulation that seems to protect it against severe downturns.

He said that there are opportunities at retail, and he has noted that some conventional retailers are featuring value-priced items that are typically the bread-and-butter of the clubstores. "Some retailers are finding that the five- , eight- or 10-pound packs that have a higher price point but a low unit cost are moving pretty well," he said. "That is a retail strategy that might do well in this environment."

Dick Spezzano of Spezzano Consulting in Monrovia, CA, said that there is plenty of evidence that supermarkets are hurting but not to the extent of other retailers. He said that clothing retailers are experiencing double-digit sales declines. "You're not going to hear that from the supermarket chains," he said. "When they start reporting their numbers, you might hear that sales are flat or only showing a 1 percent gain."

Mr. Spezzano said that people do have to eat, but they also can trade down. For example, he said that chainstore liquor sales are not down in volume, but consumers have traded down in what they are buying. "Sales of lower-priced wines under $10 are up but sales of wines over $15 are down. The higher- priced wines tend to bring the larger margins, so the retailers are losing sales dollars and profits."

The longtime retailer said that the retail landscape is much different than it was when he would have gone through a recession as a retailer in the 1970s, '80s or '90s.

"There are many more options [for the consumer]. They can shop a dollar store now or buy some of their groceries at a Target or clubstore. Dollar stores are reporting a 6 percent gain in sales and 8 percent profit gain. That's pretty good."

But he said that the traditional supermarket is fighting back with very aggressive promotions. Reading out loud the weekly produce ad promotions for conventional retailers from a daily newspaper, Mr. Spezzano said that there were some almost unheard of prices, including avocados at 59 cents each, strawberries at two pints for $4, tomatoes on the vine at 69 cents per pound and head lettuce at 59 cents each.

Mr. Spezzano said that in the Los Angeles area, smaller chains of two to 20 units have been very aggressive in marketing toward this value-conscious consumer. While in many areas, the smaller chains tend to be upscale, Mr. Spezzano said that Los Angeles has a plethora of smaller chains that troll the other end of the spectrum - and they are doing so very successfully. "We are seeing some very deep discounting," he said.

So how should both retailers and shippers respond to these economic times? Retrenchment might be the knee-jerk reaction. Mr. Spezzano said that successful retailers are always closing their underperforming stores, but they might be quicker to pull the trigger on an unprofitable location in a down economy.

Of course, that opens the door to aggressive competitors.

Over the years, Mr. Spezzano said that Kroger has done an excellent job of capitalizing on another chain's misfortune. He said that the Midwest chain has picked up a number of good locations when other retailers have had to bow out of the market.

Mr. Goulet said that some shippers are taking steps to downsize or rightsize during these times. He said that business is conducted differently today, and some shippers may be staffed for a phone-bank environment when they truly conduct business electronically and do not need so many bodies.

One shipper interviewed by The Produce News believes this is the perfect time to be a bit counter-intuitive and expand its operations as well as launch aggressive promotion campaigns.

Allan Sabatier, senior vice president of sales and marketing for Salyer American Fresh Foods Inc. in Salinas, CA, said that the firm launched a new campaign Jan. 1 precisely to capitalize on the current marketing conditions. "We are one of the premier commodity shippers, and we think this is the perfect time to grow our business," he said.

Mr. Sabatier said that the company has added four new salespeople since the first of the year and has hired a new director of marketing, Marci Bracco. "We are focusing on launching promotional campaigns around national holidays," Ms. Bracco said Feb. 17. "March is National Nutrition Month, so we just sent out a press release this morning explaining our promotions centered around nutrition."

And shortly after this interview with The Produce News, Mr. Sabatier and Ms. Bracco were headed to San Francisco to participate on a local television talk show that was celebrating National Heart Month. Joined by a celebrity chef, they were planning to serve up some heart-healthy cauliflower in three different colors: orange, green and purple.

Colored cauliflower is the newest item Salyer American has added to its product lineup. Besides expanding its staff, Mr. Sabatier said that the company has expanded its product line to also capitalize on this current back-to-basics trend. He said that while not all produce is recession proof, the company believes its commodity-type items will do well in 2009.

And the difference will be promotion and service.

"We have named an account executive for every commodity and every customer," he said.

The Salyer American executive said that if retailers have to cut back because of the poor economy and have a less knowledgeable staff because of that, Salyer American wants to be able to plug that information gap with its own people dedicated to each account.