Retailers Finding Ways to Meet Consumer Needs in a Volatile Market

By Karen Lee, Managing Editor
Thursday, July 17, 2008 10:29 AM CDT

As commodity and energy prices sky rocket, consumers are feeling the effects through higher food prices. Yet some consumers are still willing to pay premium prices for niche products.

The Dane County Agri-Business Delegation tackled this subject with a panel of speakers at its Summer Picnic on July 10 in Verona. Speakers included Tim Metcalfe, Metcalfe Sentry Foods, Madison; Myra Hajny, Yahara River Grocery Cooperative, Stoughton; and Dr. Terry Homan, Red Barn Family Farms, eastern Wisconsin.

Food inflation

“The biggest factor (causing food inflation) is energy costs, both in production and transportation,” Metcalfe said, noting ethanol is just one of the factors related to increased energy costs.

Metcalfe and his brother own two upscale supermarkets, one in the Hilldale area of Madison and the second in Wauwatosa.

Other reasons, he explained, for rising food costs are labor costs, including health care; transportation; and credit card fees and exchange rates. Last month, just one of their Metcalfe Sentry Food Stores paid out $75,000 in credit card fees to allow their customers to charge their purchases. “That’s having a huge impact on us,” he said.

Metcalfe, who has been in the business for 20 years, said he’s “never really seen it quite like this...Every indication is going in the wrong direction.”

He also predicted that we haven’t seen the end of it yet. His food suppliers have been placing additional fuel surcharges on their bills and those expenses have yet to be recouped by the grocers. In turn, they will be paid back from even higher food costs.

Big trends

Going green is trend not only in the food industry, but all across the country. Metcalfe announced that his company recently went 100 percent green in the power they are using, meaning all of their energy comes from green sources. “It isn’t just a fad, it’s a business strategy,” he said. “Consumers and retailers will choose based on green power.”

Buying local is another big initiative. “Consumers want to support local businesses,” he said, adding they’re also looking to create a sustainable society. In Metcalfe Sentry stores, shoppers will see signs on various food items indicating the number of miles it took to get that product to the store. The miles include where the food is produced to where it is processed and how far it traveled to the store. “For us it’s a competitive advantage that our competitors won’t be as quick to pick up,” Metcalfe said. “Chain stores can’t compete with that.”

Organic products are starting to see a dip in sales as some consumers search for less expensive products, however Metcalfe stated this will be shortlived as people are growing more concerned about what they put in their bodies.

“These are not fads,” he said. “They are here to stay. Look into the eyes of a 12-year-old. That’s your future customer.”

Local Co-op

When the small grocery store in Stoughton closed a few years ago leaving only one large national chain store for the city of 12,800 people, a number of residents came together to seek out an alternative solution.

Hajny, who has no prior experience in the grocery business, now manages the Yahara River Grocery Cooperative that opened on March 1 of this year.

What started with 38 members when they choose their location on Main Street has since grown to 920.

This 2,500 square foot store with four aisles carries organic and locally grown products to fulfill the requests of its members.

“The local products are favored, but we don’t know if everyone is willing to pay the price,” Hajny said.

Currently the store holds 80 percent organic and local products and 20 percent conventional, however those percentages may sway more conventional at the request of their senior members who have a limited income and prefer some of the mainstays they’ve always known like “Heinz ketchup,” she explained.

In addition to offering local products, the cooperative has made strides to educate where these products come from. A newsletter found in the store and sent out to members showcases the local farmers that produce the foods at the co-op.

Animal welfare brand

Homan, a partner at Valley Vet Clinic, which primarily practices dairy medicine, launched a new brand of milk this spring under the Red Barn Family Farms label.

The brand promotes animal care in the production of milk with farms using the label validated by the American Humane Association.

“Milk is not just a commodity,” he said. “Small farms produce great quality milk,” which he attributes to their animal husbandry abilities.

Homan and his wife own the company with the brand and have taken in three dairies, currently bottling and selling milk from two of them.

Approved farms, for example, must be free from rBST supplementation, free from animal byproducts in their feed and free from performance enhancing antibiotic use. The farms are run by families who earn their livelihood on the farm and do the majority of the animal care work themselves.

These farms are inspected annually, which adds credibility to the brand.

The milk is bottled at a small facility in Appleton and then sold in select locations in the Milwaukee area. Homan said he hopes demand will allow him to expand the brand into other products, such as cheese, yogurt and ice cream.

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