Earlier this year, despite the steady and alarming rise in the cost of food and fuel hitting their clientele, America's food retailers were optimistic. The expected silver lining to tighter consumer budgets was that in-home meals would grow at the expense of more expensive restaurant dining.
In fact, the “U.S. Grocery Shopper Trends 2008” report released in May by the Food Marketing Institute concluded that economic concerns were driving families to eat their main meal at restaurants only 1.2 times/week in 2008, compared to 1.3 in 2007 and 1.5 in 2006.
But in late July came the revelation that food shoppers' buying adjustments had reached deeper than originally thought. Consumers were still buying groceries, of course, but they were “buying down” to save money, looking for bargains and eschewing high-image stores. The result was that a string of supermarkets were forced to revise their forecasts in late July as price-conscious food shoppers continue to gravitate to supercenters and dollar stores over supermarkets.
“Supermarkets are now in the thick of this economic drama. There are no established scripts on how to get through this one, except that innovation and ingenuity will provide an edge,” wrote David Orgel, editor-in-chief of Supermarket News, in the Aug. 4 edition.
The fallout has come across the board as retail chains form a conga line to cut costs in hopes of winning back volume. Raley's, a Sacramento-based, 130-store grocery chain eliminated its television advertising in favor of cheaper radio and print spots that spurn image over products and prices, reports the Sacramento Bee.
And Andrew Wolf, a grocery industry analyst for investment banking firm BB&T Capital markets, told the Tampa Tribune that most supermarket companies are trying to project a lower-price image these days.
So it's into this cost-sensitive climate that mandatory country of origin labeling (COOL) steps later this month (Sept. 30). While those who support it won't be dissuaded from its necessity, just as those who oppose it as written can't be convinced that it's worthwhile, the fact of the matter is that it will come at a significant cost for these dicey economic times.
Making the dish even less palatable is that the expected benefits by USDA's reckoning of COOL, while nebulous, are likely to be small. There is little tangible evidence, research says, to support that consumers' stated preferences for origin information will lead to increased demand for commodities bearing a U.S.-origin label.
$9/head price tag
Considering all producer segments together, implementation of the rule is estimated to cost $9/head to cattle producers, with total costs to beef producers estimated at $305 million. That's on top of production costs already ballooned by rising fuel and feed costs.
Meanwhile, implementation costs of mandatory COOL are estimated at 7¢/lb. for beef retailers, for a total of $574 million. Total cost for affected entities in the beef sector are estimated at $1.252 billion.
In fact, the COOL requirements will apply only to about a third of beef products moving in U.S. commerce, as food-service establishments (restaurants, cafeterias, lunch rooms, food stands, taverns, etc.) are exempt. But COOL will add a noticeable added challenge to the food industry - from producer to retail - at a time when none can likely afford it. Stay tuned.