CME: Food Service Sales Present Good Outlook for Meat Markets
02 June 2015
US - Foodservice sales business appears to be in great shape and this is nothing but good news for the livestock sector, write Steve Meyer and Len Steiner.
The latest data from the National Restaurant Association “Restaurant Performance Index” showed robust growth for all categories.
The index for April 2015 stood at 102.7 points, 0.5 points higher than the previous month and a full point higher than in April 2014.
This restaurant performance index has been steadily gaining ground since 2014 and the last time we had similar performance was in 2004 and early 2005. Both the current and expectations components of the index have been moving higher.
The index tracking current situation was quoted at 102.9 compared to 101.8 in March. We think this largely reflects the notable improvement in business conditions after a particularly difficult winter in the Northeast.
The recovery likely helped bolster beef demand in April, coincident with the sharp rally in cattle and fed beef prices.
The customer traffic indicator took a hit in the first quarter of the year, understandable given the disruptions caused by near record snowfall in heavily populated areas.
The April customer traffic index jumped to 103, almost two full points higher than the previous month.
The improvement in the customer traffic index is a particularly positive indicator for demand going into the summer. Beef/cattle prices should benefit the most from the improvement in foodservice demand and we already have seen this in the demand calculations, with Q1 retail beef demand index jumping 13.6 per cent compared to the previous year (Kansas State calculations).
Per capita expenditure analysis also presents a similar demand picture (see May 11 DLR).
A number of factors have supported the improvement in foodservice business but we would highlight two:
1) Per capita disposable income growth has been quite robust and there is a strong relationship between income growth and foodservice sales (see two charts to the right).
2) Unemployment numbers continue to decline and the economy has added 3.3 million new jobs since April 2014. More people with jobs and higher incomes normally is a good recipe for strong foodservice demand and the latest restaurant index is evidence of that.
We don’t have a breakout of the performance by segment, but data for March showed very strong gains for the ‘fast casual’ concept, with 90 per cent of operators indicating higher same store sales.
Family dining also has made a significant turn around. Fast food business appears to be doing well but 26 per cent of operators indicated lower same store sales compared to just 10 per cent in the fast casual segment.
Bottom line: A very positive foodservice report that bodes well for meat demand in general, and beef demand in particular, over the summer months.
The table on page 2 recaps the production numbers for the week. Total red meat and poultry production is currently up 4.5 per cent from a year ago, largely due to a sharp increase in pork and chicken production.
Chicken supplies are particularly large due to a 4.6 per cent increase in slaughter and another 4 per cent increase in weights.
Total broiler production on a ready-to-cook basis is up 9 per cent from a year ago. Nor surprisingly, chicken prices are down, with breast meat prices down 19 per cent from a year ago and leg quarters down 44 per cent.
Monday, June 1, 2015
Amazon Prime and Uber Are Changing the Map of Your City
Apps don’t just affect how we transport things and people. They shape where we choose to live, work, and play.
By Benjamin Freed | May 31, 2015Illustration by Alli Arnold..
Consider a few seemingly unrelated news events in and around Washington this past year:
Last July, Metro’s Silver Line opened, offering four new stops at Tysons Corner, including one that delivers riders to the region’s premier mall.
The month before, the District government approved a 45-unit apartment building—despite the fact that it had just 16 parking spaces.
Throughout the second half of 2014, hundreds of residents of Northern Virginia and DC pestered their local governments about the once-obscure topic of taxicab regulations—in this case, ones that might crack down on the car-hailing services Uber and Lyft.
In September, Yellow Cab, Washington’s largest taxi company, said its revenues had dropped by 30 percent from 2013.
In October, the US Postal Service began delivering packages on Sundays in DC to customers who shop on Amazon.
At first blush, these happenings don’t look like more than the small-potatoes stories they were—retail innovations, changing commercial fortunes, local political battles. But look again. Each has to do, in one way or another, with matters of transportation. And each is part of a related trend. When some savvy historian from the future reads up on the region as it is today, these may well add up to something much more interesting, something the area hasn’t fully digested: Washington is in the midst of a transportation revolution that’s substantially changing the ways residents get around—and, just as important, the way goods and services get to residents...
Take a look at the big picture: Car-hailing apps such as Uber, car-sharing outfits like Zipcar, new transit routes, and the proliferation of bike lanes have made it easier to avoid driving. Delivery services including Amazon Prime and Peapod (which plans to roll out a pilot project with Metrorail in which people can pick up preordered groceries at the station on their way home) leave even car owners with less need to make a trip. Zoning rules are being reconsidered, with fewer demands for parking spaces—a change that would affect the economics of what can be built and where. And increased construction can alter the bottom line for retail, potentially tempting more businesses to move in.
When it has been noticed at all, the new transportation landscape has been portrayed as a twentysomething phenomenon, a tale of carefree millennials who hype whatever supposedly disruptive new liquor-delivery app just hit the market and who make a lifestyle fetish out of using Capital Bikeshare to go home to their hip new neighborhoods. That interpretation has some truth. Young professionals—12,583 millennials arrived in Washington between 2010 and 2012—are the ones whose lives have been most shaped by the change.
But it’s a mistake to assume it will stay that way. Behind the scenes, changes in the logistics infrastructure are reconfiguring our mental maps of the region and are likely to affect the way all sorts of locals live, work, and play. Here’s the story of this new world.
Ditto Residential, a DC development firm, is putting up a 45-unit apartment building at 1326 Florida Avenue, Northeast. The Trinidad neighborhood, just north of the buzzy H Street corridor, is experiencing rapid redevelopment and an influx of many of the nearly 1,000 new residents DC has been taking on every month. There’s okay bus coverage, and the city government insists neighbors will get utility out of the new streetcar—it’s still delayed—but the nearest Metro station is more than a mile away.
Not long ago, that fact alone would have killed the idea. Lack of Metro access would have either scared off new residents or meant that they demanded parking, which in turn would have boosted prices above what people would pay in a marginal neighborhood, even one where homicides fell by 50 percent between 2011 and 2014. Even if would-be tenants weren’t insisting on parking spaces, city regulators would be operating off a zoning code written in 1958 that says developments in Trinidad have to include at least one parking space for every two housing units. This formula would have required Ditto to dig two levels of underground parking, exploding the project’s cost—a $636,000 difference that the firm says would have forced it to increase annual rents by more than $2,000.
Ditto won an exception after proving that people moving into buildings such as 1326 Florida are less likely than ever to be car owners. The city, however, attached some conditions: Ditto has to give free car-share or bike-share memberships to its tenants for five years, and it has to put up an electronic billboard in its lobby that shows arrival and availability information for nearby forms of transportation, in real time. This wasn’t the wholesale zoning change that walkable-city advocates wanted, but it was a neat illustration of the way 21st-century ideas about transportation are beginning to reshape the city.
Apps like Drizly are making it so we don’t even need to leave our homes to buy booze. Illustration by Alli Arnold.
That process works like this: First, it gets easier not to have a car. In recent years, things such as improved public transit and 69 miles of new bike lanes in the District alone have made Washington an easier place to navigate without driving.
Next, new digital businesses—Uber, Instacart, Car2Go—capitalize on this market. (Google has even made noise with a far-fetched idea to roll out a ride service featuring driverless cars.) One of the things these services collectively do is make up for some of the things you lose—say, access to a wonderfully big, suburban-style grocery store—by not driving.
Then the rate of car ownership tumbles: For the 18-to-34 demographic across the region, the share of people who drove to work fell by 7 percentage points between 2000 and 2013, according to the US Census. The District alone gained 12,612 car-free households between 2010 and 2012.
Finally, as a result, lawmakers and regulators have no choice but to catch up—which means even more bike lanes, liberalized transit rules, and denser neighborhoods whose residents make appealing customer bases for bike sharing, and cars by the hour, and novel delivery options for economy-size packs of toilet paper. It’s a cycle that reinforces itself.
A lot of this is a national phenomenon, championed by Silicon Valley disrupter types. But it’s taking particular hold in Washington. A decrepit, little-loved taxicab industry made ours an especially welcoming market for Uber, which was also poised to take advantage of the hassles that come with ferrying riders among jurisdictions. (As DC residents and Virginians did, Marylanders revolted when local pols threatened to get in the way of the business.) Uber’s business has lately been the subject of scathing criticism over less wonky things like labor relations, privacy, and safety, but even if the high-profile controversies curdle into a public backlash against the firm—or lead to changes in its practices—app-fueled rides are here to stay.
Likewise, bike sharing quickly became much more popular here than in similar-size cities. Members of Boston’s bike-sharing program, much of which is offered only seasonally, logged 1.7 million miles between 2011 and 2013. Capital Bikeshare recorded nearly 5.1 million miles over that span and another 4.3 million in 2014, with 80 percent of that mileage generated by locals with monthly or annual memberships.
The effects of this evolution shape possibilities for pedestrians as well as people who drive everywhere: After all, the vibrancy created by apartments like 1326 Florida has the potential to be manifested in commercial activities, not to mention tax dollars, that are available to anyone. People who don’t own cars may provide a particularly motivated market for Peapod or Lyft, but the transportation shakeup affects other people’s lives, too. The nightlife zones people avoid for fear of not finding a parking space become easier to visit. The marginal neighborhoods where people worry about being able to hail a cab to get to an early-morning flight become viable options. (Uber says a quarter of its DC trips begin or end in Northeast, which includes gentrifying neighborhoods like Brookland and Carver-Langston.) Our mental map of the region—of what’s convenient and what’s not, what’s close and what’s not—subtly changes.
The shift isn’t limited to the District. Suburban planners are remodeling communities around walking and transit. All you need to do to see this effect is ride the Silver Line out to Tysons, where the advent of Metro is expected to bring 45 million square feet of new residential and commercial construction over the next several decades. Late last year, Fairfax County adopted a master plan that calls for more than 1,000 miles of signed bike paths to be installed over the next three decades, up from 353 miles today. This isn’t a gift to weekend fitness buffs: The utopian plan envisions a population that walks or bikes every trip of less than three miles.
Yes, that sounds implausible now, but today’s teenagers are more likely to put off getting their driver’s licenses the minute they turn 16. A 2013 study by AAA found that nationally, only 44 percent of teens are getting their licenses within 12 months of that milestone birthday, and just 54 percent within a year of turning 18. Only 6,717 Maryland 16-year-olds got their licenses in 2013, and while that number is actually up from 2012, it’s less than one-third the number of 16-year-olds who got a license in 1995.
In Maryland, Montgomery County is aggressively converting the zone between Bethesda and Rockville known as White Flint into a hub of spiffy developments that blend apartments and condos with shopping, office space, and a nudge toward car-free living. The county’s long-term vision is a clump of “transit-oriented developments” around the White Flint Metro station and a conversion of Rockville Pike from a limited-access, high-speed byway to a multi-modal corridor with dedicated lanes for bikes, cars, and rapid-transit buses—and, if all goes as planned, a new market for digital businesses that facilitate the work of moving people and things.
“We like to think of transportation as its own little world, but it’s really about land use and mixed use,” says Gabe Klein, who was DC’s transportation chief under Mayor Adrian Fenty and is now an adviser to Bridj, a Boston start-up that engineers crowd-sourced commuter van lines and just launched in DC. “Suburbs are urbanizing, which is a good thing, particularly here. What used to be suburbs were empty car lots that are now high-density developments.”
I needed a new shirt. I could have gone to Nordstrom Rack near Washingtonian’s office, or to one of the upscale menswear brands that ring Farragut Square. More likely, I would have waited until the weekend to go to some Metro-accessible suburban mall. But, in the interest of this article, I outsourced the job to Postmates, an app that connects users with couriers who will pick up anything you want—a shirt, a meal from Chef Geoff’s, a home appliance from Target—and deliver it within an hour.
Thirty minutes after telling the app I wanted a new blue oxford button-down, I got a text message from an unfamiliar number saying, “Did you liked [sic] it?,” accompanied by a photo of the garment.
“Yeah, that’s good,” I replied. Exactly 14 minutes later, a man named Yoseph was standing by his car outside my office building waiting for me to sign for a light-blue Michael Kors shirt. It fit. The whole transaction took just 44 minutes, in downtown midday traffic. It cost me $69.30, including almost $21 in service charges and tip.
Two kinds of infrastructure are shaping the way we use the region. The type that dominated the 20th century was the heavy kind—freeways, railways, subways. As is clear to anyone who has watched the excitement over the Silver Line, or the handwringing over the fate of Maryland’s Purple Line, those things remain hugely important. Yoseph was an example of the second type of infrastructure, the lighter, private-sector, digital variety that popped up without anyone really regulating it or pondering its effects on the region at large.
Consider the retail world’s biggest player. Items ordered through Amazon are now delivered every day of the week, including Sunday, thanks to the deal the company struck with the Postal Service. That doesn’t just mean quick deliveries of obscure books. Think huge crates of diapers—a necessity for new parents, and one that until recently required a schlep by car. Now everyone, with or without a car, can skip that particular inconvenience.
Multiple apps are offering grocery delivery services. Illustration by Alli Arnold.
Same for grocery shopping and even sundries. While Uber and Lyft made inroads as taxi replacements, both have been described as aspiring logistics providers in a consumer economy. To compete with the likes of Postmates, Uber spent five months testing a service to deliver convenience-store sundries in DC. (The program ended in late January, and the company won’t say what’s next.) Google is getting in on the game, too, with an Amazon-like membership service offering same-day delivery of items from big-box retailers like Staples and Barnes & Noble.
“I would grocery-shop and I’d have all these bags in the car,” says Logan Circle resident Kate Zola. “At the time we lived on the circle, you couldn’t double-park. So it was calling my husband, saying, ‘Come down—I’ll get the groceries out of the car.’ And he’d get in and drive around to park. With grocery services, you can call it in and someone will bring it up the stairs for you.”
Still, while the new infrastructure may be celebrated most energetically by urbanist types, the effects are tough to predict. The possibility of easy transportation and quick access to stuff could just as easily enable living farther from the crowds of Zola’s Logan Circle neighborhood.
And as with any moment of capitalist innovation, a lot—perhaps most—of the new ideas won’t make it. Aba Kwawu, a publicist who lives in Rockville, used to tap a locally run company called My Kids Ride to ferry her children, then ages three and five, to school. The firm has since scaled back. But the comfort with the idea—and the possibility that someone will make a viable service that harried parents can rely on to organize their lives—remains. While Kwawu isn’t about to put her kids in the back seat of an Uber or Lyft car, she’s open to doing so someday. “If they had truly safe transportation and they were a little older, I could consider it,” she says. “For preteens or teenagers who are not driving age or not driving cars, why not?”
As for Postmates’ effect on the commercial landscape, restaurants say they’re seeing a bit more business thanks to the app, but thus far it’s no game changer. “I wouldn’t say it’s a big component today, but we like to look down the road and tailor our business plan to those things,” says Tony Velazquez, owner of Baked & Wired, a Georgetown bakery and coffee shop. “I don’t know if their business model is going to prevail. But we’ve just become an impatient society that wants things and doesn’t want to go anywhere. That’s how it’s going to be.”
If there’s a new transportation network that’s boosting sales at Baked & Wired—which is in a Metro desert—Velazquez says it’s Car2Go, a fleet of tiny Smart cars that allows members to park anywhere in the city. “Sometimes there’s 12 of them lined up on our street,” Velazquez says. “They come in the morning, they park on [Thomas Jefferson Street], come into our place, then go to work.” (Indeed, Car2Go says Georgetown is among the top three neighborhoods for usage.)
Specific business models are bound to fizzle—think of Kozmo, the spectacularly failed delivery service from the 1990s-era first internet bubble—and the politics of the new light infrastructure, like the heavy kind, are not guaranteed, either.
In Maryland, Larry Hogan campaigned against the $2.5-billion price tag on Maryland’s planned Purple Line en route to winning last year’s gubernatorial election. “My priority is building roads,” he told the Post in December, prompting transit advocates and local chambers of commerce to freak out. It’s too simplistic to paint Hogan’s reluctance as a “Republicans hate trains” thing. Even deep-blue DC has a large percentage of residents who resent the profusion of bike lanes and want government to ensure ample parking. Car ownership has been ingrained as an essential component of American life for generations, and not just in the suburbs.
For all the immediacy that these new apps and other services claim to offer, big infrastructural shifts need a long time to take effect. Even if all the region’s planned transit upgrades pan out by 2040, the Metropolitan Washington Council of Governments still expects 57 percent of commuters to be driving to work alone rather than carpooling.
What’s changed, though, is that the light, private-sector infrastructure is now a driver, too. Small things, we’ve learned, can alter neighborhood dynamics in a big way. And with every resident—car-owning or not—who comes to rely on a newfangled transportation service, or stops expecting there to be parking outside her home, or leads a life in which a bike lane or new streetcar is essential for getting to work, the politics change a bit. So does the business environment, where these residents are a market for still more unimagined ways of getting around and getting stuff.
“I know this,” says Kate Zola. “I will never own a car in my life again.”
Big Food's Big Problem: Consumers Don't Trust Brands
Industry Giants Shift Strategy To Win Back Health-Focused Americans
This rather unappetizing statement was tucked into a request for proposals recently sent to ad agencies: "Most of our food supply comes from factory farms, is dependent on GMOs and chemicals, and is not sustainably grown or raised."
The inflammatory language sounds like the typical musings of a fiery activist ready to take on Big Food. But it actually came from the Kashi brand owned by industry giant Kellogg Co. The brand is seeking ideas to "re-establish our identity in the natural foods movement."
The RFP, which was recently obtained by Ad Age, is a small but telling example of how the food industry has been shaken from its core, forced to reinvent itself in the face of shifting consumer demands. Families once reliably heaped their plates with products such as Stove Top stuffing from Kraft Foods, Hamburger Helper from General Mills and Kellogg cereals, along with similar products from other processed food titans. But now those consumers are increasingly migrating to smaller, upstart brands that are often perceived as healthier and more authentic.
Quite simply, big brands are losing one of their most valuable assets: consumer trust. And the fight to regain it will shape the industry for years to come.
Dramatic steps The rapidly shifting tastes have forced executives into taking some dramatic steps. They are racing to reformulate iconic products like Kraft's Mac and Cheese, while acquiring smaller brands in hopes of reinventing themselves to appeal to today's finicky consumers. But their search for growth comes amid intense pressure to cut costs as bottom-line focused private equity firms such as 3G Capital lurk.
Some $18 billion in sales have shifted from large to small companies from 2009 to 2014 across all consumer packaged good categories, according to report by Boston Consulting Group and IRI. Credit Suisse recently isolated the changes in market share among food and beverage companies and found that the largest 25 companies saw their control slip from a combined 49.4% share in 2009 to 45.1% share in 2014. Their "dominance of the core U.S. market seems to be slowly eroding," Credit Suisse stated in a report.
Campbell Soup Co. CEO Denise Morrison recently summarized the situation using unusually stark language when she told financial analysts at a February meeting that "we are well aware of the mounting distrust of Big Food." She added that "we understand that increasing numbers of consumers are seeking authentic, genuine food experiences and we know that they are skeptical of the ability of large, long-established food companies to deliver them."
Months later, her confession is still resonating. Just look at the actions of some of the nation's largest retailers, such as Target, which recently committed to overhauling its grocery offerings in favor of less-processed foods. The company controls $15.6 billion in U.S. food and pet supply sales, according to Supermarket News.
Tipping point The tipping point for Big Food might have come in the middle of 2013 when the shift away from heavily processed foods become more evident, Sanford C. Bernstein analyst Alexia Howard observed in a recent report. She cited several factors: Millennials began forming households after the recession that are led by moms who are "better educated and are less brand loyal than earlier generations."
The rise of social media has also led to a "massive online conversation about what to eat and what to avoid -- and concerns about the additives in many heavily-processed foods are on the rise," Ms. Howard stated. Lastly, advancement in distribution methods are extending the shelf life of fresher, less-processed foods.
"We are seeing a clear shift into healthier foods like fresh fruit and vegetables, granola, honey and ready-made salads and away from stodgier options like frozen TV dinners, Jell-O, pudding, canned pastas, cereal and toaster pastries," Ms. Howard said.
Target's Brian Cornell
At Target, executives are chaning the grocery assortment to appeal to shoppers that want "more choices that support their wellness goals," CEO Brian Cornell said during an analyst meeting March. That, he said, means "more natural products, more organic, more gluten-free items that have simple, cleaner ingredient labels."
The strategy shift is an example of how retailers are gaining leverage over their suppliers. Deanie Elsner, who until recently was chief marketing officer for Kraft Foods Group, said consumers assume that if a brand is carried at chains such as Whole Foods and Trader Joe's, then it is O.K. "They use retail channels as a stamp of credibility and a stamp of approval," she said.
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What is healthy? But even the definition of what is healthy has become harder to discern for big food marketers. "We've never seen the consumer as confused as they are today," PepsiCo CEO Indra Nooyi staid on a recent earnings call, stressing that she meant that in "a neutral way, not a negative way." Real sugar -- once a health enemy -- is now perceived as good for you, she noted, while people are "willing to go to organic, non-GMO products even if it has high salt, high sugar, high fat."
One thing is clear: Anything seen as artificial is definitely out. And that has forced marketers into changing formulations for even the most iconic of brands.
Consider Kraft, which recently announced it was taking artificial preservatives and synthetic colors out of its original Macaroni & Cheese brand, replacing the synthetic colors with "those derived from natural sources like paprika, annatto and turmeric." Nestle USA has pledged to remove artificial flavors and colors from its chocolate candy brands, which include Butterfinger and Nestle Crunch. Last year, General Mills took aspartame out of Yoplait Light yogurt.
Walmart -- the nation's largest food retailer -- on May 22 announced a new policy urging suppliers to reduce their use of antibiotics on farm animals, limiting it to medical purposes, not to spur growth. The company also called for public reporting on antibiotic use. "Our customers have told us that they want to know more about where their food comes from, and how it was sourced," Walmart stated on its corporate blog.
Marketers are also chasing the latest trends by changing products to remove gluten -- like General Mills is doing with Cheerios -- while overhauling production lines for some products to gain GMO-free certification.
Most companies are pledging that the changes won't change taste. A Kraft spokeswoman said the new Mac & Cheese -- set to debut early next year -- will retain the "distinctive taste, appearance and texture consumers expect."
But there remains a risk of turning off loyal consumers who like their big brands just as they are. For instance, will kids still eat Mac & Cheese if it loses even just a hint of its distinctive radioactive orange color? "One of the attractions of iconic brands is that they have remained unchanged. They've withstood the test of time," said Nick Fereday, an analyst at Rabobank International who covers food trends. "It's not as if no one is buying these products. They are still being sold by the millions."
Kraft executives are fond of saying that the company's products are found in 98% of American households. The company's Mac & Cheese sold $901 million in sales last year, according to Euromonitor International.
And it's not as if junk food is going away. "There are lessons to be learned from iconic brands that remain irreverently relevant and laugh in the face of today's health and wellness trends," Mr. Fereday stated in a recent report to clients. For instance, PepsiCo's Frito Lay North America division -- whose portfolio includes Doritos and Cheetos -- grew its net revenue by 3% in the first quarter to $3.3 billion. Most of Doritos innovations have nothing to do with health. They are about fun, like a recently launched limited-edition "Roulette" bags featuring one out of every six chips that are super spicy.
Doritos Roulette
But the problem for now is that for the most part big brands are not growing as fast as they once did. So to maintain profit margins and satisfy Wall Street, marketers are undertaking seismic cost-cutting programs that could imperil long-term brand growth. The cuts are occurring under the shadow of 3G Capital, a private-equity firm known for orchestrating takeover deals and then squeezing out cost-savings from the acquired companies.
The 3G effect In 2013, 3G teamed with Warren Buffett's Berkshire Hathaway to acquire H.J. Heinz, which has since eliminated some 3,800 positions. Earlier this year the new Heinz announced plans to acquire Kraft Foods Group, spreading fears inside Kraft and beyond that 3G could again wield its knife. In a recent note to employees, Kraft CEO John Cahill said the company is considering implementing "zero-based-budgeting." The method, which is emerging as a popular tool for struggling food companies, involves making departments justify all of their expenses every year.
"3G and Buffett have pulverized the food industry market, particularly in America with serial acquisitions," Nestle Chairman Peter Brabeck-Letmathe said at a shareholder meeting in April. "3G's partners are known in our industry for ruthless cost-cutting and have already proven numerous times that they are capable of reducing operating costs in particular by between 500 and 800 basis points, which has a revolutionary impact on all the other members of the industry."
While part of 3G's methods include reinvesting cost-savings back into marketing, the verdict is still out on the firm's approach. "3G's focus on short-term profitability and cash flows does pose risks to brand health, particularly to future growth," according to a discussion document on the firm by McKinsey & Co. obtained by Ad Age. McKinsey quoted an unnamed former Heinz exec as recounting how 3G even dictated the number of pencils and other office supplies allowed to be purchased. "It's not a fun place to work; you can get some culture blowback," the person said.
But McKinsey also listed plenty of positives about 3G, saying its affiliated companies provide an attractive setting for "high-performing individuals." The document noted that brands slated for cost-cutting have had "minimal consumer backlash to date." Sometimes brands get more media support under 3G, like Heinz-branded ketchup and condiments (with a new campaign, shown above), which increased spending from $2.3 million in 2013 to $15.7 million in 2014, according to Kantar Media.
3G did not respond to a request for comment by press time.
Cutting too deeply can risk harming a company's "fundamental source of value," such as organizational capabilities, said David Garfield, managing director and co-leader of the consumer products practice at AlixParners, a global business advisory firm. But "given all of the challenges in the marketplace," including sagging demand, "just continuing on with business as usual, even with nips and tucks, is not going to yield sufficient breakout performance," he said.
Buying their way in One way forward is to scoop up smaller, faster-growing brands that have a built-in foodie following.
ConAgra, known for iconic frozen food brands like Marie Callender's and Banquet, in May acquired Blake's All Natural Foods, which makes natural and organic frozen meals like pot pies and casseroles. The acquisition came after the company last year basically conceded that it had wasted money trying to lure millennial consumers to three of its largest brands: Healthy Choice, Chef Boyardee and Orville Redenbacher's.
Chef Boyardee
"We have spent too many resources on these brands, trying to penetrate new consumer segments by overcoming their perception barriers. And frankly, [it] hasn't worked," then- CEO Gary Rodkin told analysts in February of 2014, signaling the company would target marketing at core buyers instead. (He retired earlier this year.)
Campbell Soup has been particularly aggressive in overhauling its portfolio. Ms. Morrison frequently talks about a "dual mandate" strategy of strengthening Campbell's slower-growing center-of-the-store core business -- including soup -- while moving into faster growing categories, such as fresh and organic foods. Campbell bought Bolthouse Farms -- which makes foods like fresh beverages and salad dressings -- in mid-2012, and since then the brand's sales have grown from $689 million to about $830 million, Bernstein noted in a recent report.
Kashi's story But there are examples of small brands suffering once they are acquired by one of the food giants. Kellogg Co. had initial success after buying the Kashi brand in 2000, but the brand has since faltered. Mistakes included moving operations from Kashi's California birthland to Kellogg's corporate home in Michigan in 2013. Kashi withered under negative press in 2012 when anti-GMO activists spread word that soy used by the brand was genetically modified. Since then Kashi's cereal sales plummeted from more than a half-billion dollars to near $400 million, Bernstein noted.
Eyeing a comeback, Kellogg recently moved Kashi operations back to La Jolla, Ca., and has pledged the brand will operate autonomously. The request-for-proposal for new Kashi advertising does not mention Kellogg, referring instead to the "Kashi Company," which also includes the Bear Naked brand of granolas and bars.
General Mills is seeking to build tighter bonds with natural food advocates through a recently formed "natural and organic center of excellence" that includes a small team of experts reporting to Chief Marketing Officer Ann Simonds. The group is charged with lending "oversight, expertise, inspiration [and] collaboration" across the company's growing portfolio of natural and organic brands, Ms. Simonds said in an interview. For instance, the team will represent General Mills at natural food trade shows, she said.
Annie's Homegrown: Mac and Cheese Pizza
Ultimately, General Mills wants to grow its $600 million natural and organic food business to $1 billion by 2020. A key brand in that endeavor is Annie's, which was acquired late last year and whose line of pastas, snacks and other products are made without artificial flavors, GMOs or synthetic preservatives. In a move to preserve Annie's culture, General Mills has kept the brand's headquarters in Berkeley, Calif, rather than moving it to its Minneapolis corporate campus.
"You don't really integrate an acquisition like Annie's," Ms. Simonds said. "You want to amplify them," she added. "It's essential that we continue to let them do what they do best while we bring what we do best."
Hands-off approach Similarly, Mondelez International -- whose brands include Oreo and Nabisco -- is taking a hands-off approach with its acquisition of Enjoy Life Foods, a private company it bought in February that markets allergy-friendly and gluten-free cookies, chocolate, snack bars and savory snacks. "We simply want to help them continue to be successful as opposed to imposing a big- company mentality," said Mondelez spokesman Michael Mitchell.
Of course, the small company acquisitions "don't come cheap," and are likely to take a toll on return-on-investment as they take time to build scale, Sanford Bernstein's Ms. Howard pointed out in her analyst's report. Also, "one of the unknowables is how many of these privately-held challenger brands will be willing to sell."
Plenty of small brands are doing fine on their own, like Kind snack bars, which has grown its share of the U.S. snack bar category from 0.6% in 2011 to more than 7% recently, with sales of $280 million, according to Bernstein. Perhaps more worrisome for big companies is that the small guys are starting to attract top marketing talent.
Kind bars
Kind recently lured Lisa Mann from Mondelez, where she held roles including VP-cookies. In marketing circles she is known as the woman who green-lighted Oreo's "You can still dunk in the dark" tweet during the power outage at the 2013 Super Bowl that was seen as a watershed moment for real-time marketing. Since January she has overseen marketing at Kind, whose bars were founded in 2003 on the principle of being "kind to your body, your taste buds and the world."
"I was really excited to go to a company that was at the tailwinds of growth and so much opportunity," Ms. Mann said in a recent interview. Indeed, while big companies are cutting costs and eliminating positions, Kind is growing its headcount. The company has more than doubled its full- and part-time employee base from 150 in 2012 to 445 as of 2014. Hirees include young marketing talent that is enticed by the company's mission, Ms. Mann said.
"They want less bureaucracy," she said. "They want to be a part of something bigger than themselves. And they are joining companies like Kind, as opposed to some of the big CPG companies."
