NEW YORK, March 10, 2019 (BSS/AFP) – Buffeted by rising consumer taste for
fresh ingredients, competition from upstarts and a tricky retail environment,
150-year-old Campbell Soup now finds itself having to rethink the business of
soup.
It is a similar tale at Kraft, whose once-popular yellow and white cheese
singles are no longer ubiquitous. And at Kellogg, which has seen demand for
cereal go soft.
As the travails of these and companies show, iconic brands that dominated
20th century American supermarkets are having a much tougher time in the
Amazon-Whole Foods era.
Kraft Heinz last month announced a steep annual loss following a $15.4
billion asset impairment, partly from writing down the value of the Oscar
Mayer and Kraft trademarks.
Some experts see a broader reckoning in the American food industry akin to
the shakeout in other sectors, though technology is not really the main
culprit in this case.
Many of Kraft Heinz’ products are “geriatric brands” that were “created in
the early or mid-20th century, at a time when consumers aspired to eat
‘American food’ and advertising reached almost everyone through television,”
said Anastacia Marx de Salcedo, author of “Combat-Ready Kitchen,” a history
of processed foods.
By contrast, today’s consumers are more ethnically diverse, health
conscious and food adventurous, she said, adding that many of the older
brands will see market share fall further or disappear entirely.
– Saved by treats, snacks –
The industry’s response thus far has included healthier options that are
low-fat, low-sodium or gluten-free items. There are also more flavors of
flagship products, with Special K breakfast cereal now available in vanilla
and almond as well as blueberry with lemon clusters, among other options.
But these efforts have not reversed the trend.
Major food companies also have popular cookie and snack products that can
make up for weakness in other products, although the industry’s overall
record with consolidation is mixed.
Campbell Soup, which has faced pressure from activist investor Daniel
Loeb, has offset weakness in soup with solid Pepperidge Farm sales.
The company acquired Pepperidge farm, known for Milano cookies and “Gold
Fish” crackers, in 1961.
But Campbell Soup last year wrote down $748 million mostly on a 2011
acquisition Bolthouse Farms of refrigerated salad dressings, carrots and
other fresh foods it now plans to divest.
Soups, meanwhile, remain challenged, suffering lower US sales in 2018.
Campbell’s blamed the decline on the change in promotion strategy by a major
retail customer and said retail sector consolidation and the rise of private
label competitors could further affect sales, according to a securities
filing.
Campbell’s new Chief Executive Mark Clouse, said last month he was still
developing a strategy for turning around soups but that a “much more holistic
and comprehensive” approach was needed.
– Targeting Rover –
At General Mills, which announced a $193 million write down last year on
Progresso soups and two other brands, part of the strategy is to diversify.
Last year, General Mills, which makes Cheerios cereal, Yoplait yogurt and
Haagen-Dazs ice cream, bought natural pet food company Blue Buffalo for $8
billion, a sum that raised eyebrows with some analysts.
Chief Executive Jeffrey Harmening gave a bullish outlook on the brand
during a recent conference call, highlighting wet pet food and treats as two
growth areas that have high profit margins.
Treats “are just pet food speak for snacking and we see snacking can trend
in human food and we see it in Pet the same way,” Harmening said, calling the
dynamic the “humanization of pet food.”
– Whither Miracle Whip? –
But the dangers of acquisitions were underscored with Kraft Heinz, which
shareholder Warren Buffett has said was a case of spending too much.
Baruch Lev, an accounting professor at New York University, said big
mergers like Kraft-Heinz usually underperformed, undermining the logic of
further deal making by the company.
Daniel Binns, chief executive of Interbrand NY, said some of Kraft Heinz’s
brands, such as pasta sauce Classico or Philadelphia cream cheese can be
successfully updated, while others, such as Jell-O or Miracle Whip sauce
could fade further.
“It’s so rooted in another era,” he said. “You’re not going to create a
Miracle Whip for the 21st Century that’s going to appeal to the farm-to-table
consumer.”
But Moody’s analyst Brian Weddington predicts leading food companies will
adapt to changing consumer needs over time, adding that established brands
still have credibility.
“Brands like these still resonate with the core consumer,” he said.
“There’s no question that more consumers are looking for premium or fresher
products, but there will always be a very large market for products that give
you consistency and value as well. Everyone can’t afford organic products.”