Published on: February 26, 2008by Michael Sansolo
For very good reasons, many of us know far less about economics than we should. Even in economics classes in college we were reminded why it’s rarely the most popular subject. One economics professor once told me that economists are accountants without the personality. And that if every economist was laid end to end they still wouldn’t reach a conclusion.
In the world of economics, those are the best jokes we have. So it’s worrisome when economists become sexy. Get worried! Economics is coming back and it matters.
The headlines sound the warning almost daily. It’s more than the strange fluctuations in the stock market or the equally stunning changes in oil prices that happen weekly or even daily. It’s in the steady beat of two stories that should command our attention.
First, inflation seems to be rearing its ugly head, especially in the food industry. Recent government reports suggest that the four percent hike in food prices in 2007 and likely to be followed by at least as large a hike in 2008. The causes are laid far and wide, including the increasing competition between food and fuel for key products like corn and soybeans. The price hikes might be welcome in some circles as a chance for the industry to regain some rationality in pricing and to post some healthy growth numbers. But the second story shows why prices hikes won’t come without cost.
The second story is this: There are increasing signs of an economic slowdown, either through the mortgage mess, layoffs, reduced growth forecasts and more. Inflation and economic slowdowns rarely arrive together. But when they do it’s never good.
I was reminded of this last week while touring stores with a long-time industry veteran. As he pointed out, there are far too few people left in the industry who remember the early 1970s.
The early 1970s were when the US learned the word “stagflation,” the strange combination of inflation and stagnation. It was supposed to be an impossible combination, but it happened. As Ed Walzer, my editor at Progressive Grocer used to explain, it didn’t come lightly. In the early 1970s, the industry simultaneously confronted an end to cheap energy, cheap food, cheap money and rapid population growth. The combined impact of those four issues sent some supermarket companies into irreversible declines and gave rise to the era of generic products, massive discounting and the start of supplier deals and allowances.
Sounds really attractive, doesn’t it?
Only it’s what everyone should be studying these days. We need to understand how the softening economy and rising prices are changing shopping patterns and product selection. We need to start considering how shoppers who through the years have grown increasingly desirous of time saving products and other conveniences, will deal with restrictions on the purse strings. It’s time to examine how the industry can best align with the changing needs of the shopping population, to satisfy those needs as quickly as possible.
The combination of economics woes doesn’t necessarily mean the worst of outcomes. Food at home always has massive economic advantages. There’s the ability to use a single shopping trip to create a week’s worth of meals, which should ring true with shoppers looking to reduce gas usage costs. And while food made at home isn’t always cheaper than restaurants (an 89-cent hamburger is still a tough match) the food supermarkets offer can provide healthy, interesting eating choices that meet the many goals of today’s shoppers in an economical fashion.
Of course, it won’t be easy, but in tough economic times our ability to help the shopper solve their problems is the easy answer.
There are few more overused quotes than philosopher George Santayana’s warning that “Those who do not remember the past are condemned to repeat it.”
Michael Sansolo can be reached via email at firstname.lastname@example.org .
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