Food prices ease, but thriftier shopping habits remain

Consumer concern is causing a fundamental shift in the food industry. "New habits die hard," warns the Progressive Grocer, a Nielsen Company publication that has tracked consumers' growing appetite for cheaper and more downscale meals.

Profits at corporate restaurant chains aimed at the middle class – think Applebee's and Ruby Tuesdays – are down by 10 percent in many parts of the country. Restaurants like McDonald's, meanwhile, are seeing orders rise. Local breakfast joints like Thumb's Up in Decatur, Ga., or Stone Soup Kitchen in Atlanta are reporting higher than usual orders of inexpensive comfort foods like fluffy pancakes.

"Everyone's trading down," says Mark Witte, an economist at the College of Charleston, in South Carolina. "People who would have had steak twice a week are having hamburger twice a week. People who would have had hamburger twice a week are having pasta every day. It's occurring for every economic group."

At Supervalu Inc., the Eden Prairie, Minn., food retailer that recently bought the Albertson's chain, managers are chasing customers with what could be called the "soup and coffee strategy" – limiting price promotions and instead lowering prices permanently on staples in order to influence consumer perceptions of where to get a good deal.

Supervalu CEO Jeff Noddle also reports that the best-performing stores are the ones that have been recently renovated, indicating that shoppers are increasingly treating a trip to the grocery store as a form of entertainment, or a refuge.

"We would expect that the overall demand for food won't change very much, and, indeed, food consumption at home may actually go up as people shift away from restaurants," says Daniel Sumner, an agricultural economist at the University of California in Davis.

Though thankful for the extra business, grocery stores still face squeezed profits as they make "price investments" to lower shelf prices in order to bring in cash-strapped consumers. A sign of the times: Sales of 98-cent "produce packs" at the Fresh & Easy grocery store chain are up 11 percent over the last year.

"If you're a consumer and have cash, deflation is the best thing that's ever happened," says Brian Buhr, an economist at the University of Minnesota in St. Paul. "The problem is, most consumers don't have cash."

Unemployed construction worker Robert Lee of Atlanta has one goal: to make do. After paying rent this month, he says he has $162 left over to spend on food for the next four weeks. At an Atlanta Kroger store, he found a 22-ounce can of mixed vegetables for $1. A jar of peanut butter and generic cookies rounded out his purchase.

"I have just enough money for one person if I shop wisely," he says. "I'm not going hungry just yet."

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