Hillshire learns red means go

by Keith Nunes
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CHICAGO — It turns out the source of Hillshire Brands’ packaged lunchmeat problems was the product’s clear lid. By switching from the clear lid to a more pronounced red cap, the company has managed to start to turn the business around.

“While consumers consistently articulated a preference for the clear lid in numerous quantitative tests, their actual purchase behavior noticeably changed when we made the switch,” said Sean Connolly, chief executive officer, on Aug. 8 in a call with financial analysts. “As we dug into the disconnect between what consumers were saying and what they were doing, it became clear there was a positive benefit to the red lid that the consumer could not articulate.”

This past February, Mr. Connolly outlined Hillshire’s strategy for what was then the company’s revamped packaged lunchmeat line. One key component of the strategy was clear packaging to communicate to the consumer the product’s freshness.

But by April it became clear to Hillshire executives that there were issues with the rollout. In addition to the clear lid, the company identified other issues related to product and packaging consistency.

“We fixed the manufacturing challenges we encountered,” Mr. Connolly said. “The meat is nicely layering into the new package, it looks great, and the lines are running better than ever.

“We also made a necessary change to optimize our package graphics to increase consumer impact in stores. Specifically, we now believe we lost visual impact on store shelves due to the switch to the clear package lid.”

Since the switch the baseline volume, which is the volume of product sold that is not included in promotions, for the line’s 7- and 9-oz items has grown.

“Now, better service levels played a role here, but the point is it’s working,” Mr. Connolly said. “What we need now and expect now is to see a similar rebound in promoted volume, which is still down as competitors became aggressive in filling the merchandising void that our issue created.

“We are confident we will get that clicking in quarter 1. Overall, we remain very confident in the growth potential of the Hillshire Farm brand in the lunch meat space.”

While difficult, Mr. Connolly said there is a silver lining to packaging problems.

“In the old days, it would've taken us the better part of a year to navigate a course correction like this,” he said. “In this case, we were able to be in the market with a new solution in less than 10 weeks.”

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