Food Executives Predict a Return to Innovation at 2010 CAGNY Meeting

While 'value' is here to stay, processors go on the offensive at CAGNY meeting.

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With the recession (hopefully) over and all those news clippings about private label gains turning yellow, food and beverage company executives – at least the branded marketers – appear to be refilling the new product pipeline to reclaim territory in the new year.

The consumer market is weak. Unemployment is high. You've heard the current environment referred to by some as the age of thrift. Consumers are really watching every penny they spend. Coupons are a great example. Coupon usage had been declining for 17 years in a row [then] in 2009, coupon usage in the U.S. went up 20 percent.

– David Mackay, Kellogg Co. President/CEO

That seemed to be the mood expressed in many company statements and other reports from the Consumer Analysts Group of New York (CAGNY) annual conference in February.

"There are four reasons why I believe the industry has a strong upside," said William Johnson, chairman, president and CEO of Heinz Co. "First, the growth potential of emerging markets, where the ranks of new middle-class, brand-conscious consumers are increasing at a rapid rate. Second, the industry's renewed focus on innovation and marketing in response to the challenge of store brands. Third, the opportunity to improve margins. And finally, the 'consolidation mood' among manufacturers and customers."

"On the subject of industry consolidation, the industrial logic has never been more compelling," he continued. "Ultimately, however, the goal is to win by creating value in the most efficient and effective manner possible, whether it be by organic growth, M&A or transformative initiatives. And for that reason, I don't see consolidation as a necessity."

"Innovation is a core capability of ConAgra Foods, where we have not only caught up but gone in my estimation ahead of the pack under the leadership of Dr. Al Bolles," said CEO Gary Rodkin. "The key tenets of our innovation are fewer, bigger, better. We're about creating new insulated technology platforms, not easy to copy and highly differentiated from private label. We look to leverage external partners, which dramatically multiplies our internal capabilities. Price value is a critical part of marketplace success and that's why we work backwards from price point as part of our innovation. This is all about delivering outstanding quality at a given price."

Sara Lee Chairman/CEO Brenda Barnes told the analysts strong brands are leading her company back to profitability. As an example, she told of the "premiumizing" of Ball Park hot dogs: from simple meat hot dogs a few years ago to all-beef franks to Angus beef last year.

"Keeping the value proposition with consumers is very important in this [post-recessionary] economy. There have been changes to the shopping behavior," Denise Morrison, senior vice president of Campbell Soup and president of its North American soup division, was quoted in Brandweek. To that end, President/CEO Douglas Conant announced plans to enhance more than 60 percent of the company's condensed line with improvements, further sodium reduction, more contemporary packaging, improved shelving systems and new marketing aimed at the simple meals category. "We will be able to unleash soup's full competitiveness against the simple meals category," he warned.

General Mills, which is coming off a tremendous year, shows no signs of slowing down. "We see key consumer trends and retail customer developments that will shape our future. And we are developing the products and business capabilities that will help us continue to thrive," said Chairman and CEO Ken Powell.

He said the company's current business model, "holistic margin management (HMM)," will protect margins and fuel investment in product innovation and consumer marketing. "HMM savings from supply chain initiatives alone are targeted at $1 billion over the next three years, and $4 billion over the next decade," he said.

Powell even went so far as to announce financial goals for its 2015 fiscal year, when sales should hit $18 billion and segment operating profits are projected to grow even faster than sales, to $3.6 billion.

"Our view is consumers are under a lot of pressure," said Kellogg Co. President/CEO David Mackay. "The consumer market is weak. Unemployment is high. You've heard the current environment referred to by some as the age of thrift. Consumers are really watching every penny they spend. Coupons are a great example. Coupon usage had been declining for 17 years in a row [then] in 2009, coupon usage in the U.S. went up 20 percent." Even so, Mackay said, Kellogg is well positioned.

Dr Pepper Snapple Group made its first appearance at a CAGNY meeting. "Since  spinning off from Cadbury back in May of 2008 – just a short 20 months ago – a lot has changed," said President/CEO Larry Young, acknowledging that its former parent also has undergone some changes lately. "The consumer reset their expectations of value, and radically changed the way they buy, and what and when they buy." But he painted a hopeful scenario for Dr Pepper and its other brands, noting that household penetration, not consumer affinity, is the problem. So is availability. "By the end of 2010, Regular Dr. Pepper will be in all 14,000 McDonalds restaurants across the country. And we're targeting Diet Dr. Pepper to be in one half of those."
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