NewsWire: 1/16/2020
- Pandemic-exhausted consumers are driving up demand for instant food options. Say goodbye to lousy instant coffees and microwave dinners; the latest wave of offerings bets that buyers will shell out for premium ingredients. (Bloomberg Businessweek)
- NH: Last October, Nestlé (NSRGY) purchased Freshly Inc. for an astounding $950 million. Freshly is a subscription-based frozen meal company that specializes in healthy foods. While frozen meals might conjure images of unappetizing 1960s TV dinners, Freshly has taken off with consumers. They deliver over 1 million meals every week. Instant food is booming, and Nestlé wants in.
- Since the pandemic began, consumers have been looking for high-quality food that's quick to make. Last year, Ritual Coffee Roasters started offering a premium instant coffee that retails at $20 for five packets. In 2020, their sales tripled from the year prior. Tovala, a company that makes smart ovens and gourmet instant dinners, had more new customers in November than in its previous two years combined.
- The reasoning behind the boom is consumers’ continued desire for convenience. The appeal of restaurants has always been twofold: better-tasting meals and someone else making the food. So while many foodies have taken up home cooking, many still desire the effortless experience of eating out. Premium instant food fills that void. (See “Is Covid-19 Making Us Eat Healthier?”)
- For me, this raises two questions--one theoretical and the other practical.
- The theoretical question is how such extravagant product innovation impacts inflation measurement. For many years now the BLS has been trying to deal with product improvements by constructing "hedonic regression equations" that compare the prices of goods with and without the improvement. Then, over time, the price of the overall good is deflated as the new improvement becomes standard.
- Yet this method has always struck me as suspicious. There are always a few wackos out there willing to pay a lot of money for some overhyped "feature." As that feature becomes standard--and as the fat-margin on that feature disappears--does this automatically mean that I'm getting a lot more value as a consumer even when I keep paying the same price? The evidence seems to indicate that no-frills products that are rarely improved (and that are mostly sold to low-income consumers) typically show more inflation than serially improved products sold to the affluent. Do you trust this statistical wizardry? Do we really understand how all this affects the CPI or PCE deflator?
- The real-world question is whether this "quality instant food" trend will keep growing. The answer clearly depends on how the pandemic plays out. Worse for longer will sustain the trend. So long as restaurants remain unsafe, many people who would normally eat out are going to stick to quick alternatives at home. Better sooner will cut the other way. But even then, IMO, your favorite barrista or waiter will have to win you back over again--and overcome the natural resistance of your newly formed habits. I doubt we will ever go back entirely to the way we lived before.
Did You Know?
- Are There Answers Abroad? Most Americans believe that the U.S. government can learn “a fair amount” or “a great deal” from other countries about handling the Covid-19 outbreak and reforming the health care system (both 74%), according to a new Pew survey. Majorities also think this is true of addressing climate change (72%), improving race relations (67%), and improving the economy (63%). But views differ significantly by age and partisanship. Young adults (ages 18 to 29) are the most likely to think the United States can learn from other countries by double-digit margins. Fully 86% believe that the government can learn from other countries regarding health care, compared to 75% of 30- to 49-year-olds and 67% of 50- to 64-year-olds. Democrats are far more positive than Republicans about the prospect of learning from other countries, which is more a reflection of high Democratic support than Republican skepticism. Across all of the policy scenarios, at least four-in-ten Republicans said they support the idea of looking abroad.
