Milling & Baking News Corporate Profiles - October 2011 - (Page 8)

Editorial Headwinds yes, but improvement looms ooking for the way to offer a hopeful view of the consumer packaged foods industry may seem like a difficult or even foolish chore in the fall of 2011 given the array of influential voices that, at some level, offer what at best is a sober assessment of the current picture as well as the outlook. Miniscule sales growth combined with chronic pressure on profit margins have created as difficult an environment for food company executives as any have experienced in the present generation. Perhaps the most blunt account of the picture for food companies is offered by Irene Rosenfeld, the chairman and chief executive officer of Kraft Foods Inc. “Simply put … the U.S. has stalled,” she said. “In the 19 largest food and beverage categories, the average growth rate has plunged from about 5% compound annual growth to essentially flat last year.” A review of SymphonyIRI scanner data shows that while many top 20 categories, including sports drinks and granola bars, enjoyed robust growth during the past year, these were more than offset by downturns in other prominent categories, such as bread and ice cream. Overall, unit sales at channels tracked by SymphonyIRI declined in the past year. As Indra Nooyi, chairman and chief executive officer of PepsiCo, Inc., says, the difficult sales picture is unexpected and layered on what already was a challenging situation for managers of food businesses. “As we knew we would, we had exceptionally high levels of commodity inflation,” Ms. Nooyi noted in July. “That said, it is the consumer and competitive picture that has become more difficult than we expected. Consumer category demand was lower than we anticipated because overall retail foot traffic and basket sizes have declined and the category pricing environment was tough. These factors led to lowerthan-expected price realization and a delay L in some of our planned pricing actions.” The lack of growth in the domestic packaged foods industry takes on a particularly disappointing appearance when contrasted with the extraordinary growth of the global food business. Many of the same companies that appear stuck in their tracks domestically are enjoying dizzying growth in emerging markets around the world. Ms. Nooyi, whose company is well positioned in some of the categories actually growing in the United States (granola bars and sports drinks), made this point well earlier in the year. “More than ever, any company’s growth is going to be defined to the extent to which they have a presence in developing and emerging markets,” she said in February. “And I believe this trend will continue into the future as developed markets’ growth rates slow down and developing and emerging markets pick up.” While no one disagrees that the circumstances for the food industry are difficult, sober reflections suggests a brighter picture for the industry than indicated by these observations. At the most basic, the U.S. food industry, even in its current straits, remains far more stable than many if not most other segments of the struggling U.S economy. But there is good reason that an even stronger case may be made about the outlook for the processed food industry than simply saying, “Well, look how much worse it could be.” To begin with, the inflationary environment that has buffeted food companies in recent years will not continue indefinitely. While it would be imprudent to project input costs rising no further, it may be said that prices will not continue to rise indefinitely. The adage “the best cure for high prices is high prices” still applies and tops will be hit. Yes, volatility may be a thorn in food companies’ sides for the foreseeable future, but chronic inflation is unlikely to go on and on. Similarly, faith in the underlying strength of the U.S. economy suggests that perhaps the toughest headwind facing food companies will ease. More than in previous recessions, the economic weakness that began with the financial crisis of 2008 has undermined the food industry from a number of angles, reducing food service business, dimming the consumer’s appetites for new products, pressuring prices and lower waste. As the economy improves, which it certainly will, there is good reason to believe consumers will offer food manufacturers an opportunity to woo them back. Processed food companies will have a great opportunity in the years ahead to demonstrate their ability to meet changing consumer demand for more than just convenience and value. Manufacturers continue to demonstrate they are able to adapt to the changing tastes of consumers. As understanding of nutrition continues to grow, even as currently seems a glacial pace, food manufacturers will be well positioned to offer truly healthful solutions rather than the faux health and wellness that continues in the form of fad diets and a reflexive mistrust of many of the processed foods industry’s products.. Finally, major food companies are positioned to capture the public’s trust when it comes to food safety. Like health and wellness, as understanding of this issue expands, the food industry’s ability to offer safe food will become ever more evident. Yes, heady growth is unlikely to be in the food industry’s future. But growth, respectable growth, most certainly will return. CP L. Joshua Sosland 8 \ October 2011 Milling & Baking News • Food Business News • Baking & Snack • Meat & Poultry Corporate Proﬁles

Table of Contents for the Digital Edition of Milling & Baking News Corporate Profiles - October 2011

Milling & Baking News Corporate Profiles - October 2011