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The Year Ahead: Pricing impacts strategy

2024 year ahead

A frequent topic throughout 2023 was rising costs throughout the supply chain.

“Inflation continues to drive up the cost of goods, affecting everyone along the field-to-fork journey,” says Nelia Alamo, vice president of marketing at Markon Cooperative, Inc. {{BB #:123315}} in Salinas, CA.

The good news, she notes, is the foodservice industry continued to stabilize in 2023 after its pandemic woes.

The bad news is, “inflation might shift how frequently consumers eat away from home and impact our broadline members and their operator customers.”

Jin Ju Wilder, vice president of marketing and business development for Vesta Foodservice BB #:125924 in Santa Fe Springs, CA, notes that foodservice demand was strong. “As prices continued to rise from the already higher prices in 2022, some menus were pared down and portions were reduced to control operating costs and the plate costs.”

On the grower side, Darby McGrath, vice president of research and development at Vineland Research and Innovation Centre in Vineland Station, ON, says, “Cost of production continues to increase, often as a result of supply shortages, which have cascading effects on the whole supply chain. Everyone is actively looking for evidence-based approaches to reduce inputs while maintaining outputs.”

In trucking, freight fees and driver income have plummeted, Fred Plotsky, president of transportation broker Cool Runnings, Ltd. BB #:125423 in Kenosha, WI, says, even as costs have been on the rise, leading some truckers to go out of business. “Are carriers going to be able to drive? How do you keep inflation in check and wages in line when freight rates need to come up?”

Consumer marketing strategies have also refocused on value. “We’ve modified our strategy in our recipes in terms of how many ingredients are included,” explains Lori Taylor, founder and CEO of The Produce Moms BB #:366223 in Indianapolis, IN.

“Everyone’s feeling the crunch of the current economy, and especially the food marketing economy. To increase consumption, we need to make sure we present opportunities and inspiration that fit the budget of the average American.”

On the retail side

“Inflation has declined, but its influence on consumer behavior will likely persist,” Ashley Nickle of Ashley Nickle Growth Strategies, LLC in Kansas City, KS, predicts. “Many prices remain significantly higher than they were in 2019, so it’s been several years now that consumers have been watching their dollars not go as far as they once did.

“Continued focus on price and value will naturally favor discounters and mass merchandisers, so traditional grocers will need to continue to emphasize value at every turn,” she advises.

“Private label moved back into the forefront in 2023,” says Brian Numainville, principal at The Feedback Group in Lake Success, NY. “Our research found shoppers clearly gave private label the edge in price versus national brands in 2023, increasingly using private label as an inflation-coping strategy.

“But it didn’t stop at price,” he continues. “Shoppers also believe that private-label and store brands can hold their own against national brands in terms of quality. This provides supermarkets a way to continue controlling more of their profitability, while also helping customers do better in a challenging environment, even if food price inflation improves in 2024 and beyond.”

“One of the big things I’m seeing, with the changes in the economy in the last several years, is consumers are really putting a focus on value,” notes Matt Delly, chief merchandising officer at 99 Cents Only Stores, LLC BB #:189237 (known as “The 99”) based in City of Commerce, CA.

“We’re working with our partners to ensure we’re doing everything we can to pass that value along to consumers.”

With stores throughout California and the Southwest, Delly says produce department costs at The 99 are lower than others since its inventory comes from nearby fields. In addition, supplies have been strong due to the rains in January 2023.

“There’s so much supply in categories such as fruit that we can source products at a good value and pass those deals to our customers,” he explains, yet notes consumers are looking for value and convenience. So value chains like The 99 will continue to thrive and grow, just as retailers focusing on convenience—taking a chore and making it easy—will also succeed.

“For us, what works is deals, and our food business is really growing,” he adds, mentioning recent successes with jumbo mangos, snack packs, and organic strawberries.

Another initiative is to increase organics. Noting that in California 15 to 20 percent of consumer retail produce purchases are organic, Delly says, “We want to have that variety—the opportunity to offer our customers these products at significantly less than other retailers is really appealing.”

While The 99 is laser-focused on value, it’s also upping its game on the in-store experience. “We want to make sure we remove as much friction as possible,” he says, whether it’s better signage, clear aisles, or anything to make shopping easier.

This is an excerpt from the feature story from the January/February 2024 issue of Produce Blueprints Magazine. Click here to read the whole issue.