Food industry upheaval matters

By Phil Plourd, president, Blimling and Associates, Inc.

How often do you go into Farm & Fleet, Fleet Farm, Menard’s or Theisen’s intent on buying candy? Like, walk through the front door holding a list that reads, “screws, rope, chocolate covered peanuts”? My guess: not often. But, more than occasionally, while ambling toward the checkout line, we pause in the candy aisle and put a bag of those milk chocolate covered peanuts or peanut caramel clusters in the cart.

Impulse buys. They may be ill-advised for our budgets and diets, but they are deliciously profitable for retailers and food companies. They have been good for the dairy community, too. Specialty cheese, for example, that calls out to consumers from beautifully arranged displays and sampling stations. Or sour cream-based dips. Or that chocolate candy in the farm supply store.

So what happens when there is less foot traffic? More grocery deliveries? Fewer brick and mortar stores? No one was asking those questions five or certainly 10 years ago. Today, they are real and critical.

Item: Nielsen estimates that by 2022 to 2024, 70 percent of consumers will be doing some grocery shopping online, with total sales growing to $100 billion, or $850 per household annually.

Item: An IRI survey in January showed that about one in two consumers say they make fewer impulse purchases when shopping for groceries online (Figure 1).

Item: The Food Marketing Institute says consumers made an average of 1.5 grocery store visits per week in 2017, down from 1.9 a decade earlier (Figure 2).

Figure 1.	Figure 2.

Item: Walmart recently announced that it plans to expand grocery delivery to 100 cities and make ongoing investments in “click and collect” services.

Item: Since the beginning of 2018, two mid-sized grocery chains have filed for bankruptcy – Southeastern Grocers (582 Winn-Dixie and other brands in seven states) and New York based Tops (169 stores).

Item: Nielsen scanner data shows that, in 2017, 15 of 18 major, publicly traded food companies endured declining retail volume sales versus 2016.

Technology is sparking changes that go beyond obvious, first-level impacts. Consider this: As consumers make fewer visits to malls, restaurants near shopping centers are watching traffic erode. Or this: As more people telecommute, they are not going out to lunch. Against that backdrop, it should not be a surprise to see Applebee’s closing nearly 200 stores over a two-year period and read about other chains struggling. And, let’s not forget the here-today-gone-tomorrow impact social media can have on diet trends.

In short, the food industry is experiencing upheaval. Change at an incredibly rapid pace on multiple fronts.

What does that mean for dairy farmers? Why should they care? While it may be difficult to measure immediate impact in penny-for-penny or pound-for-pound terms, current chaos creates strain that flows across the supply chain. A struggling grocery chain puts pressure on its private label cheese packager, putting pressure on a cooperative cheese manufacturer…ultimately resulting in lower milk premiums or plant profit payouts for dairy farmers. On a fuzzier, longer-term level, dairy product marketers are going to need to figure out ways to adapt to evolving shopping habits. Working to be more attractive to online customers. Thinking about how perishability plays a role. Leveraging technology to be friend, not foe. That all requires planning, investment and patience.

People will continue to eat. Dairy products have positive nutritional, flavor and fun characteristics – in abundance. But as more and more shoppers wield better and better technology, doing the same-old, same-old is not going to work. As all the forces unfold, demand trends could become more erratic, with potential impact on price levels and market volatility.

Phil Plourd is President of Blimling and Associates, Inc., a Madison, Wisconsin based dairy consulting, research and risk management firm. He is also President of the Services Division of Dairy.com. Futures, options and OTC swaps trading involve substantial risk of loss and are not necessarily appropriate for all persons. Past results are not necessarily indicative of future results.