(Aug. 28, PACKER WEB EXCLUSIVE) CHICAGO — Produce marketers face growing challenges in battling U.S. economic woes and reduced consumer spending, according to an agricultural economist.

Desmond O’Rourke, president of Belrose, Inc., Pullman, Wash., told attendees of the U.S. Apple Association marketing conference on Aug. 21 that retailers should seek to weed out unprofitable stock keeping-units (SKUs) and increase the use of private label SKUs if the downturn persists.

In addition, buyers might ask suppliers to help pay for price breaks to consumers.

With consumers reducing the number of shopping trips, O’Rourke advised marketers to weed out unpopular varieties, step up promotion of new varieties and increase marketing earlier in the months.

O’Rourke said apple marketers might not only be asked to help fund price breaks for apples, but retailers could ask tomato and apple shippers to help supermarkets give shoppers a price break on bananas.

“Supplier relationships may be a factor in the next year or two,” he said.

The economic downturn is serious, O’Rourke said.

“We’ve had government bailouts, stock market setbacks,” he said. “Consumers are adjusting their lifestyles in a way that hasn’t happened in at least two decades. Changes will be bigger the more prolonged the slowdown is.”

In fact, one measure shows consumers in the U.S. lost $5.2 trillion in the wealth in the last 12 months, or roughly 36% of the annual gross domestic product.

Higher costs of gas, food, healthcare and utilities have drained consumers’ disposable income, O’Rourke said.

Some retailers benefit

Effects on retailers have been varied, with supermarkets doing better than other types of retailers.

For example, supermarkets are projecting a 6.1% increase in first half of 2008, compared with 3.1% growth for all retail outlets and 4.5% growth for foodservice.

Supercenters and warehouse clubs are benefiting from the belt-tightening, O’Rourke said.

Projected sales of warehouse clubs and supercenters are pegged 11.1% higher in the first half of 2008.

Some of the ways consumer are adjusting include cutting back in away from home eating, increasing purchases of private label food, heavier shopping activity earlier in the month and greater sensitivity to pricing and less social responsibility buying.

There are signs that price premiums for organic produce are shrinking, O’Rourke said, and a big expected increase in Washington state organic apple volume in 2008-09 marketing season could test the loyalty of organic shoppers, he said.

Among store formats, Wal-Mart has been among the clear winners.

Wal-Mart has abandoned its 2002-04 strategy of moving upscale and committed to every day prices for bargain conscious consumers, O’Rourke said.

“The big gainers have been supercenters, warehouse and discounters like Aldi,” he said.

Meanwhile, the big losers are the traditional supermarket stores, O’Rourke said.

Comparing the current economic slowdown to past recessions in 1970, 1974, 1980, 1991 and 2001, O’Rourke said several shared the characteristics of oil price shock and inflation.

“Most economists are forecasting the recessionary quarter will be the last quarter and the first quarter of 2009,” he said. However, he said if a second stimulus packaged, the “bottom” of the recession could be pushed to the first quarter of 2009.

The current slowdown could share some characteristic of the 1980-1982 recession, O’Rourke said.

At that time, food marketers were elevating the use of generic products.

“By 1982, generic products were in 80% of supermarkets,” O’Rourke said.

He said a similar brand shakeup is coming in the next two to three years, he said.

Grower prices and the total value of produce crops declined substantially during the 1980-82 recession, he said.

O’Rourke said that while buyers and suppliers have more equitable partnerships than they did in the 1980s, the buyer still has more power in commercial relationships.