Consumer food and beverage expectations – fact or fiction?

consumer foodMichael Swanson, Ph.D., Wells Fargo Chief Agricultural Economist

Story telling almost always overwhelms factual analysis since most people find it easier to remember a good story than to remember a good model and factual analysis.

While a good story can be true, and it can give us a clear insight into a complex issue, unfortunately, too many good stories are “just so” stories that edit the facts to fit the outcome.

Consumer Foods Chart
One of today’s agricultural “just so” stories states that all consumers want to move to the “most-natural, least-processed” foods possible. If true, implications are that producers and food processors should make major investments and leave behind certain technology. But, is it really true? And, what does the word “natural” really mean?

Very few agricultural producers sell directly to consumers because it is highly inefficient, both for the producer and the consumer. There are many great things about farmers markets and their many variants, but they don’t represent the U.S. food system. In fact, farmers markets represent only a fraction of a fraction of total U.S. food sales. The USDA’s 2012 Census of Agriculture reported that “direct to consumer” sales of agriculture accounted for 0.3% of total sales, shrinking slightly from the 2007 estimate.

What about the “Whole Foods phenomenon”? Whole Foods is a great retail company meeting the demands of a segment with 431 stores and $20 billion in sales. However, it’s important not to lose sight of the “Dollar General story” as well. They, too, are a great retail company meeting the demands of an important segment with their 12,483 stores and $20 billion in sales.

So, what do the numbers tell us? The USDA estimated that Americans spent $1.64 trillion on food and beverages in 2014, both at home and away from home. It seems like a staggering number at first glance. However, since the U.S. population was 319 million in 2014, this means that the “average American” spent $4,573 on food and beverages throughout the year. This still sounds impressive on the first hearing, but there really are 365 days in a year. The math says that the “average American” spent $12.53 per day on food and beverages both at home and away. How much food can you really get for $12.53 a day? As always, the correct economic answer is “it depends”. There are some pretty wild scenarios where you can’t buy a bottle of water for $12.53, and others where you can eat nutritiously for a week for $12.53. And, that’s the beauty of the current U.S. food and beverage system supported by agricultural production. The system allows the consumer to make choices. And, it seems that the consumer prefers to spend more on smart phones than the increasing food expenditures.


Food Expenditures


Since 1952, when the Bureau of Labor Statistics started collecting the food and beverage inflation rate, the real daily expenditure on food and beverages has risen from $3.69 to $5.16. This represents a paltry compound annual growth rate (CAGR) of 0.6%, including all of the innovation in foods and beverages plus the radical shift to dining away from home. Given the low growth rate in real food and beverage spending per capita, and in total, food categories like organic and natural seem like growth superstars. Yet, this only makes them the fastest turtle on the track. It doesn’t make them special or unique, and it doesn’t invalidate the other foods and beverages that provide the bulk of consumer needs on a daily basis.

The entire U.S. agricultural supply chain seems to be under pressure to change in order to become more “natural” and less “impactful” because this is what the consumer demands. But, this change implies risk and costs that someone will have to pay for if it is to occur. Now, since the “average American” consumer only spends $12.53 per day on food and beverages, how much do consumers really want to pay for the “story” versus the product itself? If producers and processors can make the changes for pennies, consumers will accept this, but what if it costs them dollars? Actions speak louder than words, and consumers speak through their spending 24/7/365 in a way that tells the truth. Consumers want it all, and they want it cheap.


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