Difficult realities confront industry leaders seeking growth

by Josh Sosland
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Josh Sosland

A new generation of chief executive officers is taking the reins at leading packaged foods and beverage companies, all facing the challenge of sluggish top-line aggregate growth. While bold steps in pursuit of growth surely will be announced in coming months, the hurdle will be difficult to clear in the U.S. market.

Data gathered for the 2017 edition of Sosland Publishing’s annual Corporate Profiles help demonstrate the challenge. Of 37 leading categories tracked by Information Resources, Inc. with sales aggregating $229 billion in the year ended July 9, only nine had growth of 3 per cent or greater. The nine growing categories registered sales of $34 billion, or 15 per cent of the total. Two of the categories accounted for more than half of the sales in the group — bottled water ($11.2 billion) and ice cream/sherbet ($6.2 billion). By contrast, 24 categories with aggregate sales of $163 billion, or 71 per cent of the total, had sales growth of 2 per cent or less. Fully half of the categories saw sales either flat or down during the year.

For the many leading companies with diverse portfolios spanning a number of segments of the food and beverage business, the difficulty is even more apparent.

RXBAR
RXBAR currently has annual sales of about $120 million, equating to less than 1 per cent of Kellogg’s 2016 annual sales.
 


Recent noteworthy moves by Kellogg Co., Battle Creek, Mich., may illustrate the magnitude of the challenge faced across the industry. Steven A. Cahillane, Kellogg’s new chief executive officer, in early October announced the acquisition of RXBAR, describing the maker of clean label protein bars as “an excellent strategic fit for Kellogg as we pivot to growth.” Presumably additional significant moves will be part of this pivot, since RXBAR currently has annual sales of about $120 million, equating to less than 1 per cent of Kellogg’s 2016 annual sales.

Few packaged foods companies have pivoted more aggressively in pursuit of growth over the last two decades than Kellogg. Its acquisition in 2000 of Kashi Co., La Jolla, Calif., was among the first moves by a large C.P.G. company to take over a new-age entrepreneurial start-up that was chipping into the market share of an established category. Far more recently, Kellogg spent $2.7 billion in 2012 to acquire the Pringles business from Procter & Gamble Co.

In a September presentation in Boston, retiring c.e.o. John Bryant acknowledged that Kashi has been a challenge. Kashi management initially was left to run the business from La Jolla, was moved to Battle Creek, when performance failed to meet expectations, and more recently has been moved back to California as the brand continued to struggle. By contrast, Pringles has enjoyed steady growth since the 2012 transaction, growing mid- to upper-single digits. The transaction has raised snacks to half of the Kellogg total business and has greatly expanded the company’s international footprint. Still, for Kellogg to grow sustainably, its ready-to-eat cereal business needs to improve. Mr. Bryant described “stabilizing and driving Special K back to growth” as the company’s top priority.

Acquisitions like RXBAR and Pringles are critical to C.P.G. companies looking to enhance their portfolios. By all appearances, though, growth will come from elsewhere, perhaps from rebounding emerging markets and the food service industry.

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