Subdued supermarket sales identified in chief executive remarks

by Keith Nunes
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As chief executive officers from publicly-traded consumer packaged goods companies announced their most recent financial results an undeniable trend coursed through comments accompanying the pofit and loss figures. There is a persistent weakness in unit volume sales, and executives are struggling to find the right formula to grow share.

“The general food and beverage market has just posted its fourth consecutive quarter of year-over-year declines in unit volumes sold through supermarkets and other traditional grocers,” said Sam K. Reed, chairman and chief executive officer of TreeHouse Foods, Inc., Oak Brook, Ill., on Aug. 9 in a conference call discussing the company’s fiscal 2012 second-quarter earnings. “Plagued by economic uncertainty and political impasse, consumers have cut back once again as growth and personal expenditures for home consumption of food and beverage has fallen from a high of plus 4% back down to zero. Conventional grocers have been left behind, as cash-strapped consumers have abandoned them in favor of discount and limited assortment retailers and dollar meals and Q.S.R. chains.

“This shift has been exacerbated by a continual series of price increases paired with promotion decreases. Since January, general food and beverage, a composite of 102 product categories, has grown only 1% in dollars, as units have dropped 4% in the face of 5% plus pricing and an equal decline in in-store merchandising.”

Mr. Reed added that the current market conditions have prompted consumers to shift to alternate retail channels as they are confronted with higher prices and fewer deals for basic foodstuffs.
“They have bid the traditional but more expensive grocers adieu and gone elsewhere,” he said.

A report published by the SymphonyIRI Group, Chicago, in August supports Mr. Reed’s contention. Traditional grocery stores lost more than three market share points in the refrigerated entrees category, according to “Channel migration: Charting the course on the voyage for value.” The largest winner of share in the category was the club channel, but mass merchandisers also captured increased share of spending.

Retail channel surfing

Bob Gamgort, c.e.o. of Pinnacle Foods Finance L.L.C., Parsippany, N.J., also identified a shift in consumer shopping patterns as a reason for the recent period of unit volume weakness.

“I think fundamentally the one behavior that we keep seeing is that people are shopping more frequently in more channels,” he said in a call with financial analysts on Aug. 9. “They are buying fewer items every time they shop and they are stocking less variety in their pantries.”

The SymphonyIRI report supports Mr. Gamgort’s assertion, noting that three-quarters of consumers currently shop in five or more retail channels.

“We look at the type of shopping trips that consumers make,” Mr. Gamgort said. “There is the quick top-off type shopping trip and then there’s the stock-up trip, where they really load up the basket. Stock-up trips are way down. With less variety in the house and more frequency of purchase, I think you’re seeing less weights and you’re seeing less inventory that’s being built up through the consumer pipeline as a result of that.”

Laurie Demeritt, president and chief operating officer of The Hartman Group, Bellevue, Wash., said “The days of shopping trips to one store just to fill the pantry are long gone. For today’s consumers, shopping is very much in constant motion; it’s a virtual 24-hour, seven-day-a-week activity. The consumer is now in total control of the shopping process, not the manufacturer or the retailer.”

The Hartman Group’s recently released report “Shopping topography,” found that the top channel for stock up trips is club, with 50% of visits, pushing the traditional grocery store into second place (47%). The drug (29%) and dollar (23%) channels are taking a bite out of the traditional food and beverage channels for stock-up trips. The drug channel is the top choice for immediate consumption shopping trips (24%).
“Consumers claim that they still go on regular stock-up trips to grocery, club and mass discount stores,” Ms. Demeritt said. “But during the week, stock-up trips need to be supplemented with fill-in trips to a variety of different channels, depending on a variety of factors such as needs, occasions, forgetfulness or immediate consumption like hunger and thirst. Consequently, consumers shop several stores in one day.”

Consumer struggles continue

Mr. Gamgort of Pinnacle Foods also tied unit volume weakness to the weak financial condition of consumers.

“I’ll go back to what I’ve been saying all along, which is the root cause of all of this is the weak consumer who is experiencing lower real income and (is) concern(ed) about jobs,” he said. “The impact on that is obviously lower volumes and higher price elasticity.

“There are a bunch of behavioral changes that we are observing in the marketplace and it has been well written. Talk about pantry destocking, reducing weights, substituting components for complete meals. There’s been some evidence that there is some leakage, for example, in the frozen meals area over to value meals at fast food. Although you saw in some of the recent reports from the fast-food guys that seems to be an issue for them now and they are not seeing the growth.”

B&G Foods, Inc., Parsippany, had a successful second quarter as the company’s net income rose 27%, to $16,026,000, equal to 33c per share on the common stock, from $12,599,000, or 26c per share, in the same period a year ago. Net sales in the second quarter rose to $148,612,000 from $129,453,000.
David L. Wenner, president and c.e.o. of B&G Foods, attributed much of the positive performance to the company’s November 2011 acquisition of the Culver Specialty Brands business, and noted the company experienced a 3.6% volume decline in its base business during the quarter, when talking with securities analysts on July 19.

“The volume loss shows that we have not been totally immune to the general weakness in the food business, though our per cent decline is meaningfully lower than many competitors,” Mr. Wenner said. “We have no good answers to the two key questions, where are the consumers, and what are they eating, but we most certainly see the pricing increases have influenced their behavior.

“Categories where we and our competitors have taken sizeable price increases are more noticeably affected than others. The fruit-spread category is an excellent example of this. Sweeteners and fruit costs in general have increased substantially in the past 12 months, and the category has seen price increases reflecting that.”

Mr. Reed of TreeHouse Foods said one data point his company tracks — personal expenditures for consumption at home — had moved up to a “plus 4” by the end of last year, but it has moved back to zero as the year has progressed.

“… For the first time in I think this quarter, perhaps late last quarter, we saw that aggregate expenditures for at-home consumption, which had been moving up quite nicely, have now, for the first time, gone negative relative to consumption at food away from home and it’s our belief that that is largely focused on the, as I’d indicated in my remarks, dollar meals in quick-serve restaurants,” he said.

Mr. Reed added that the biggest trend he sees is that the pursuit of value in all channels and, primarily in grocery, has led consumers to be more conservative and adopt just-in-time purchasing plans, reducing inventories of food in their homes, being more careful with what they put on the table and making sure that what is left over is eaten rather than tossed out.

“And we see this across various broad demographics and I think that it is as much the combination of uncertainty going forward and the fact that our economy, while G.D.P. is back up to its pre-great recession aggregate number, we are currently producing that gross domestic output with 5 million fewer people employed than at several years hence,” he said. “And I think those factors all play into this.”

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