Good news! Our economy has red-hot consumers with money in their pocket and they are buying premium products.

In the grocery store business, it’s an all-out shootout between Walmart, Kroger, Safeway/Albertsons and many other key players. The super regionals, such as Publix, HEB, Meijer, Wegmans, Savemart and others, continue to thrive, as well. The restaurant industry also is very competitive, but demand is good. This new generation of consumers is very demanding, and product life cycle will be shorter, resulting in a need for innovation and research and development (R&D).

Online grocery sales are a trend key retailers are reacting to by committing major assets. Amazon is now in this category, but freight cost will limit its size until leaders figure out the logistics or pickup points. It may not happen fast enough for the investment it’s made. Many Walmart stores, along with some major grocery chains, are offering pick-up services done by placing orders online and parking in their designated spot. Some stores will even bring the order out to your vehicle.

Short term, we need to pay attention to all the prevailing trends while considering what is a short-term fad and what is a long-term event for our industry. Increasingly, influence by Millennials and Generation Z and their buying habits are changing our markets. To see a snapshot of what the future holds, send your R&D department to Europe and spend some time in the grocery stores, watching shopping habits. It will offer a better understanding of what’s going to happen in the U.S. in a few years: more packaged goods, smaller portions/packages, healthy alternative, clean labeling and convenience products that fit in smaller families’ refrigerators.

Clean labeling is a prevailing trend that will not go away. Those with healthy balance sheets are focusing on prepared foods and putting less emphasis on commodities because the packaging shelf lives are longer and allow for more adjustment in periods of supply excess. 

Agriculture

Because agriculture is one of our most successful U.S. industries and the exports trade balance is positive, it is a significant point of leverage with the Chinese and our North American trading partners. Short term, agriculture is being penalized for its success. Long term, there are lots of prosperous mouths to be fed in China — and they will be satisfied by U.S. products. Our situation often is dictated by external forces that we cannot control.

U.S. RED MEAT AND POULTRY FORECASTS

Forecasts are in bold. * Per capita meat disappearance data are calculated using the Resident Population Plus Armed Forces Overseas series from the Census Bureau of the Department of Commerce. All data as of Aug. 14, 2018. Source: World Agricultural Supply and Demand Estimates and Supporting Materials. For further information, contact: Mildred M. Haley, mhaley@ers.usda.gov

Feed ingredient cost will continue to be low with a near-record harvest, and labor will continue to be tight. The feed ingredients market will be depressed because that same near-record crop as well as the trade war with China. Organic is a niche that will continue to grow, but it has lost momentum to “locally grown.” The urban population makes up 80 percent of the total U.S. population, and that group has lost a direct connection to the farm.  

Proteins

We are experiencing oversupply in the three largest proteins — beef, pork and chicken. Turkey remains in good balance going into the season due to contraction in supply. Balancing supply and demand is an issue that we continue to battle in our industry. Chicken benefits from a shorter reaction time required to increase and decrease supply versus nine months for pork and 18 months for beef. The poultry industry’s ability to increase supply more quickly than the others allows it a bigger opportunity to take advantage of a vacuum that may occur.

REFRIGERATED MEAT RETAIL SALES

Source: Infoscan Reviews, IRI, a Chicago-based market research firm (@iriworldwide). Total US Multi-Outlet (Grocery, Drug, Mass Market, Military and Select Club & Dollar Retailers), latest 52 weeks ending Aug. 12, 2018.
Note: Rankings of top brands are NOT totaled brand listings (e.g. all UPCs or brand extensions rolled up into a single figure, such as Total Crest Toothpaste), but are rather individual brand listings.

Producers have shown restraint and poultry supplies are up only 1 percent, whereas turkey supplies are slightly flat. Supply has been limited because of the uncertain outlook. Dropping prices will not improve demand. As they say in NASCAR, steer into the distant wreck and the barriers will be gone by the time you get there. 

Key events will determine the opportunity to have a good year in the protein business.

The quick resolution of the trade war will mean instant opportunity to reinvigorate export markets. U.S. pork producers have moderate surplus, but it could instantly evaporate into a market the size of China if demand dramatically increases. 

An outbreak of African swine flu could create export demand that is exponential. Because of the record population of wild boars around the world, there could be a high risk of the disease spreading. Outbreaks in the EU countries that have swine flu will be banned from exports to other countries. The ability to maintain the U.S. swine population free of African swine flu will be a critical point.

The trade situation will correct itself in time — sooner would be preferable to later. We see that a deal has already been made with Mexico; Canada may be done by the time readers receive this issue. China has a billion-plus people to feed and a deal will need to be made to keep those folks happy. The spread of African swine flu in China could dramatically change the entire export market. China had reported six African swine flu cases in five different provinces by the time this article went to press. 

Restaurant update

According to the Aug. 31 National Restaurant Association report, with an even level of 100 as the base, the Restaurant Performance Index in July 2018 had a rating of 101.1, a decline of 0.6 percent from the previous month. Furthermore, it reported the Current Situation Index (which measures trends in same-store sales, traffic, labor and capital expenditures) dropped to 100.8 in July, down 1.2 percent from June and the first drop in three months. It was noted the expansion territory remained above 100.

On the positive side, the July 2018 Expectation Index level, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions) was at 101.4, up 0.1 percent from the previous month. What this means for us is, while the economy is doing well, dollars spent at restaurants are underperforming compared with previous times. The trend to skip eating out just one meal a week can make a huge difference in this industry’s result.  NP