(Jan. 10) If the American consumer’s grocery budget is under attack now by rising fuel and food costs, how would a recession pinch demand for fresh fruits and vegetables?

Although limited impact is seen now, some observers look for tougher times ahead for foodservice operators, pressure on prices at retail, more consumer attention to advertised specials and a trend toward more private label produce.

It is not strictly a theoretical question. A jobs report in early January that showed an increase in unemployment in December may have signaled the start of the recession, economists at Wall Street firms reported. In macroeconomic terms, a recession is considered two or more quarters of negative economic growth. Some economists believe the U.S. economy’s fourth quarter 2007 will prove to be flat or slightly negative.

While the economy has slowed, inflation has shown up in a big way. Gas prices in November — the latest Department of Commerce data available — averaged $3.07 per gallon, 37% more than November 2006.

Retail milk prices were 30% higher in November than year-ago levels, and eggs were up a whopping 38% compared with November 2006.

Retail produce prices were also higher than year ago levels for some high profile items, with iceberg lettuce up 17% over year ago levels.

Food analysts predict prices for many foods will continue to rise in 2008.

Still, industry leaders say fruits and vegetables remain an affordable option for consumers.

Elizabeth Pivonka, president of the Produce for Better Health Foundation, Wilmington, Del., said consumers of fresh fruits and vegetables skew toward higher income levels and may not be deterred with higher prices as low income consumers.

She also noted a U.S. Department of Agriculture study in 2004 showed that consumers then could purchase seven servings of fruits and vegetables for as little as 64 cents. Even with elevated prices since then, Pivonka said consumers should be able to eat recommended levels of fruits and vegetables (fresh or processed) for about $1 per day.

The July 2004 ERS study titled “How much do Americans pay for fruits and vegetables?” reported that 63% of fruits and 57% of vegetables were cheapest in their fresh form.

Fresh produce marketers contacted report that early signs of a slowing economy haven’t had a direct impact on sales yet.

“If there was some significant consumer drawback, we would all be feeling it,” said Nancy Foster, president of the U.S. Apple Association, Vienna, Va. Betters tasting varieties and improving quality have spurred consumer apple demand, she said.

High fuel prices have added as much as $6 per carton to delivered costs for fruit shipped to the East Coast, said Dave Battis, salesmen for Honeycrisp Apple Growers & Marketing Co., Wenatchee, Wash. That has slowed some business to wholesalers, but he said fruit sales to chain stores have been strong.

Most industry observers don’t look for consumers to trade down to lower-quality produce, even in the face of a recession or higher prices.

Consumers rank price below taste and appearance when they make their produce purchasing decisions, said Lorna Christie, senior vice president of industry products and services for the Newark, Del.-based Produce Marketing Association.

Even so, economist Desmond O’Rourke, president of Belrose Inc., Pullman, Wash., said a recession would increase pressure on prices, including both whole and value-added fruits and vegetables. Consumers may use more frozen vegetables to substitute for higher priced fresh items, he said.

RETAIL RESPONSE

The consumer cash crunch shows signs of hurting supermarket performance. Supervalu, the grocery store operator based in Eden Prairie, Minn., reported disappointing quarterly sales results and saw its stock price drop 17% on Jan. 8.

Supervalu chief executive officer Jeffrey Noddle told analysts that shoppers have cut back purchases because of higher food costs, a slump in U.S. home values and a 35% rise in gasoline prices in the past year.

“Fortunately, everyone has to eat, and produce has the greatest story on the planet,” said Karen Caplan, president and chief executive officer of Los Angeles, Calif.-based Frieda’s Inc.

An ongoing trend for retailers is the use of private labels, and Caplan speculated that tendency may increase.

“With Tesco coming in with their Fresh & Easy stores, where 100% of their produce is private label, I would sense that would be bigger and bigger,” she said.

Christie noted that retailers may turn to their in-house value brand and use that private label on fresh produce to provide a “halo effect” if they sense consumers are more sensitive to price and fresh produce sales are flagging.

FOODSERVICE

Caplan said a slowing economy will cause foodservice operators to adapt. Some operators for instance, are ordering more produce online to save time and money, she said.

Others may tweak their formats. For example, she said one California restaurant operator who owns an upscale casual restaurant chain will be converting some of its units to “fast casual,” with a limited menu and different price points to go after price-conscious consumers.

Christie said expanding use fresh produce is a continuing trend of foodservice operators appealing to all demographics, and that reality would likely continue during an economic downturn.