June 14, 2008

Consumers Face Lean Times at the Grocery Store

By Joyzelle Davis

Tracy Young has enlisted every last ounce of ingenuity in her ever-escalating battle with sticker shock in the grocery aisles.

She's switched from half and half to powdered creamer for her coffee, started making her own sandwich bread and pancake syrup and only buys marked-down meat.

"It's helped make a little bit of a dent," said Young, 41, a cafeteria manager at Denver Public Schools who says that over the past year, the cost to feed her family of three has risen by about $50 a month. "With gas and food prices going up so much, we have no choice but to live cheaper."

Food prices are rising faster than they have in nearly 20 years. The cost of food purchased for home consumption spiked 4 percent last year, according to the Agriculture Department. Many essentials are rising even faster, with white bread up 15 percent, eggs up 29 percent and a gallon of whole milk up 15 percent.

That's forced many consumers to economize like never before, clipping coupons, stocking up at discount outlets like Dollar Tree and even employing the much-mocked lunch meat Spam to stretch a dollar.

"Consumers are tightening up their budgets across the board," said Rhonda Follman, a family and consumer science agent with Colorado State University's extension office in Grand Junction.

Follman said she's seen a big increase in Western Slope residents asking for tips on growing and preserving their own fruits and vegetables.

"The first time you have to pay $4 for a gallon a gas it might not hit you," she said. "But when it gets to be the norm, it really starts taking a chunk out."

With gas prices - which are closely tied to the cost of food - continuing their upward march, there's no relief in sight. The Department of Agriculture forecasts food prices will rise as much as 5.5 percent this year. That means the typical household will pay roughly $350 more for the same basket of goods they bought last year.

For retirees on a fixed income like Bert and Jean Stahl, that's a frightening thought. Bert Stahl shops around for the best deals and can quote the going price of a gallon of milk at Wal-Mart, Safeway and King Soopers off the top of his head.

These days, "we only buy things on sale," said Bert Stahl, 82, who worked for Coors Brewing. The Stahls also make occasional runs to discount retailers like Dollar Tree to stock up on nonperishable foods such as cookies and crackers.

Shoppers like the Stahls helped Dollar Tree, which has 3,400 stores nationwide with the motto "Everything's $1," post a 7.8 percent increase in sales to $1.05 billion during the most recent quarter. The Chesapeake, Va.-based retailer says that growth has been driven largely by household consumer products. The chain is adding freezers and refrigerators to stores in order to provide a broader range of foods.

"People are trading down," said Bob Sasser, Dollar Tree's CEO, on a conference call with investors last month.

Warehouse store Costco, meanwhile, reported last month that revenue from membership fees soared 10 percent in the third quarter as more consumers purchased $50 annual memberships to stockpile staples such as rice, meat and canned goods. The retailer now has 28.7 million member households, up 400,000 from the previous quarter.

Supermarkets have responded by relentlessly stressing value. King Soopers parent company Kroger Inc. is on a companywide campaign to lower prices on everyday prices like milk, and Wal-Mart is running advertisements and in-store displays touting $10 meal packages.

Not only are consumers switching where they shop, they're experimenting with what they buy.

Faith Popcorn, who heads trend forecasting company Brain Reserve, says consumers are cutting back on meat in favor of cheaper meals of peanut butter sandwiches or spaghetti dinners and are picking up private labels - also known as store brands - instead of often pricier name brands.

Private-label sales have grown nearly 9 percent to $50 billion in the past year, according to a report the Nielsen Co. released last month, although much of that gain came because of price increases even for store brands. Eggs, milk and cheese are the best-selling foods, while aluminum foil, paper towels and paper plates lead non- food items.

There is one national brand that's making a comeback in these tight economic times: Spam. Sales of the 12-ounce canned lunch meat, which retails for around $2.62, were up nearly 11 percent in the 12- week period ended May 3, according to Nielsen. That comes even as Spam's maker, Hormel, raised prices about 7 percent from the same time last year.

Young hasn't resorted to Spam, but she - like many other shoppers - scours the newspaper and Internet for coupons. For the first time in 16 years, coupon use in 2007 remained flat with the previous year at 2.6 billion redemption. Before that, consumer use of coupons consistently declined each year from a peak of 7.9 million during the 1992 recession, according to coupon processor CMS.

"When I go to the store, I don't buy anything spur of the moment anymore," Young said.


Cheaper eats

Not every supermarket staple has soared at the same rate as the price of bread and milk during the past several years.

Oranges are down because freezes in citrus-growing areas pushed prices high in 2007, and iceberg lettuce is slightly cheaper thanks to better harvest conditions.

Here's a roundup of grocery items as of April 2008 that are either flat, down or trailing the annual inflation rate of 3.9 percent:


* Sweet peppers, per pound: unchanged at $2.35

* Grapefruit, per pound: unchanged at 88 cents


* Navel oranges, per pound: down 25 percent to 93 cents

* Iceberg lettuce, per pound: down 8.5 percent to 90 cents

* Cabbage, per pound: down 7.7 percent to 60 cents


* Ham, boneless (not canned), per pound: up 1.9 percent to $3.15

* White potatoes, per pound: up 3.8 percent to 55 cents

* White sugar, per pound: up 1.9 percent to 52 cents

* Strawberries, per dry 12-ounce pint: up 3.4 percent to $1.78

* Frozen orange juice, per 16 ounces: up 1.7 percent to $2.56


Chicken Fresh, whole, per pound

2007 $1.12

2008 $1.19

UP 6.3 percent

Ground Beef lean and extra lean, per pound

2007 $3.13

2008 $3.18

UP 1.6 percent

Milk Fresh, whole, fortified, per gallon

2007 $3.26

2008 $3.76

UP 15 percent

Eggs Grade A per dozen

2007 $1.50

2008 $1.93

UP 29 percent

Bread White, per loaf

2007 $1.19

2008 $1.38

UP 16 percent

Pasta Per pound

2007 86 cents

2008 $1.10

UP 28 percent