Australian food industry given cause for optimism

Posted by Daniel Palmer on 25th November 2008

Despite the overwhelming barrage of pessimism in the airwaves, it is not all gloom and doom in the retail food market, according to market consulting company Freshlogic.

Generalisations based on past data could come back to bite, with Freshlogic director Martin Kneebone believing it is now more important and potentiality of higher value for food product marketers, fresh food suppliers and retailers to keep a close watch on the behavior of Australian consumers.

“Our monthly tracking of consumer behaviour and spending activity suggests it is a dangerous time to make generalisations based on either old data or pre-conceived notions about what people will do,” Mr Kneebone said. “While there was a general softening in spending apparent from overall food retail sales data, the dynamic shifts in spending patterns between household segments affecting tendencies to eat at home or out of home still hold opportunities for many participants, especially in fresh food categories.”

“This is also certainly the case for part of the food service market, with some outlet types benefiting from more cautious spending, according to our research.”

Monitoring Prices

Mr Kneebone advised that traditional approaches to addressing shifts in consumer behaviour will leave participants with insufficient insights to take account of changes in the marketplace. “Reliance on annual lumps of dated research into the food service market or consumer preference won’t leave marketing executives equipped with enough accuracy about what is happening out there,” he said. “It is interesting to talk of the changes in attitudes seen by the main food buyer in the household, but unless you are tracking how that manifests into actual behaviour – which in our experience is usually quite different, suppliers and retailers will miss the mark.”

That logic relates not only to spending amounts, but also preferences for healthy food, ethical choices and the demand for convenience.

Freshlogic’s Mealpulse analysis discovers that, while sentiment for eating out has been negative for several months, it is not actually translating to a slump in business for all food outlets. “People still have to eat and therefore grocers and specialist retailers must pick up some business, but there has also been a shift between outlet types for meals when eating out is the only option,” he noted. “Food remains a staple and has to be purchased regardless of the times.”

“During 2008, we’ve seen the convergence of a number of pressures on the household purse of the type not seen in many years,” Mr Kneebone added. “Many of the household segments haven’t seen these sorts of conditions affecting mortgage rates, fuel prices and rising costs of other household essentials come together. They all peaked in the dead of winter, which also came with pretty dreadful weather, which clipped the spending on meals out of the home.”

Since winter, however, some of those pressures have ben alleviated, with food prices stalling, fuel costs falling and interest rates plunging and the seasonal uplift in patronage has taken place. “Average household spending has lifted in spring months, with some drift back towards eating out, especially in segments with more disposable income,” Mr Kneebone advised.

restaurant food

“Trends within food categories are revealing more of the sensitivity toward price and value perceptions as available cash and sentiment changes,” he continued. “We’ve seen a shift of spending on perishables back towards major supermarkets. The retail meat category has seen growth as some segments prepare more food at home and require more protein as the centre of those meals. At the same time supermarkets have sharpened promotional prices and clawed back some share by reducing the number of their shoppers going outside to buy meat in specialists by 3.5%.”

Freshlogic’s analysis suggests there are also positive indications from the Christmas seasonal suppliers that gift and personal treat lines are selling as forecast. This indicates that food retailers may be enjoying some of the retail spend that is not going to the non-food department stores.

“The uncertainty of the impacts of the global credit crisis on household investments and income security is now starting to show up in some aspects of behaviour in our tracking across all food retail channels,” Mr Kneebone said. “But we’ve actually seen several sectors of the market take advantage of the conditions with faster footwork than others. Despite the drift of eating back towards the home for one or two main meals a week, the patronage of fast food outlets has held up, and in some cases with the combinations of value and targeted at specific meal occasions, have benefited.”

Interest rates have declined, but it takes a while for these savings to reach the consumers pocket. The declining petrol price, however, has a more immediate impact. Based on the typical household spend on petrol the reductions since August in petrol have delivered over $65m per week in savings to Australian households.

“People will have a bit more cash in their pockets to spend on essentials and indulgence as Christmas draws nearer which, given that the retail food channels are enjoying stronger levels of pedestrian traffic, is a reason to sustain the food industry’s optimism regarding trading conditions,” Mr Kneebone concluded.