Feeling the bite of food prices

A food economist might call it the chocolate recession.

Food prices have risen more quickly than at any time in the past 20 years in a burst of inflation that has Minnesota shoppers scaling back on luxuries like chocolate and shrimp while seeking out more ways to defend the family budget. High oil prices, the push for alternative fuels and global demand for food are driving the trend.

"I've just started to think about using coupons," said Taryn Reed, a Minneapolis mother and sometimes Kowalski's shopper, who says she has already begun shopping at supercenters more often and buying store brands.

Faced with $8-a-gallon organic milk and more than $2 for a dozen large eggs, consumers are changing their behavior and setting off a broad, macroeconomic shift in the way we feed ourselves, affecting the economy, our lifestyles, our diet and food habits.

Coupon use is growing for the first time in 16 years. Food shelf visits are up. We eat in more often. We eat less steak and more chicken and take fewer trips to the grocery store. We buy more store brands and, at the extreme end of things, shop at so-called "salvage" grocery stores that stock their shelves with expired or soon-to-expire stock that's quietly pawned off by mainstream grocers.

And that's just so far.

These changes could accelerate if unemployment numbers rise, said George John, a marketing professor at the University of Minnesota's Carlson School of Management.

Consumer analyst Marcia Mogelonsky agrees.

"The prices are going up so fast people aren't sure what to do next," said Mogelonsky, an analyst with Mintel International, a Chicago consumer research firm. "Most of us have grown up in an era of buying whatever we want and not having to think about it."

American consumers still enjoy some of the cheapest food in the world, spending about 13 percent of their income on groceries and dining out. That's risen as food prices have been battered by a storm of influences from across the economy, from the soaring price of oil to the ethanol boom to surging global demand for food as people in fast-growing nations such as China and India consume more calories.

Today, U.S. food inflation hums along at 4.6 percent. A family of four pays $916.30 a month for food at home, according to the USDA, up from $855.80 a year ago and $750.10 five years ago. Economists expect price increases to slow later this year, but few predicted the increases that occurred in 2007. And with farmers expected to plant less corn next year, the USDA has forecast food inflation to rise as high as 5 percent this year, or about double the average rate of 2.5 percent seen over the last 15 years.

The latest government figures show cheese prices up 50 percent year-over-year. Milk prices are up on average about 17 percent. And some grocery aisles hold more price increases ahead, especially in oils, bakery and cereals, according to the USDA. Bread prices rose 1.8 percent in just the last month, the highest monthly rise since 1975.

"My wife is shopping more at the superstores," said Bruce Bahneman of Minneapolis. The family makes value judgments on its food, buying some items in bulk while choosing premium stores for items they deem too important to skimp on. "We'll go to Kowalski's or Lunds for the fresh produce," Bahneman said while shopping the Uptown Kowalski's last week. "I know what I'm getting here."

Written across the broader economy, the item-by-item selections such as the ones Bahneman and his family are making have had dramatic effects on the food industry.

As egg prices shot up last year, shoppers in the metro area walked away: Local supermarkets sold 7 percent fewer eggs last year, according to checkout data from the AC-Nielsen company.

And when it came to splurging, local shoppers were less tempted: Sales of chocolate and shrimp fell in Minnesota by 2 percent and 3.5 percent, respectively, despite increasing nationwide.

Faced with runaway price increases, some consumers will start to weigh the value of each product, said consumer analyst Mogelonsky, buying the things that matter to them while downgrading the quality of foods that matter less.

Picking and choosing

A gallon of organic milk, often considered a gateway product into the more expensive organics industry and the one organic product people will buy if they're on a tight budget, sells for more than $8 for some brands at some Twin Cities grocers. And yet total revenues last year at Organic Valley were up 26 percent to $432.5 million at the Viroqua, Wis.-based organic dairy cooperative, the nation's largest. The group expects $539 million in sales this year.

Organic milk aside, many brands have lost ground to store brands, also called private label. Private label sales rose 8 percent last year to $74.2 billion at supermarkets, drug chains and mass merchandisers and Wal-Mart, according to a soon-to-be released report from the Private Label Manufacturers Association and ACNielsen. Private labels now account for 17 cents of every dollar spent at those locations.

The clear winners amid the food price turmoil are supercenters like Kroger and Wal-Mart, according to a Citigroup Global Markets survey. Consumers will trade down their shopping locations from SuperTarget to Wal-Mart, their diets from steak to chicken, and the choice of brands, choosing more private-label products.

Coupon clipping

Foodshelf visits are up, too, as more people need free or subsidized groceries, according to Ted Evans, spokesman for the Emergency Foodshelf Network.

The holidays were busier than usual, he said, with suburbs showing marked increases.

"What used to be thought of as a inner-city issue, as far as hunger goes, is definitely not," said Evans. The network runs a discounted grocery day held once a month at 21 sites around the metro area. The "Fare for All" program helps anyone who shows up, charging $17 for a package of fruits, vegetables and frozen meat worth about $40.

"It literally is more new faces each time," said Evans. The program had its largest day ever on March 17, selling 265 packages in a few hours from their New Hope warehouse. The group sold 29,900 packages last year to 97,700 people.

The federal government has also spent more on food support in Minnesota this year than ever before, sending specialized credit cards loaded with money for groceries to some 276,128 people statewide in February. So far this year, the program has helped about 3.8 percent more people each month than last year. Food stamp use has grown by an average of 5.1 percent each year since 2001.

"We've seen these things before," he said. "We saw them in the 1970s. This too shall pass."