(July 29, 10:06 a.m.) The grass may always be greener on the other side of the fence, but neither retailers nor restaurant operators are having a picnic this year.

Higher gas prices and a slumping economy are reshuffling food dollars, industry leaders indicated in late July.

“The bottom line is, the general economy is not doing very well,” said Desmond O’Rourke, economist and president of Belrose Inc., Pullman, Wash.

He noted one Wall Street firm has estimated wealth lost in the last 12 months from the stock market and the housing market totaled $5.2 trillion, or about 36% of the gross domestic product for the year.

Dour sales projections

The Washington, D.C.-based National Restaurant Association reported June 30 only 12% of operators surveyed that month expected economic conditions to improve by year’s end. The NRA said that was the lowest level in the history of the six-year history of the Restaurant Performance Index.

Likewise, the Consumer Confidence Index from The Nielsen Co., New York, in June plunged to 88, which is down six points in six months. Nielsen said the plunge was the largest single drop in three years.

Instead of eating away from home, O’Rourke said evidence suggests people are tilting their food purchases to supermarkets. supercenters and discount stores.

Restaurant shakeout

Meanwhile, O’Rourke said mid-scale restaurants are facing a shakeout.

“More and more consumers are going to a supermarket and building meals they would normally buy in a restaurant,” he said.

Recent industry-wide foodservice sales numbers from Chicago-based Technomic Inc. showed May sales this year were off about 2% from a year ago, said Tim York, president of Markon Cooperative, Salinas, Calif.

Adjusting for inflation, overall foodservice sales may be off 5% or 6% compared with last year.

“I think we are still in for some tough sledding with the produce industry and the foodservice industry in general,” he said July 22.

York said growers are suffering from higher input costs, distributors are being stressed by higher fuel costs in their deliveries and operators are facing declining business and rising product costs.

York said anecdotal reports reveal that consumers may be scaling down dining choices when they go out.

“They may go from family dining to a fast causal,” he said. “People in general are looking to limit their food costs.”

Retailers also hurting

One retailer who spoke on condition of anonymity said the economy is also hurting the retail produce and floral departments.

Consumers appear to be making fewer trips to the grocery stores, which limits purchases of impulse items like summer fruits and flowers.

Though prices on some items are up compared with a year ago, both tonnage and department sales are down of late, the retailer reported.

The tomato category took a hit with the Food and Drug Administration advisories in June, he said. Other factors in the subpar performance include a shorter cherry crop and higher prices for apples and potatoes.

Because of higher f.o.b. costs and higher transportation costs, consumers may not appreciate the value of produce prices offered by supermarkets.

“We may be giving them a better value than last year, but psychologically they don’t see it.”

Cherry, tomato factors

Steve Lutz, executive vice president of West Dundee, Ill.-based Perishables Group, said it is probably difficult to pinpoint why retailers are struggling.

However, he said the shorter cherry crop – a huge driver of sales in the produce department — hurt the performance of many retailers. Combined with the hit the tomato category took, those two factors alone may have much to do with retailer struggles. “The good news is that food isn’t discretionary; everybody has to eat,” Lutz said.

Lutz said a key question that will be asked by retailers as they evaluate their sales performance is whether the vegetable category has been less affected than fruits. The percentage of produce that is bought on ad will also be a closely watched statistic, he said.