The Simply Good Foods Co. has reassessed its spending plans for Atkins to boost the return on investment from the brand.
Atkins retail sales fell in the three months to 25 May, although the publicly listed US group said the brand’s performance had improved “sequentially”.
Simply Good Foods' overall third-quarter “retail takeaway” rose 5% as a 13% jump in sales of its Quest brand offset a 5% decline from Atkins.
Speaking to analysts after the company reported its third-quarter financial results, president and CEO Geoff Tanner said the company had reviewed the make-up of its portfolio, which now includes protein products business Only What You Need (OWYN).
“We look at across the portfolio. Quest [is] a scaled growth driver. We now have OWYN in the mix. So, a component of the decision on Atkins is taking a step back and evaluating investment through a portfolio lens,” Tanner said.
“As we dive deeper into Atkins, it’s clear that to some extent we’ve overinvested in marketing and trade as a percentage of sales. We’ve looked with more of an ROI lens and identified some low-performing ROI trade events, low-performing marketing events. As we work to build Atkins to be a long-term sustainable business, we believe that we have an opportunity to take a harder look at some of these investments.”
Simply Good Foods reported higher third-quarter sales and profits, which contributed to increases for the first nine months of its financial year.
The third-quarter results also led the company to tick up its forecast for “adjusted EBITDA”, which it now sees increasing by “about 8%” versus an earlier prediction of 6-8%.
In the three months to 25 May, Simply Good Foods generated net sales of $334.8m, up 3.1% on a year earlier, helped as higher Quest retail sales offset the decline in Atkins sales.
Net income stood at $41.3m, against $35.4m in the third quarter of the previous financial year.
Nine-month sales increased 3.6% to $955.6m. Net income reached $110m, against $96.9m.
Tanner said Simply Good Foods “still believes in Atkins”, adding the company is “still very confident in the future growth of that business, especially given the increased focus on weight management”.
Simply Good Foods announced the acquisition of protein-shakes business OWYN in April.
OWYN’s products are sold across the US to major retailers such as Sprouts, CVS Pharmacy, Walgreens, Kroger, Whole Foods and 7-Eleven.
“OWYN’s growth is outpacing the category and we expect the brand to benefit from continued distribution and velocity gains given our go-to-market scale, capabilities, and category adviser relationships with almost all top retailers,” Tanner told analysts. “OWYN reaches a new consumer segment for Simply Good, namely consumers thinking plant-based, allergy-free, simple ingredient options.”
The Simply Goods Food chief said the company could add products to the OWYN range.
“I like to think about OWYN and the growth of OWYN in three concentric circles. The first is growth of the core and that's largely driving distribution of existing products. The second circle would be continuing to appeal to mainstream consumers,” he said.
“And then I'd say the last circle would be expanding into new forms or formats, such as bars, potentially chips.”
In a note to clients TD Cowen analyst Robert Moskow said he supported Simply Goods Food’s moves to think again about its investment strategy for Atkins.
“Simply will cut spending on the Atkins brand’s underperforming trade and marketing events with a disproportionate impact on the club channel. This will hurt Atkins' volume in FY25 but we agree with the approach given the strong reinvestment opportunity for Quest and our concerns about ROI on the Atkins brand. New advertising for Atkins will increase the focus on weight management messaging,” Moskow said.
