Back to basics
Chastened consumers are returning to economical products. So long, designer rice.
The economic crisis may have begun with the well-to-do, who watched with horror as veteran investment banks melted into mud. But it has long since spread to all classes, and is hitting the regular consumer hard. A survey Nielsen conducted for TheMarker found that 2008 had been characterized by brisk growth in consumer product sales - until the last quarter. Worst hit was the subsector of so-called "premium products.
Sales of foodstuffs grew by 11% in 2008 over the year before, far outstripping population growth. But the pace of growth slowed in the last quarter to 5%, in annualized terms. By that time, consumers were starting to forgo premium products and were starting to economize, buying in bulk where possible, and eschewing processed foods in favor of cooking themselves.
Wherever you look in the foodstuffs and beverage industries, you find a shift from costly to cheap products. Consumers were squeezed from both ends: The prices of basics rose last year as commodity prices shot through the ceiling, while the economic crisis spread from the financial system to the rest of the economy.
Sales of certain premium products didn't just drop, they plunged. But not only luxuries such as granola, granola snack bars and soy snacks suffered. So did broadly popular foods such as cheeses of all categories - cottage cheese, hard yellow cheese, soft white cheese, cream cheese and salty cheese - albeit less than for luxury items.
Take what happened with simple white rice. Revenues shot up 40% during 2008, and stayed strong in the last quarter too - but here, price comes into play. Rice was the center of a consumer storm in 2007, spiking to record levels of nearly $1,000 per ton in the second quarter of 2008. The outcome was that consumers seeking economy shifted to buying bulk 5-kilogram packages.
Another shift evident has been from costly prepared foods and meals (think frozen pizza and schnitzels) to cheaper raw ingredients for home-cooked food. Sales of frozen pizza, bourekas and savory snacks have fallen. So did sales of meat substitutes, such as Tivall's products: These fell by 10% in the last quarter of 2008, compared to the previous one.
Meanwhile, while sales of frozen spinach nibbles plunged, sales of staples rose. Regular oil sales increased by 30% in 2008 compared with 2007, while sales of more expensive olive oil increased by just 6%. Sales of lemon juice also soared in the last quarter of 2008 compared to the same period of 2007. The significance of the increase in oil and lemon juice sales is this: Israelis are cooking again in order to save money, rather than picking up a "salad" at the supermarket.
As the public returned from the microwave to the stove, sales of flour and semolina also spiked, rising 40% in 2008 - though again, rising commodity prices in world markets contributed to that increase in financial terms. As the increase in the cost of staples stressed households, they shifted from extravagant products to simpler ones, as elegantly demonstrated by the much greater increase in sales of cheap margarine compared with expensive butter.
Yogurt drinks such as Actimel, Yoplait 360, YOU and Rivion had been best-sellers, and all suffered. The German dairy company Muller had launched a series of plain and fruit-flavored yogurts, sparking a price war in the yogurts sphere that sent the volume of sales soaring, but not for long. That growth ground to a halt in the last quarter.
Beverages were not spared. There too, sales had grown briskly earlier in the year, but growth slowed or disappeared by year-end. Here too, consumers trended away from premium brands.
Israelis had become enamored of bottled mineral water in recent years, yet as 2008 neared its unhappy end, tap water staged a comeback. Sales of bottled mineral water fell by 12% in the fourth quarter of 2008 compared with the same quarter a year before. Consumers also started to forgo luxuries such as green and herbal teas in favor of regular black tea or Turkish coffee.
Sweetened iced teas was a boom sector at the end of 2007. Jafora-Tavori leapt into the arena and Super-Sol launched a private label brand, too. Iced tea sales leaped 40% in 2008 compared with 2007 - yet here too, by year-end growth had fallen, if not stalled, to 10%.
Evidently, neither financial stress nor the trend of healthy eating could dry up the taste for sodas. The subsector or carbonated drinks stayed healthy all year. Nor did beer sales suffer - in terms of financial revenues, if not volume.
One sector largely unaffected in terms of sales volume is personal hygiene and household cleaning products. Sales of the broad sector remained steady through 2008, but looking narrowly at personal hygiene products, we again find a shift from expensive items to cheaper ones.
Women opted for lower-costing tampons and sanitary napkins. Pinuk shampoo grew by a lot more than sales of Head & Shoulders or Pantene.
Disposable cutlery and plates also lost their appeal, possibly because of the combination of economy with a sneaking desire to stop littering the planet. Sales of disposables fell by 18% in the last quarter of 2008 compared with the final quarter of 2007.
If there's one sector that wasn't affected in the slightest by the bears prowling the world markets, it was milk substitutes for babies. Sales grew steadily, including in the last quarter of 2008. That doesn't mean it was balanced, though - sales of Materna pulled ahead at the expense of Similac Top.