Will egg safety concerns top the list of Proposition 2 problems?

U.S. consumers expect a lot from the companies that produce and sell them food, and from the food itself. David Fikes, vice president-consumer/community affairs and communications, Food Marketing Institute (FMI), said consumers will make decisions on where to shop based on a retailer’s social responsibility efforts.

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Environmental impact was named by only 5 percent of consumers as the most important component of egg sustainability.
Environmental impact was named by only 5 percent of consumers as the most
important component of egg sustainability.

U.S. consumers expect a lot from the companies that produce and sell them food, and from the food itself. David Fikes, vice president-consumer/community affairs and communications, Food Marketing Institute (FMI), said consumers will make decisions on where to shop based on a retailer’s social responsibility efforts. He told the audience at the recent United Egg Producers Executive Conference in Albuquerque, New Mexico, that 87 percent of consumers surveyed said that “giving back to the local community will be the minimum acceptable level of social responsibility.”

“The values proposition in the mind of the consumer is what is starting to drive the train,” Fikes said. “It isn’t just about taste, price and convenience anymore.”

Charlie Arnot, president, CMA consulting, reported on the results of a survey in which consumers were asked to rank which of five elements of sustainability they thought was the most important in a sustainable egg supply (Figure 1). Sixty-one percent of the consumers surveyed chose food safety as the No. 1 priority for sustainability, and hen health and well-being was a distant second at 22 percent. The term “sustainability” is usually used in an environmental context, so it was somewhat surprising that “environmental impact” was chosen as the most important element of a sustainable egg supply, by only five percent of consumers. He reported that there were no significant differences in responses by age, children living at home or marital status.

Food safety & Prop 2

Fikes said research demonstrates that consumers are more concerned about food safety than they were in the past, and that they hold themselves and the food retailer as being greatly responsible for food safety. In a 2013 Center for Food Integrity Survey, 63 percent of consumers said they were concerned about food safety (Table 1).

The fact that the standards established by the California Department of Food and Agriculture (CDFA) for meeting Proposition 2 requirements are set up as “food safety regulations” has raised some questions in the minds of consumers, according to Fikes. He said that the perception for some people is now that cage-free eggs, or at least Proposition 2-compliant eggs, are safer to eat than other eggs.

“The possibility that cage-free eggs are somehow safer than conventionally produced eggs is rippling through the food safety circles, not just in California,” Fikes said. He said retailers will need to be ready to answer consumer questions on this topic.

Arnot, who moderated the discussion of Proposition 2’s potential impact on the retail egg market, asked Fikes and Ron Fong, president and CEO, California Grocers Association, what they thought were the best-case and worst-case scenarios after Proposition 2 takes effect on January 1, 2015, in California.

“The best-case scenario is that there will only be weeks or months of confusion and short supply of eggs in California and that supply and demand for this will be worked out relatively quickly," Fikes said. "Worst-case scenario is that the food safety aspect of this gets picked up on by social media and that this grows to pink slime proportions. Then the food safety of all eggs is questioned and we have a rampage of mommy bloggers filled with misinformation or half information putting Salmonella on everyone’s lips even more than Ebola.”

“The best-case scenario is seamless," Fong said. "No problems, customers come January 1 have lots of eggs and lots of choices. The marketplace takes over, we are good to go. Worst-case scenario is litigation. Labeling is incorrect or some bills of lading aren’t correct, someone figures it out, and one of our retailers gets sued. We are the hotbed of litigation in retail grocery.” He explained that not many people would know the names of the egg producers or distributors, but everyone knows who the retailer is, and this makes them the target for lawsuits.

Are California retailers ready?

Fong addressed the question of whether California retailers are ready for Proposition 2. He said, “We are not spending a lot of time thinking about egg compliance" on January 1, 2015. They are not spending a lot of time, Fong explained, because they have other things to work on now, but also because of “mixed messages” coming from egg producers. Some egg distributors have expressed concern that there will be egg shortages, but others say, “don’t worry about it, we have you covered.” Fong said that retailers aren’t concerned if their distributor has promised them that they will have enough eggs.

Retailers use multiple sources, so if one supplier can’t meet their needs, they will try to get it from someone else, he reported. “Somebody will get me eggs,” Fong said. Many large retailers in California are already selling eggs labeled as “California Shell Egg Compliant,” according to Fong. He said he worries about the independent and small mom-and-pop grocers not keeping up with what Proposition 2 requires.

Fikes said that Proposition 2 has not become a big issue yet for the consumer affairs and communications professionals of retailers. At this time, he said many FMI members ask, “Isn’t this a producer issue?” But, he said, "we (retailers) are going to get caught in the crosshairs on this issue (if anything goes wrong).”

Shared values

Fikes said consumers want to buy products from retailers that share their values. They don’t want to have to think about every product and brand they buy; they want the retailer and the producer to take care of this for them. Because of a potential negative effect on a retailer’s image of selling a product that doesn’t align with consumer values, the decision to sell an organic or cage-free egg is more than a decision about egg sales for the retailer; the retailer also has to factor in the impact on their sales of other products.

Fong said that the “grocer-with-a-conscience stuff is big deal.” He said that the poster child for this approach is Whole Foods, which has used this image to grow rapidly and profitably. Whole Foods customers are extremely sensitive about where its food comes from.

Fong said that the grocer with a conscience is really big for younger shoppers. These consumers don’t have to worry about all the things associated with the products they buy -- sustainability, animal welfare, etc. -- because they are going to shop at a store/restaurant that will only sell products that meet their wishes. The distinction between a traditional grocer, which might offer a choice of types of eggs including those from cage-housed hens, and a “grocer with a conscience,” which might only have cage-free, organic or free-range eggs, could make quite a difference in how the layer industry in the U.S. looks in the coming decades.

When asked what the future of cage-free egg sales would be in California, Fong said that cage-free will continue to grow in California.

Prop 2’s impact on egg prices

Members of the audience at the Executive Conference asked Fikes and Fong what they thought the consumer reaction would be if Proposition 2 causes retail egg prices to spike in California. Fikes said that the big concern for retailers is that Proposition 2 will lead to a shortage of eggs that are Proposition 2 compliant, particularly cage-free eggs. He said there is concern that, as prices rise in California, this will attract cage-free eggs that would have gone to stores in other states, creating shortage there.

Fong said that, if eggs are super high in price, retailers will have to decide if they will reduce their margin on eggs and sell them at cost or even at a loss. He said there may be a false price or marketplace at retail.

Fong said the California Grocers Association has told its members that all eggs on the shelf on January 1 must be Proposition 2 compliant. Fikes said he suspects there will be a lot of eggs for sale at reduced prices December 31.

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