Innovation popping at Diamond Foods

by Monica Watrous    View Me on Google+
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SAN FRANCISCO — Diamond Foods hopes to heat up snack sales with popcorn innovation. The category of ready-to-eat popcorn has been growing at a double-digit rate over several years, said Brian Driscoll, president and chief executive officer, and the company aims to snap up some of the share with new products from its Pop Secret and Kettle brands.

“It’s a category now that’s north of around $600 million in annual sales, so we think there’s a lot of staying power in that category, we anticipate the category to continue to grow,” Mr. Driscoll said during a June 5 call with financial analysts to discuss third-quarter earnings. “And we’re hopeful that we’re going to have a decent part of the share of the category as we establish our footing with our two new brands.”

Diamond Foods is set to launch Kettle brand ready-to-eat popcorn in four varieties: white cheddar, sea salt, maple bacon, and salt and pepper.

“First of all, the ready-to-eat popcorn category is growing quite rapidly, and the ones that are growing fastest are the ones that have clean label, all natural, they’re outpacing the entirety of it and driving the growth,” Mr. Driscoll said. “We believe that the Kettle brand, for instance, resonates quite well in that space. I mean, we have over a 60 share of the potato chip business in the natural channel, and we believe that the popcorn growth is sourced in part from all-natural chips, and so we believe the Kettle brand resonates real well with that consumer and has the credentials to really do well. I don’t think that some of the others that were in this space historically deliver the kind of credentials that Kettle is delivering in the category.”

Diamond Foods also is adding ready-to-eat varieties under its Pop Secret brand. Both ready-to-eat lines will be available in a soft launch over the coming weeks with full distribution planned later in the year.

“It’s approximately nine s.k.u.s at this point,” Mr. Driscoll said. “We will expand that as we take the ready-to-eat product into different channels, where different s.k.u.s and sizes will be required.”

Although the microwave popcorn category has been declining, the company said it will continue to innovate there, too.

“Frankly, we also recognize that the category’s been in decline, and that’s why we felt the need to launch into ready-to-eat popcorn, but we’re going to continue to innovate in microwave,” Mr. Driscoll said. “We are going to continue to plow money into microwave, but we’re also moving into ready-to-eat because we think that that category has real legs, that segment.”

Continued distribution gains for Pop Secret, as well as further strong volume growth for the Kettle business, drove a 9.6% increase in snack sales for Diamond Brands during the third quarter, which offset a 5% decline in the company’s nut segment sales. The company plans to apply its strategy in snacks to improve its nuts business, particularly the Emerald canister line of walnuts.

“First of all, we think the snack nut category is a very good category,” Mr. Driscoll said. “It’s growing quite nicely, and we think it’s going to continue to grow nicely. We think that the category addresses consumer needs in a very powerful way in terms of being nutrient dense, protein dense and so on.”

Forthcoming innovation on the canister line will better position Diamond Foods against competitors, Mr. Driscoll said.

“Obviously for competitive reasons I can’t share exactly what that is other than to say that we believe we have a range of options that is the next step to this transition that we believe will resonate in the marketplace,” he said. “That said, we’re exceeding our expectation on the on-the-go and convenience element of Emerald which is growing very nicely, and so I think that’s a demonstration, if you will, of the efficacy that this brand has. The brand name with the right proposition resonates with consumers, and we now have a portion of the business representing 50% of the business that’s growing very nicely, so the next stage is to take the canister business to the next level, and I believe we will do it.”

Diamond Foods widened its loss during the quarter on increased walnut costs and expenses related to debt refinancing.

For the period ended April 30, Diamond Foods reported a net loss of $105,633,000, which compared with a net loss of $15,582,000 in the prior year.

Net sales increased 3.2% to $190,892,000.

Snack sales climbed 9.6% to $114,255,000 during the quarter, while sales in the nut segment declined 5% to $76,637,000.
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