As a tumultuous year in the food industry nears its end, just-food takes a look back at those who have thrived and suffered in 2008 – a year that carried us all to the precipice of a meltdown in the global financial markets.
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2008 will surely be remembered as a year when the conflicting pressures of rising commodity and raw materials costs and falling consumer confidence and, therefore, spending, took their toll on the industry. And all this while the turmoil in the financial markets suddenly made credit expensive and hard to come by, even for companies with strong balance sheets.
While there are undoubtedly those who will be looking somewhat the worse for wear coming into 2009, where there are loosers there are also winners in this highly competitive and fast-paced industry.
Here’s our take on who has faired well, and not so well, over the last 12 months.
It was a good year for:
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By GlobalData1. “Value” Retailers
Retailers with a strong “value” proposition have prospered as the economic downturn has intensified and consumers look to trim their grocery bills. Look to the US and, unlike last year, Wal-Mart is flourishing: attracting more customers from a higher income bracket with its low-price offering. Skip back over the pond to the UK, and we see supermarkets of all ilks battling to be seen to offer that rare combination of low price, high quality. The UK winners include discounters Lidl and Aldi – who are increasingly making inroads into the market – Asda and, perhaps surprisingly, Sainsbury’s, who has seen the lion’s share of consumers trading down from Marks and Spencer and Waitrose.
2. Mars
US confectioner Mars became the world’s largest candy-maker this year through its acquisition of chewing gum giant Wrigley. According to data from Euromonitor, the enlarged company accounts for 14.4% of worldwide confectionery sales, leapfrogging Cadbury with a 10.1% share. The US$23bn deal, which was announced in April and sealed in October, has been widely hailed as a good fit; there is little product overlap and Wrigley’s growing presence in emerging markets will complement Mars’ strength in the US and Europe. While Mars, as a private company, does not disclose its financial results – making it hard to comment on possible synergies or judge the financial success of the deal – it is clear that the stable of strong brands now commanded by Mars makes the group a power player in the confectionery sector.
3. Nestlé
In the most uncertain business climate for decades, Nestlé has continued to grow revenues and profitability throughout the year. In April, Paul Bulcke succeeded Peter Brabeck as CEO of the world’s largest food group. Under Bulcke’s leadership Nestlé has continued on the course set by Brabeck – developing its portfolio of health and wellness brands and expanding in emerging markets. Through its range of strong, well-established brands – and its strategy of adding value to its portfolio – Nestlé has continued to expand in spite of the tough trading environment.
4. HJ Heinz
HJ Heinz has continued to grow sales and profits this year, increasing its presence in international markets and cashing in on convenience and health and wellness trends through product innovation. Not only is Heinz avoiding some of the harsher aspects of the global economic downturn, it is actually looking to capitalise on it by acquiring weaker companies at bargain basement prices. The US food giant has completed a number of acquisitions designed to boost its international portfolio, including the purchase of Australian canned fruit, vegetable and juice maker Golden Circle for A$288m (US$196.8m) and the acquisition of French sauce maker Benedicta for an undisclosed sum. According to reports, Heinz is now circling the heavily indebted UK food group Premier Foods. The company has declined to comment on the possibility of a deal, but with a sizable war chest to fund expansion we can certainly expect to see more of the same in 2009 from the US ketchup maker.
5. Kraft
Despite lingering scepticism around the world’s second largest food group, it has been a good year for Kraft. The company is now halfway through its three-year turnaround plan, which was initiated by CEO Irene Rosenfeld. The scheme aims at “rewiring” the organisation for growth, reframing Kraft’s categories to make them more relevant to consumers, exploiting Kraft’s sales capabilities and driving down costs without compromising quality. The company has made solid progress on all of these fronts throughout 2008: cutting slews of jobs, investing in NPD and marketing – significantly increasing the speed to market of new products – and reorganising its international operations to foster growth. What remains to be seen is whether Kraft can capitalise on these organisational changes in the long-term.
It was a bad year for:
1. Pilgrim’s Pride
The timing of the credit crunch could not have been worse for US poultry producer Pilgrim’s Pride, which greatly increased its debt-levels in order to fund the acquisition of Gold Kist in 2007. The dramatic increase in the cost of borrowing has hit the US’s largest chicken producer hard. This, coupled with difficult conditions in the US protein market – with soaring feed costs and weak poultry prices – forced Pilgrim’s Pride to file for Chapter 11 bankruptcy protection this month. Shortly after, the news came that CEO Clint Rivers and COO Robert Wright both resigned as part of the company’s reorganisation process. Pilgrim’s Pride appointed Don Jackson as president and CEO. Jackson will assume the responsibilities of both Rivers and Wright, but with the economic outlook remaining grim, he clearly has a challenging task ahead of him.
2. Carrefour
It has been a turbulent year for retail giant Carrefour. Although the company’s global presence has boosted sales throughout the year, issues at home have dogged the French retailer. The company’s continued pursuit of a “single brand” strategy, designed to reinvigorate Carrefour’s domestic business, is yet to pay dividends. Additionally, its heavy discounting – which aims to stem the flow of customers away from the grocer – has hit margins and forced the group to trim its sales outlook at the end of December. Meanwhile, tension at the top saw a shareholder-led revolt end in the departure of CEO José Luis Durán. His replacement, former Nestlé executive Lars Olofsson, is widely viewed as a good fit for Carrefour: benefitting from knowledge of the mass-market retail sector as well as experience of operating in both international and the French markets. Olofsson has plenty to get his teeth into at Carrefour as the company navigates the economic downturn. Competition is mounting at home, while Olofsson will also be aware of the need to keep investing in emerging markets like China and Brazil.
3. Maple Leaf Foods
Maple Leaf Foods’ bad year can be summed up in one word: listeriosis. In August, Maple Leaf became the centre of a massive food safety scare, which was linked to the deaths of 20 people. The company was forced to recall 191 products after it was discovered that a product line at its Toronto manufacturing facility was the source of a listeriosis outbreak that swept Canada. In its handling of the scare, Maple Leaf acted quickly, decisively and openly. It immediately recalled all products made at the facility, closed the factory down and CEO and president Michael McCain issued a full apology, which was posted on YouTube. Maple Leaf has since struck a C$25m (US$20.4m) deal to settle the lawsuits arising from the outbreak. Maple Leaf management will be hoping that this will draw the incident to a close. However, the Canadian food group may find that it is counting the cost in terms of consumer confidence for some time to come.
4. Premier Foods
The crisis in the credit markets has put UK food group Premier Foods under increasing pressure to improve its balance sheet. Premier’s debt stands at GBP1.7bn (US$10.43bn) – primarily the result of its 2006 acquisitions of Campbell’s UK and Irish business and RHM. Concerns over the group’s high level of debt have depressed its share price and, in a bid to reassure investors last week, Premier admitted it was in talks with potential investors over a possible cash injection. The company indicated that it is reviewing a number of options to raise capital, including the possibility of selling off non-core businesses. Premier is due to issue a trading update at the beginning of January, when we may get some indication of how the company intends to cut debt levels.
5. Chinese dairy industry
It has been a disastrous year for Chinese dairy manufacturers after melamine-contaminated milk powder was linked to the death of six infants and hospitalisation of thousands more. Chinese food companies have indicated that exports plummeted in the wake of the melamine scandal due to a slump in demand and tougher safety inspections. Meanwhile, Chinese consumers are increasingly avoiding domestic dairy products over safety fears. In response to the scare, Chinese authorities have initiated an overhaul of the food safety system, alongside a crackdown on the use of illegal food additives and improved supervision of the ingredients industry. However, the damage done to “brand China” – as well as domestic dairy firms including Sanyuan, Sanlu and Bright Dairy – could take considerably longer to overcome.
