Rosenfeld observation underscores challenge facing bakers
While Kraft Foods Inc. has no exposure to the North American fresh baking business, recent comments by Irene Rosenfeld, the company’s chairman and chief executive officer, merit attention from baking executives.
Explaining the decision to split Kraft’s global snack business from its North American food business, Ms. Rosenfeld described the latter in gloomy terms. “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.” She went on to describe a “new normal of slower consumption growth in North America.”
In Kraft’s case, this “reality” prompted pulling a ripcord to parachute its rapidly growing global business away from its plodding domestic business. But what does this stalled growth mean for baking, essentially a “landlocked” domestic business? Ms. Rosenfeld’s observations about average food segment growth as essentially flat applies to grain-based foods as well. The largest grain-based categories had average unit growth of 0.3% during the past 12 months, versus a 0.3% decline for the largest food categories.
While it’s clear that a number of factors may be contributing to the lack of growth, including the weak economy, less waste and greater attention to caloric intake, a number of mitigating factors are worth noting.
First, even when sales volume was growing in low-single digits, food industry profitability depended on many other factors, such as product mix and efficiencies, factors still crucially important today.
Second, it stands to reason that volume growth will not be zero forever in a country that still enjoys population growth, albeit modest.
Third, and perhaps most important, is the opportunity for every industry, including baking, to beat the average. Bread sales had a very poor year as measured by unit volume, with a 3.3% decline, measured by SymphonyIRI. But other mature grain-based categories posted gains, including cookies and crackers, each up more than 2%, and pasta, up 3%.
Ms. Rosenfeld’s comments make it clear the environment for bakers and other food manufacturers is not becoming easier. But with a fundamentally desirable product together with innovation, marketing and product promotion, plentiful opportunities exist if bakers will seize them.