The optimism surrounding the future of the pasta industry was on full display last week as World Pasta Day 2009 was celebrated at the Millennium Broadway Hotel New York Oct. 26. The event, which is sponsored annually by the International Pasta Organization at various locations around the world since 1995, was hosted in the U.S. by the National Pasta Association and Oldways.

With many of the world’s leading pasta manufacturers, nutritionists, scientists, culinary experts and journalists in attendance, the event served as a reminder of the power that pasta holds over consumer eating habits.

The timing for the United States to serve as host for the international event could hardly have been better, at least as measured by the breakout year experienced by the category in 2008 and continuing into 2009.

In a pasta "state of the union" address, Peter Smith, chief executive officer of New World Pasta Co., Harrisburg, Pa., noted that pasta was the fastest growing category in supermarkets over the past year as measured in units. In his presentation, Mr. Smith reflected on how consumers have rediscovered pasta’s many positives and offered insights into what will help sales momentum continue into the future.

Current performance is strong

Currently, pasta consumption in the United States is approximately 6 billionlbs, or about 19.8 lbs per person. The category, which consists of frozen, fresh, canned, sides and dry, is led by dry pasta. With compound annual growth of 13%, dry pasta sales are outperforming the overall pasta category, Mr. Smith said, citing Nielsen Strategic Planner data for 2006-09.

"What is a remarkable metric is, yes, we’ve benefited from inflation, but from a tonnage perspective we’re actually up 3%," he said, pointing to a 14% gain in dollar sales and 3% gain in unit sales in the 52 weeks ended Aug. 9, 2009, as tracked by Nielsen. "There has been no negative pricing elasticity in this business."

Within the dry pasta category, Mr. Smith said both white pasta and "healthy" (whole wheat, whole grain) pasta have performed well.

"The positive news is that both of these segments are very robust," he said, citing a 13.9% gain in white pasta dollar sales and 12.8% gain in healthy pasta dollar sales. "We have double-digit on the whole grain, whole wheat segment, and then white pasta is also doing very well. So this is a very healthy business within the United States right now."

Most (72%) of the dry pasta sales are in the grocery channel, Mr. Smith said, with super centers — led by Wal-Mart Stores, Inc. — accounting for an additional 15% of the sales.

"That is where we need to be very focused as an industry," Mr. Smith said of the 90% share controlled by grocery and super center channels. He added that dry pasta generated the highest unit growth rate among the top 100 categories in grocery stores during 2009, and was the No. 2 performer in terms of dollar sales. What this shows, he said, is that pasta is "critically important" to retailers in terms of its ability to draw traffic into the stores, to create price impression and to build the entire basket. The performance is something he expects the industry to replicate in 2010.

What’s driving the growth?

Looking at possible growth drivers, Mr. Smith said industry still has work to do to draw some of the pre-Atkins pasta consumers back into the business, as household penetration in the 52 weeks ended May 30, 3009, was up 0.5%. Purchasing frequency, on the other hand, was up 3.5% year over year.

"So we have the same number of households, but in today’s tight economic environment they’re buying pasta more frequently this year," he said. "They’re buying the same amount per transaction, but they’re buying more frequently, and that is what is driving the growth."

The inflationary impact on food during 2008, and on the pasta category specifically, was remarkable in that while the average food company took an 8% price increase and lost 4% of tonnage, the dry pasta category took a 24% price increase and grew unit sales by nearly 1%, Mr. Smith said.

"I have never seen that before in my entire career, that lack of elasticity," Mr. Smith said. The reasons, he said, include pasta being a great value, pasta being rediscovered by consumers on a budget, and consumption migration from "out of home" to "in home" dining.

The inflationary impact dynamic has continued in 2009, with the dry pasta selling price up nearly 4% and unit sales up almost 5%.

"Consumers are telling us this is a great value, we rediscovered it and we need to build upon this momentum," he said. "We need to continue to drive this business."

In order to continue driving the business, Mr. Smith said pasta manufacturers must focus on the incremental aspect of the business, including promotions, aggressive pricing, front page features and huge displays.

"The trade has clearly got behind pasta, saying, in this recession … we’re going to use pasta to drive people into our stores," he said. "As an industry, this is something we need to continue to drive in 2010. We cannot take our foot off the accelerator."

Managing s.k.u.s important

An area of the industry that must be watched with a careful eye is the aggressive reduction of stock-keeping units, Mr. Smith said. According to Nielsen, the average number of dry pasta items per store was 139 in the 52 weeks ended Oct. 3, 2009, down 2% from a year earlier.

"As an industry, we need to make sure that we’re very disciplined," he said. "We do not need to engage in s.k.u. proliferation. We do not need to come out with s.k.u.s that have no point, or no reason for being. We also need to make sure as we innovate and develop new products for consumers that they have to be addressing unmet consumer need gaps. They need to be big ideas. We cannot come out with little ideas or the trade is just going to continue to whittle down the items we have. That is something as an industry we need to be aware of. Each s.k.u. needs to work harder than it has in the past."

According to data from Nielsen presented by Mr. Smith, the heaviest pasta consumption is among large household families with children ages 13 to 17, particularly those with a combined income of $100,000 or more.

"That is important for us to understand because these are the consumers who have the disposable income for us to continue to innovate, to come up with innovative new pasta solutions and they will pay a premium for those solutions," he said.

In terms of age, the heaviest pasta consumption is among the key 35 to 54 age group, but with strong population growth expected to take place in consumers ages 45 and older industry must remain alert to potential avenues for growth.

"It is important to understand that changing dynamic because we need to start to market and develop our products to these consumers and they have different needs, things like portion control, things like ease of opening, things like health attributes and disease prevention," Mr. Smith noted. "This is something we can’t be static on. We need to be aggressively going after this. The same goes for ethnicity. As an industry we need to be cognizant of significant ethnic shifts in the U.S. Status quo is unacceptable and will not work. We need to continue to shift.

"To succeed you need to understand the key macro societal trends. It’s not where pasta is today, it’s where pasta is going to be in five years. We need to be ahead of that."

Future of pasta

So where will pasta be in five years? Mr. Smith pointed to four trends that consumer packaged goods companies are finding to resonate with consumers: lifestyle, population, health/wellness and taste. Those trends also apply to the pasta industry.

"Looking into the crystal ball, I think with pasta you’ll see more and more health offerings," Mr. Smith said. "This is going to become critically important. Think ‘health plus.’ Pasta with added health elements, maybe vitamin D, maybe antioxidants, but things that can help you maintain a healthier lifestyle.

"Think ‘health minus.’ We don’t have many minuses, but if there are any negatives, extract them.

"Think disease prevention. We think this will be one of the critical next platforms. As the population ages think of things that can help prevent disease, or help manage the heart."

Another possibility to further growth may come through culinary adventurism, he said.

"This whole idea of new tastes, new flavor combinations needs to be explored," Mr. Smith said. "Consumers are demanding restaurant quality and new flavor profiles."

Greater convenience also will remain at the forefront. Mr. Smith said the pasta industry needs to be "all over" pouches, portion control, easy-to-open and resealable innovations.

"As consumers age and become demanding, we need to make sure we’re making pasta that not only is the best value but one of the most convenient solutions," he said.

Finally, the development of more diverse ethnic offerings will be key to growth.

"We need to be able to develop products and cuts that the different ethnic groups are looking for," he said. MBN‘The Perfect Food’

Earlier this year the National Pasta Association launched a communication campaign called "The Perfect Food" with the objective of increasing the consumption rate among current pasta consumers, regaining lapsed users and developing a platform for a national roll-out. The six-month continuity campaign is taking place in a Florida test market and has been received favorably, with more than 34 million impressions, said Peter Smith, chief executive officer of New World Pasta Co., Harrisburg, Pa.

Mr. Smith said the N.P.A.’s strategies for the program include educating consumers on the health benefits of pasta, promoting the versatility of the products and leveraging the price/value benefit of pasta.

"There is never a better time in the history of this industry in the U.S. to leverage the price value," Mr. Smith said. "A lot of Americans are struggling financially, and they can have a meal for four for just a few dollars."

In getting across its messaging, the campaign is focused on showing pasta is a complex carbohydrate, has a low glycemic index, provides energy, is versatile and has value, Mr. Smith said. The message is being delivered via multiple channels, including a spokesperson, media outreach, a web site, sweepstakes, 360 integration and television integration.

"Year two will be much more ambitious next year," Mr. Smith said.