Strategic shifts in place for Kettle, Emerald brands
November 16, 2012
by Eric Schroeder
SAN FRANCISCO — Diamond Foods, Inc. is putting significant shifts in strategy in place for its Kettle and Emerald brands, said Brian Driscoll, president and chief executive officer.
The moves, Mr. Driscoll told analysts, are part of “an extensive business improvement process, focused on financial and operational visibility and performance.” Diamond Foods on Nov. 14 issued restated financials for the first nine months of fiscal 2012, as well as the full years 2011 and 2010.
With its financial statement situation finally cleared up, Diamond Foods is moving on to improving its earnings and margin growth profile.
In the case of Kettle, the brand has potential for top-line growth and margin expansion, but the company’s prior strategy of rapidly accelerating growth in mainstream penetration by relying on discounting has to change, Mr. Driscoll said.
“This approach to top-line growth was inconsistent with Kettle’s premium positioning, and was margin dilutive,” he said. “The fundamental underpinnings and origin of this brand are its natural, authentic and premium quality credentials.”
Mr. Driscoll said Diamond has refined its brand marketing strategy on Kettle to feature more brand equity-inspired activity and innovation with less discounting.
“Frankly, I think an approach on a brand like Kettle of discounting can denigrate the brand,” he said. Mr. Driscoll pointed out Diamond does not intend to make the Kettle brand more expensive, but rather build its presence in channels that are not focused on heavy discounting.
“In terms of being selective in the markets that we go to, and the customers that we go to, we’ll make sure that we’re doing it the right way, and we’re getting the right households that are not discounting households but are households that are going to be with the brand and looking to pay a little extra money for a brand like Kettle,” he said.
A shift in strategy also has been implemented with Diamond’s Emerald nuts business. The company’s earlier focus on driving growth through heavy promotional spending and stock-keeping unit proliferation “significantly impacted the financial contribution of the brand,” Mr. Driscoll said. Additionally, investments made in packaging and product innovation did not translate into premium price realization, and rapid volume build never achieved acceptable scale economies, he said.
“Therefore, we have made a significant shift in strategy and are confronting these issues with a number of measures, which include a more streamlined and differentiated portfolio positioning, which leverages our more competitively-advantage offerings, like cocoa and vanilla roast almonds, sweet and salty mixed nuts, and 100-calorie packs,” he said. “We believe that these offerings have meaningful market potential and can earn a price premium.”
To align with its new brand strategy, Diamond Foods plans to eliminate more than 170 Emerald s.k.u.s, which represent about 65% of the brand’s total s.k.u.s and about 20% of the brand’s revenue. The action contributed to Diamond’s decision in late October to close its Fishers, Ind., plant.
“While the brand is getting smaller, our goal is for Emerald to play an important and innovative role in the category,” Mr. Driscoll said.