B&G Foods, the US food group behind brands from Cream of Wheat cereal to Mexican cuisine line Ortega, may not have the scale of some of the giants in the industry but, despite the downturn, is seeing business bubble along nicely. Talking to Michelle Russell, B&G CEO David Wenner even argues that the company’s stable of dry grocery brands is thriving in the recession.
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just-food: B&G’s second-quarter figures were out this week. How did you feel about the results?
Wenner: They were in line with what we thought we would do. We had given people guidance for the kind of improvement that we saw in the second quarter so we were very happy with them. It’s nice when you put a plan in and it comes together.
j-f: CFO Bob Cantwell told analysts on B&G’s earnings call that the third-quarter will not be the best for the company in terms of EBITA. Why is that?
Wenner: The third quarter won’t be the highest EBITA that we’ve had for the year. We’ve had a very good first quarter and part of that was just about the mix of products that we sell quarter to quarter. But, what the third quarter will see is the biggest improvement [in EBITA] on a year-to-year basis. Last year, EBITA in the third-quarter was around US$20m. We expect that we may see a significant improvement on that and to meet the top end of the guidance that we’ve given for the year we would have to do about US$25m in EBITA for the second to the third quarter. That clearly is a very significant improvement.
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By GlobalDataj-f: High maple syrup and wheat costs seemed to have a big affect on second-quarter sales. Do you think there will be the same impact in the third quarter?
Wenner: In the second quarter, we saw a drag on sales for maple syrup because we hadn’t refilled the pipelines until the crop was finished in late April, so we expect that trend to reverse in the third and fourth quarter with maple syrup not pulling sales down but actually year-over-year increasing sales.
j-f: Do you think B&G has managed to weather the recession well so far?
Wenner: Yes. Dry grocery food products, especially if you’re selling them to supermarkets, almost tend to be counter-cyclical. People are asking: ‘how do I eat economically?’ and ‘where can I buy food relatively cheaply?’ So, we’re seeing a good number of our brands with some very nice sales increases. Our Ortega brand in the fourth quarter was up about 16% in sales and in the first half of this year is up 13%. If you can offer a good meal solution for a good price you’re not exposed to the economy like somebody else might be.
j-f: B&G has own-label products. Earlier this week, Kellogg CEO Dave Mackay said that private-label sales are starting to slow – do you see this happening?
Wenner: To a very small degree. We don’t have a tremendous amount of exposure to private label. There are only a few categories we compete in where private label is a sizeable factor. In those categories we are seeing private-label growth slowing. I think private label has converted who it is going to convert. There is only so much audience out there that you are going to see would have switched over. You could argue that people’s situations have stabilised to the point that if they had to change they’ve changed, so how much more change is there going to be?
j-f: Are US retailers demanding more spending on promotions and, if so, what kind of promotions?
Wenner: I don’t think retailers are demanding more spending on promotions. I think the spending is coming from the companies that perceive an opportunity to sell more on promotion. We have not really deepened promotions. There is no question that promotions have been more effective with consumers and part of the reason why some of these categories have grown as much as they have is because consumers are looking for things on sale.
j-f: Has there been a shift in where consumers shop?
Wenner: As far as changing where they are buying from, that is very clearly seen. You can see that Wal-Mart has done very well in this whole environment and a lot of people are buying more at Wal-Mart than they used to. There is no question about that.
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j-f: How many national brands does B&G Foods have and which are most successful?
Wenner: We have 18 brands in total. A handful are sold regionally but most of them are sold nationally. It is the larger brands like Ortega and Cream of Wheat that have done very well and continue to do well in this environment. But, at the same time, we have smaller category brands like Grandma and Brer Rabbit that are doing well.
j-f: Will you be expanding that portfolio in the near future?
Wenner: We are always looking at expanding our portfolio. Part of our strength has been the ability to successfully acquire and integrate product lines into our portfolio. That is really what has made us over the years above average in terms of growth as a company. We look at that as a core competency in the business and we are inspired to keep doing that.
just-food: What acquisition opportunities do you see for the firm?
Wenner: The environment is pretty slow right now and I think that’s a function of the economy. In the past, we have typically bought our brands from larger food companies. I think the larger companies are still struggling a bit with the whole dynamic of cost and price. That is slowly changing in our opinion and we see within the next six months or so that whole environment improving, to the point where there may be some activity. Our job is to be ready for that.
j-f: A proposed bill to tighten US food safety was passed in the House of Representatives yesterday. Are you happy with the result?
Wenner: Anything that reassures the consumers that their food is safe can’t be a bad idea. I think a manufacturer’s attitude would be, to some extent, that this is my responsibility. It doesn’t matter whether they pass laws or not, this is something I need to do as part of my everyday routine. We support anything that increases consumer confidence in our products. If it takes the Government stepping in to get there then I guess that’s what we need. As an individual company, the fastest way to go out of business is to have an incident where your products are unsafe and something happens to consumers.
