Consumer Trends Memo: The 'Era of Cheap Food' May Be Over in the U.S.; But Good Cheap Eats Can Still Be Found...it's All About Value

New York magazine is just out with its annual "New York Best Cheap Eats" cover issue. The magazine scours the Big Apple every year for its "Best Cheap Eats" issue, which devotes dozens of pages to the restaurants and stores in New York City where consumers can find the best deals on foods ranging from the simple--a slice of pizza--to gourmet-quality meals across nearly every ethnic range.

The magazine's editors say this year's issue will likely be its most popular ever since the poor state of the U.S. economy, which includes soaring food inflation, is driving even many of New York's more affluent residents--not to mention the scores of business travelers, and tourists who flock to the Big Apple this time of year--to search out cheaper alternatives for their meals and food purchases.

The current economy is doing the same to most lower, middle and even many upper-income consumers in every big city, suburb and small town in America.

This year's edition covers what seems like every square inch if New York City's food landscape in terms of the editorial teams search for the cheapest eats in America's largest city.

Among the food categories the special New York magazine "Cheap Eats" issue features include:

The Cheap List
The best cheap eats of 2008.

Chef’s Choice
Top cooks’ favorite cheap eats.

Cheap Eats Consumer Price Index
How the rising cost of food trickles down to pizza and hamburgers.

The Cheapest Of the Cheap
The ten best new things to eat in New York for $5 or under.

Beggars Can Be Choosers
What can you get for a measly dollar these days?

The High-Low $20 Showdown
We asked two very different chefs to create a three-course meal for two using the same $20 budget.

New York magazine also asked two chefs to design a three-course meal, giving them just $20 to complete the task. You can read that story at the link directly above ("The High-Low $20 Showdown). One chef created a more basic meal with the $20, while the other went more high-end and gourmet with the $20 budget.

The more basic (not so basic to many eaters) but tasty looking $20 feast on the cheap is pictured directly below. Below it is the higher-end, gourmet quality menu on the cheap.

Twenty bucks can buy lots of good, cheap eats, as the graphic above shows, if one knows how and where to shop, along with being able to cook, or learning to do so. Click on the graphic for an enlarged view. [Graphic source: New York magazine.]

The chef put together this three-course gourmet dinner, plus wine and desert, for $20. That's value, considering the same meal would easily cost four to five times that amount at a white table cloth restaurant. Click on the graphic for an enlarged view. [Graphic source: New York magazine. Food retailers take note: value gourmet recipes are something consumers are looking for. A three-course gourmet meal promotion using the chef's concept above would be hot.

Consumers are searching out bargains today like food and grocery retailers and restaurant operators have not seen in decades.

At retail, store or private label brand sales are rapidly rising, as are items on promotion. Value is becoming the new black among American consumers, who are being pinched by a combination of soaring gasoline and home energy prices, rapidly-rising food costs, a credit crunch, increasing unemployment and job security, dramatically lowered housing values, and now what looks to be rising overall inflation overall as well.

Good cheap eats no longer are merely for lower-income American consumers. For example, Whole Foods Market, which up until now has been fairly immune from concerns about food prices from its consumer base, has launch what it is calling its "Real Deal" program. The supernatural foods grocer is lowering prices throughout its stores, offering more and deeper price promotions and has even created "value scouts" in-store, who help shoppers find deals and values being offered in the stores.

Mid-range casual dining restaurants like Applebee's for example in the U.S. also are drawing more diners, while higher-end restaurants are putting more basic, lower-priced items on their menus because even affluent consumers are feeling pinched in the down U.S. economy.

As is often the case during bad economic times, behaviors consumers acquire--such as being more price and value conscious when it comes to food shopping and eating out--often stick even once the economy improves.

If true this time around, value and cheap eats could not only become the new black, but also could prove to be the biggest challenge--and as a result a real deal for consumers--to food retailers and restaurant operators in the U.S.

The natural, organic and specialty foods industry also needs to look more closely at how important price and value is becoming to most American consumers. Shoppers are trading down to discount supermarkets. Many are even shopping at salvage grocery stores, which are reporting sales increases of up to 15% in the last year, along with rapidly increasing customer counts in those stores, which sell discontinued, overstock and food and grocery items with slight label flaws.

Further facts: Two U.S. food and grocery retailing chains, Safeway Stores, Inc., which operates nearly 1,800 supermarkets across the U.S., and upscale eastern USA regional chain Wegmans, reported last week sales of their respective store brand grocery items are currently outselling national brands in the stores, both retailers attributing the fact to the poor U.S. economy and consumers' search for greater value.

There's a tipping point at which even the most dedicated natural and specialty foods shopper will buy conventional over natural or organic, or specialty and gourmet. That tipping point in terms of price is unknown. Rather, its defined as "we know it when we observe it." In other words, as we see sales of natural, organic and specialty food and grocer items starting to remain static or even decline, which there currently are some signs of, we can assume price is the primary reason in this current poor U.S. economy.

Therefore, natural and specialty foods retailers and suppliers need to take value very seriously at present or they will lose market share which could take a decade or so to gain back.

We aren't ready to fully proclaim it yet, although we have proclaimed the "era of cheap food" in the U.S. is over...but Natural~Specialty Foods Memo is willing to go as far right now as to say we think the "era of good, cheap eats" may be just around the corner.

Farm-to-Market Memo: Massive Floods in the U.S. Heartland, Severe Drought in the West Coupled With Soaring Fuel Prices, Spells More Food Price Hikes

About 38% of Iowa's corn and soy crops are under water from the recent floods, according to the state's Department of Agriculture. There's an old saying in the Midwest: If a corn crop is 'knee high by the fourth of July,' it means it will be a good crop for that year. Not this year.

Earlier this year, Safeway Stores, Inc. CEO Steve Burd told a group of financial analysts, reporters and writers on a conference call that food inflation was the highest in the U.S. he has seen since he became CEO of the nation's third-largest supermarket chain 15 years ago.

'You ain't seen nothing yet,' as the old show business saying goes.

On June 13, Natural~Specialty Foods Memo wrote this analysis and commentary piece about how the soaring per-barrel cost of oil, and the resulting price increases of diesel fuel, gasoline and fossil fuel-based energy, was causing severe shock within the food and grocery industry, as well as among U.S. consumers, who are experiencing some of the fastest and most extensive food and grocery product price increases in many of their lifetimes.

Since we published that piece, two major events have occurred which, coupled with the soaring price of oil, fuel and energy costs, threaten to send food prices soaring even higher faster in the U.S.

Those two events, both natural and climatological in the main, are the massive floods that have been hitting the Midwestern U.S. farm belt and the increasingly severe drought in the Western U.S., which in California, the nation's number one farming state, resulted in Governor Arnold Schwarzenegger declaring an official drought state of emergency in early June.

California not only is the number one farm state in the U.S., its huge Central Valley, which stretches from Kern County in the South to the Sacramento Valley in the north (about 400 miles) also is the world's number one region in terms of total farm crop output.

America's heartland, the Midwest, also referred to as the farm belt, produces the majority of corn for the nation, which in addition to being the most used U.S. farm crop for food, animal feed and ingredients, also is increasingly being used as a fuel crop to produce ethanol, which is mixed with petroleum-based gasoline in nearly every U.S. state to make what is called blended fuel, such at E-10 (10% gasoline, 10% ethanol) and E-20 (20% ethanol).

The massive floods which ravaged Iowa, the number one U.S. corn producing state, and other Midwest states, have many corn (and other crops) fields submerged under water, rendering the crops unable to be harvested. Additionally, because of the timing of the floods, farmers will be unable to plant their crops in those fields, meaning not only that the current crops are lost, but in many cases next year's will be as well.

Both the Midwest floods and the Western USA drought are guaranteed to contribute to further increased food costs to food retail chains and wholesalers, and thus to consumers. Already, food prices are soaring across the board in the U.S. as they are elsewhere in the world because of a combination of oil price hikes, severe weather globally, growing demand for certain foods by developing countries like China and India, decreased surpluses, and a number of other factors.

Our analysis is Steve Burd's correct observation that food inflation in the U.S. is the highest he's seen in his 15 years at the helm of Safeway Stores, Inc. is that he--and the rest of the U.S. food and grocery industry along with consumers--are about to see the price of food soar even higher, faster in the coming months due to the added negative conditions from the Midwest floods and the Western U.S. drought, combined with the factors already in play described above.

Today we've chosen six articles/opinion pieces--three about the Midwest drought situation and its effect on food and farming, and three about the Western USA drought--for our readers. The pieces each approach the conditions from a different but unified perspective and offer insight from the writers' perspectives on the current situation.

The first three pieces are about the recent massive floods in the Midwest and the effect they already are having on the price of food, especially corn, which is used by the U.S. food processing industry in nearly every processed food and beverage product it produces as well as being the primary grain used to feed market hogs, chickens and cattle.

High Water, higher food costs, David Roeder, Chicago, Illinois Sun Times, June 17, 2008

The second piece about the effect of the Midwestern region floods and food prices discusses how the flooding, particularly in Iowa which was the state hit the hardest, is going to create a ripple effect of higher food prices beyond just the Midwest and throughout the United States.

Iowa's flooding will produce economic ripples beyond the Midwest, Susan Albright, Minneapolis, Minnesota Post, June 17, 2008

The last article, a feature piece from the Los Angeles Times, examines how the Midwest floods could send the prices of everything from corn and soy-based foods to meat soaring nationally in the U.S., beyond the serious price increases already experienced since just the start of 2008.

Midwest flood may cover nation in higher food prices, Jerry Hirsch and P.J. Huffstutter, Los Angeles Times, June 16, 2008

While most of Iowa and other parts of the Midwestern USA heartland are under water, California and other states in the west are experiencing drought conditions. These three pieces examine the drought in the west, especially California, from different perspectives, all having to do with the effects the drought is and will continue to have on food prices, the food industry and consumers.

The first article, from the Fresno Bee, which is the major daily newspaper in the Fresno area in California's Central Valley, one of the top food producing regions in the world, examines what effect the drought will have on food prices, since the region produces foods not only for U.S. sales and consumption but for export throughout the world as well.

Expect higher food costs with drought, Dennis Pollock and Mark Grossi, Fresno, California Bee, June 5, 2008.

Paul H. Betancourt is a farmer in the Central Valley. He farms in the Westlands and Fresno Irrigation District regions in what is a top-producing farm region in America. Betancourt wrote an opinion piece about how farmers are taking drastic steps to conserve water during the current drought, but also says food prices will rise because of the lack of water needed to meet farmers needs in the Golden State.

Drought: Farmers taking drastic steps, Paul H. Betancourt, Sacramento Bee, June 15, 2008

Lastly, former Associated Press and Fresno Bee reporter Lloyd Carter, who covered the state's agriculture and related industries with a focus on water issues for decades and now is a lawyer and director of the California Water Impact Network, http://www.c-win.org/, offers a well-written and expert-opinion piece about the drought in California, its effects on agriculture, business, consumers, the entire state of nearly 40 billion people, and beyond.

Lloyd G. Carter: Much of California is a desert, we should live in it as such, Sacramento Bee, June 15, 2008 [For more of Carter's writing about the water issue you can go to http://www.lloydgcarter.com/]

Natural~Specialty Foods Memo has been suggesting and writing for some time that the "era of cheap food" is over in the U.S. This fact has profound economic and social implications to a country that since the end of World War II has in the main made available to the majority of its citizens an abundance of cheap food, relative to the rest of the world.

Like cheap gasoline--it was less than half its $4 per-gallon U.S. average less than a year ago and under $2 gallon less than two years ago--cheap food has allowed most working class Americans the extra disposable income to live a good life, including home ownership, owning multiple automobiles, putting the kids through college, and other aspects of what's been come to be known as "middle class" living in the U.S.

The U.S. food and grocery industry has created a model in which nearly every cost imaginable has been driven out of the distribution system in order to keep food costs as low as possible for American consumers. There's plenty of room to argue about the industry's ways- a focus on less than healthy processed foods and the like--but the fact is the industry has done much to focus on providing as reasonable priced foods as it can to consumers.

The current conditions--soaring oil and fuel prices, floods, drought and other challenges--are testing America's agricultural and food distribution system like never before in modern history. How it all will play out is unknown. However, clearly alternatives to fossil fuels and similar changes are a must, and recognized by most progressive industry leaders.

As for floods and droughts, mother nature does play a major role there. However, as Lloyd Carter points out in his piece, there's also a pretty good logic for understanding mother nature and geography and designing methods to live within its dictates at times.

The U.S. food and grocery industry has managed to thrive despite the fact it survives on about the lowest profit margin (about 1% net) of any industry in the nation.

It's also an industry built on innovation. In the 1950's, for example, the concept of a self-service grocery stores was just beginning to take root in U.S. food retailing. A decade later in the 1960's it was the norm. The challenges are there today. But so is the innovation. What's lacking however is leadership in America. Therefore, the industry is pretty much on its own for the time being.