Major C.P.G. manufacturers having trouble getting noticed

by Keith Nunes
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KANSAS CITY — This past week both ConAgra Foods, Inc., and General Mills, Inc., issued their earnings for the fourth quarter and full year. Both companies struggled and cited a reduction in promotional efficiency as one reason. It would seem increased competition for promotional space at retail is resonating throughout the food and beverage industry, forcing consumer packaged goods companies to become more creative in their merchandising and promotional efforts.

“ … It is not a question of price point erosion or more aggressive levels of promotion,” said Don Mulligan, chief financial officer for General Mills, Inc., Minneapolis, during a conference call on June 25. “It really for us related to execution. We just see more and more of the players interested in getting merchandising. There are a limited number of places in the store to get that high quality that we want, which is really good placement on end-aisle displays coupled with the feature support that we know drives efficient merchandising.”

Ken Powell, the chairman and chief executive officer of General Mills, cited the yogurt category as an example.

“(There are) just lots of people coming in with new items,” he said. “So the competition for a limited number of quality display options, I would say, is increasing. So we continue to have very, very high confidence in our sales capability. We are really good at what we do there and we think we know the ingredients to successful execution.

“It always boils down to getting the right category-driving products on display in the right way at the right price point … So we know what to do. There is just more competition and demand, so we will have to up our executional game.”

Tom McGough, the president of ConAgra Foods’ Consumer Foods, segment, broke the issues his company had during the year into three pieces.

“In frozen, there has been an increase of overall competitive activity,” he said “We have bolstered our support. We’ve been competitive in our programs and our market share, primarily in the premium and value segments, with Marie Callender, Bertolli and Banquet, for the fiscal year are up both in terms of volume and dollar share. We feel like we’ve struck the right balance there and those our businesses that we will continue to invest in.”

Secondly, Mr. McGough said in such a tough competitive environment companies have to identify ways to “break through.”

“There are two ways that we’re doing that,” he said. “On Chef Boyardee, we’ve seen a lot of concurrent merchandising. We’ve traditionally enjoyed exclusivity in our events.

“Throughout the year, we’ve experimented with different approaches to get a higher lift. We had some very positive impact with that with some customers in Q4. We’re going to be implementing that on a much broader basis throughout the fiscal year, and we will see a better impact from that.”

Finally, Mr. McGough said it is about ideas.

“Where we do really, really well is when we bring those consumer insights, particularly around meal solution and easy-to-execute solutions for retailers, we win. We see that on Hunt’s, Ro Tel, many items in our portfolio.”

Both Sam K. Reed, the chairman, president and c.e.o. of TreeHouse Foods, Oakbrook, Ill., and Dennis Riordan, c.f.o., touched on this subject June 30 while discussing TreeHouse’s pending acquisition of Flagstone Foods. Neither cited competition as a reason for the reduced promotional effectiveness, but pointed to the consumer and overall innovation.

“From my perspective, as you look at the consumer sector of the economy, as the numbers for the first quarter have come out, and been substantially revised downward, and even when you take out the weather phenomenon and health care, what you come to is that the consumer segment of the economy continues to struggle,” Mr. Reed said. “The outlook people have is very guarded and while the macro data improve, that shoppers are, as they seek the best value in basic commodities, the goods and services that are absolutely required, they are still being quite careful in their outlook.

“That has a reflection on these retail reports from grocers, and in particular, the reports from branded food and beverage companies, as well. I would say that it’s broad in nature. It’s not only brands or private label; it’s not one class of trade versus another. But it’s the American consumer and what both retailers and manufacturers like us have to do is adapt to where they are.”

Mr. Riordan added that food and beverage companies must give consumers a reason to consume more of a specific product.

“As you look at many of the center-of-the store companies, the challenge has been sending the message as to why that product should be consumed more,” he said. “When you look at the perimeter and you read about organic and gluten-free, you read natural, you read (about) G.M.O. free, there’s a lot of reasons why people are given a reason to eat more of that and that’s been taking off. So, my view is the promotion is just timing, and that until you innovate and come up with new products and really convince a consumer why they should consume more, it’s just not going to work. Frankly, we’ve seen some large branded companies that potentially have fallen into that trap, where promotions just don’t seem to be driving volume and it’s because it's just not driving true consumption.”
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