Bargain-hunters buying groceries at auction

Out of toilet paper? Need to pick up a few things for dinner? Take a number and start bidding.

Many bargain hunters these days are trading supermarket aisles for the auction circuit in search of deep discounts on everything from cereal to spare ribs. Past the sell-by date? Bidders are happy to ignore that detail if they're getting a good deal.

As consumers seek relief from the recession and spiraling food prices, grocery auctions are gaining in popularity as an easy way to cut costs. The sales operate like regular auctions, but with bidders vying for dry goods and frozen foods instead of antiques and collectibles. Some auctioneers even accept food stamps.

When Kirk Williams held his first grocery auction in rural Pennsylvania last month, nearly 300 people showed up. Astonished by the turnout, he's scheduling auctions at locations throughout northeastern Pennsylvania.

"Right now, people don't have a lot of spare pocket change," said Williams, 50, operator of Col. Kirk'sAuction Gallery near Bloomsburg, Pa. "They're looking to save money."

Rich Harris, 28, who was recently laid off from his welding job, showed up at Williams' auction in Dallas earlier this month looking for meat for his freezer and snacks for his kids. With his wife pregnant with their third child, "I'm basically trying to expand my dollar right now," he said. "The deals, they seem to be fairly good."

Grocery sales make sense for auctioneers, too. Sales of baseball cards, estate jewelry and other auction staples have "fallen off a cliff," Williams said. He hopes to average about $12,000 in sales per auction, which would net him a profit of about $1,000.

The popularity of the auctions — which sell leftover or damaged goods from supermarkets, distribution centers and restaurant suppliers — comes at a time when people are stretching their grocery budgets by using more coupons, buying inferior cuts of meat, and choosing store brands over national brands.

The economic downturn, paired with the worst food inflation in nearly 20 years (grocery prices spiked in 2008 before easing in January and February), has caused a "seismic shift" in consumer behavior, said Brian Todd, president of The Food Institute, an industry information service.

"Food is one area where they can save," he said.

The increased interest has fueled growth in the auctions, which can be found in at least nine states from Oklahoma to New York.

Banana Box Wholesale Grocery, a Kutztown, Pa.-based food brokerage that supplies salvage grocery stores around the nation, has seen a marked increase in calls from auctioneers getting into the food business, said manager Greg Martin.

At Steve Schleeter's groceryauction in St. Mary, Ohio — where attendance has swelled in recent months — some regulars have told him they now do most of their shopping at the auction and only go to the store for milk and lunch meat. He estimates his customers can knock 50 percent off their grocery bills.

Cherish Francik, 42, who works for the Social Security Administration, said she wouldn't have been caught dead at a grocery auction or even a discount food store a few months ago. But the tough economy has turned her into a tightwad.

Now she brags to her co-workers about her frugality.

"Most of my life, I've been a brand-name shopper. It was a quick change for me, a real quick change," said Francik, whose haul from the Williams auction included trail mix, honey-barbecue chicken nuggets and a spiral-cut ham. "I guess it's sort of a thrill now to find something that tastes good and is the right price."

Inside the auction hall in Dallas, a small town north of Wilkes-Barre, Pa., Williams uses a singsong, rapid-fire delivery to sell everything from frozen broccoli (six boxes for $2) to pork ribs ($20 for a 14-pound hunk) to candy bars (10 Baby Ruths for $2). Especially popular are the frozen foods — pies, bratwursts, chicken breasts, popcorn shrimp, whole hams, french fries.

Displaying an 11-ounce bag of cheese curls that retails for $1.99, the veteran auctioneer chants: "Dollar and a quarter, dollar and a half. Dollar and a quarter, buck and a half. Buck and a half, buck seventy-five."

His colleague, Roger Naugle, stops the bidding at $1.50.

"Who wants the cheese curls?" Williams says. "Down there, No. 17 wants two. No. 7 wants one. No. 33 takes two. Guys, who else? These are so good. Anybody else on the cheese curls? Anybody, anybody, anybody else? All fresh and in date."

As workers fan out with armloads of bags, Williams tees up the next item. And on it goes, for hours. Customers head to their cars balancing precariously overloaded boxes of food.

Some of the goodies have wound up here because they're out-of-date. But the auctioneers stress that they're still OK to eat. The Food and Drug Administration does not generally prohibit the sale of food past its sell-by or use-by date — manufacturers' terms that help guide the rotation of shelf stock or indicate the period of best flavor or quality.

"There is not one thing in this sale today that Kirk or myself will sell you, that we would not, do not, will not, or have not taken home to our own families!" Naugle tells the crowd.

Linda Dennis, a group home manager from Wilkes-Barre, said she wasn't fazed by the Feb. 9 sell-by date on a bag of frozen pizza bites.

"The quality and taste may go down, but that doesn't mean you can't eat it," she said.

The same kinds of goods sold at grocery auctions also find their way to salvage stores, flee markets, closeout sales and food banks, though Williams said he avoids merchandise that is severely damaged or well past expiration.

Like any auction, grocery auctions aren't automatically a bargain. Savvy bidders should know what things cost at the supermarket to make sure they're truly saving money. The excitement sometimes leads bidders to overpay.

"Every once in a while, a customer bids it, and you're going, 'I'm pretty sure that's cheaper in the store,'" said Schleeter, the Ohio auctioneer.

For the most part, though, the auctions pair food that needs a home with consumers who want to save a buck.

Marvin Mason, who runs grocery auctions in Indiana, Michigan and Ohio, said the percentage of shoppers who use credit cards and food stamps instead of cash has increased, indicating more people are showing up out of necessity.

"We've had more people who are needy, who have to watch their money," he said.

Global Crisis Brewing for Cocoa Growers

Crop disease, aging trees and resulting lower yields will prevent significant cocoa production growth in the biggest producing countries Ivory Coast, Ghana and Indonesia, experts said Saturday.

Cocoa yields have fallen in Indonesia's top growing region Sulawesi due to the disease cocoa pod borer and aging trees, said Peter Petersen of the Olam Group, speaking on a panel at the Cocoa Merchants' Association of America International Cocoa Conference.

Lower household income has also forced farmers to redirect funds to their basic needs instead of improving crop production, Petersen said on the gathering's last day.

Production in Sulawesi fell 45 percent in the 2007/08 crop year, from 2005/06, and has shown no sign of recovery in 2008/09, he said.

On the other hand, cocoa production in Indonesia's Sumatra, the second biggest cocoa producer in the region, has doubled in the last four years amid low pest pressure. But Petersen did not see the area growing enough to make up for Sulawesi's fall.

The world's biggest producer Ivory Coast faces a flood of problems ranging from aging trees to poor farming that could hinder production, said Frederic Wenger of Noble Resources.

Wenger sees the Ivorian 2008/09 crop at 1.28 million tonnes, on a botanical crop basis that does not look at bean arrival figures. An adjusted trend suggests a 68 percent chance that the 2009/10 crop will stand between 1.115 million tonnes and 1.343 million tonnes, he said.

Many farmers are also growing "turn-key" rubber farms, growing rubber trees amid their other crop to either harvest both crops or switch to rubber production when the trees mature.

Managing director for London-based Primary Commodity Research Robert Fish projected the world's second biggest producer Ghana will harvest 730,000 tonnes in 2008/09, up from 717,000 tonnes the year before.

It will be difficult to sustain growth, he said, partly because the expansion in the western region appeared to be slowing.

Derivative Markets...an understandable explanation

I am breaking away from our usual blog and for my readers this is a great understanding why we are in this mess today! Have fun reading but boy does it make sense.

Heidi is the proprietor of a bar in Detroit. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Heidi's drink now pay later marketing strategy and as a result, increasing numbers of customers flood into Heidi's bar and soon she has the largest sale volume for any bar in Detroit . By providing her customers' freedom from immediate payment demands, Heidi gets no resistance when she substantially increases her prices for wine and beer, the most consumed beverages. Her sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes these customer debts as valuable future assets and increases Heidi's borrowing limit. He sees no reason for undue concern since he has the debts of the alcoholics as collateral. At the bank's corporate headquarters, expert traders transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then traded on security markets worldwide. Naive investors don't really understand the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, their prices continuously climb, and the securities become the top-selling items for some of the nation's leading brokerage houses who collect enormous fees on their sales, pay extravagant bonuses to their sales force, and who in turn purchase exotic sports cars and multimillion dollar condominiums.

One day, although the bond prices are still climbing, a risk manager at the bank (subsequently fired due his negativity), decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar. Heidi demands payment from her alcoholic patrons, but being unemployed they they cannot pay back their drinking debts. Therefore, Heidi cannot fulfill her loan obligations and claims bankruptcy. DRINKBOND and ALKIBOND drop in price by 90 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %. The decreased bond asset value destroys the banks liquidity and prevents it from issuing new loans.

The suppliers of Heidi's bar, having granted her generous payment extensions and having invested in the securities are faced with writing off her debt and losing over 80% on her bonds. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 50 workers.

The bank and brokerage houses are saved by the Government following dramatic round-the-clock negotiations by leaders from both political parties. The funds required for this bailout are obtained by a tax levied on employed middle-class non-drinkers.

Finally an explanation in language I can understand ...

A hint of success -- and looking for more

Kara Goldin used to get frustrated by the lack of healthy drinks available on supermarket shelves for her growing family.

She searched high and low, conducting her own informal research on every so-called enhanced or vitamin-enriched water she could find. None of them passed muster, she says, as they contained a ton of additives or worse yet, sugar.

"Any place that was selling beverages, I grabbed things," recalls Goldin, founder and chief executive of the small, but fast-growing flavored water company Hint Inc., during a recent telephone interview. "Everything had sweeteners in them."

So in 2004 the former AOL executive and mother of three decided to do something about it. She put in motion plans to commercially produce a drink akin to a home-made concoction of water infused with a touch of fruit - her own beverage of choice after weaning herself off Diet Coke. It was a drink that her friends and children (she now has four) also found appealing.

Goldin, 41, convinced her husband, an intellectual property attorney who had worked for Netscape and been involved with startups, to back her decision to pull $50,000 from their savings account for the production of the first batch of this new form of bottled water.

She had no background developing consumer products, but instead relied heavily on prior retail experience as former vice president of shopping and e-commerce for AOL, a business that Goldin grew from a startup to one with more than $1 billion in revenue in seven years.

"It cost a lot more than $50,000," jokes Goldin, who a year ago raised Hint's first round of financing from a venture capital group, adding roughly $2 million to an initial $500,000 from friends and family.

"I was going to load up my Grand Cherokee and go to Whole Foods and tell them that they needed this product," she says. "It was a lot more complicated than that."

Today, San Francisco-based Hint, which is backed by the slogan "drink water, not sugar," is betting on 2009 sales of about $6 million - roughly double those of last year. Goldin's husband now has a formal role in the company as chief operating officer, one of some 20 employees working to carve out a niche for Hint in the estimated $12.1 billion U.S. bottled water market.

Austin-based Whole Foods Market Inc. is now among Hint's largest customers. The company also sells all 13 flavors of its 16-ounce purified additive-free waters, including honeydew hibiscus, pomegranate-tangerine and cucumber, on its web site, drinkhint.com, at $44 for a 24-pack case. At retail, the drinks sell for $1.39 to $1.99, depending largely on the region.

CONVENIENCE, HEADWINDS

"Shopping is all about convenience," says Goldin, who is trying to build multiple outlets for her additive-free water. In addition to the organic channel, Hint is pushing into mainstream and mass groceries such as Ralphs, Kroger and Costco. The company is also working with a distributor to canvas independent sandwich shops, college campuses and mom-and-pop stores, with a primary emphasis on large markets such as Los Angeles and New York.

"The hardest thing for us - a lot of the stores are not keeping enough inventory on hand because they're nervous," says Goldin, acknowledging just one of the difficulties of building a brand during a recession.

Garima Goel Lal, a senior beverage analyst for market research firm Mintel, says that other hurdles include an increasing sense of consumer frugality and a growing environmental backlash targeted at plain bottled waters that could eventually spill over into the enhanced water category. Also working against Hint is the ability of big brands controlled by beverage giants to run heavy price promotions.

"Companies like Coke and Pepsi have quite a bit of leverage," says Goel Lal. Even so, she says Hint has some positive trends working on its behalf. According to Mintel, enhanced waters were the fast-growing part of the bottled water market between 2006 and 2008. Glaceau, the leading brand in the category, grew 156 percent during this period, with $500 million in sales in 2008.

Hint also has a no-fee licensing deal with the Walt Disney Co. that Goldin says helps to increase brand awareness for some of its products; it is preparing to introduce children's packaging for the product- complete with the addition of fluoride - in coming months. And while Hint has no traditional advertising budget to speak of, it has managed to create a buzz with the backing of celebrities such as Victoria Beckham, Miley Cyrus, and Sarah Michelle Geller as well as media coverage on national television such as CNN. According to Goldin, director Steven Spielberg is a big fan.

Goldin, who recognizes that competition in the water market is filled with choices, attributes much of her success to grass roots efforts to stay in close touch with the groups that influence products on store shelves - buyers and consumers.

"We're pretty aggressive about going into the buyers and showing them everything that's in the category," she says. "And at the store level, sampling is so critical."