Time to split up
It's one of the more peculiar trends, strictly a business issue, and it may only be hot this year. But three of the largest American food companies plan to split in half during 2012.
Any day now, Sara Lee Corp. will divide into two publicly traded companies, one focused on the international coffee and tea market and the other on North American meats. Names for the two companies have not been decided. In preparation, Sara Lee sold its large bakery business last year to Mexico's Grupo Bimbo. Just before Christmas, Sara Lee said the North American meat business would move corporate headquarters back to downtown Chicago, from suburban Downers Grove, in early 2013.
Ralcorp Holdings Inc., in the face of a potentially hostile takeover by ConAgra, responded in mid-2011 with a plan to spin off its branded Post Cereals business, which it acquired in 2007. That, too, should happen any day now.
And behemoth Kraft Foods Inc. apparently is too big for its own good. The company paid $19.4 billion in January 2010 for Cadbury PLC after a long courtship. Now at about $50 billion in worldwide sales, Kraft said it will split, probably at the end of this year.
One company will be a $16 billion North American grocery business – looking very much like Kraft-General Foods. The other will be a $32 billion global snacks business – think Nabisco-Cadbury-Jacobs Suchard. Both are unnamed so far.
Lay the blame for all this on another semi-food company. Just over a year ago, Fortune Brands said it first, and made good on its promise last Oct. 3. Its kitchen products and lock and door hardware is now Fortune Brands Home & Security. Distilled spirits emerged under the name of its leading brand, Beam Inc. (for Jim Beam bourbon).
More things to watch
Technology continues to change at a rapid pace, and it affects even the food & beverage industry. Although technology enables communication with and among consumers, the food & beverage industry has not yet embraced the promise of interconnectivity as an enabling next step the way other industries have. Business leaders are adapting to a considerable socioeconomic transition where the Internet, among other things, is creating a more educated and empowered world population. The upshot is that consumers play a powerful role in how consumer product companies market to them.
Food prices will keep rising, predicts self-described "Supermarket Guru" Phil Lempert in a group of year-end predictions he co-authored with ConAgra Foods. "We will continue to see higher prices, but we will also see all the different ways Americans love their food - in supermarkets, on television, at restaurants and now even on their mobile phones. We are on the verge of what may be one of the most exciting and game-changing years in the food world."
Price increases will lead consumers to use printable grocery coupons, frequent shopper cards and electronic shopping lists, Lempert and ConAgra predict. In addition, there will be increased shopping at non-traditional food stores and trading down to less expensive options. Look for consumers to shave costs by augmenting their recipes by decreasing the amount of the more expensive meats and seafood and adding more non-meat proteins that are filling and less expensive, including whole-wheat pasta, tofu, lentils, brown rice and vegetables to recipe.
Will the gains made by private label the past two years continue? Or will brands regain status? Inevitable price increases loom, but the industry has traditionally competed for market share instead of conditioning consumers to pay for the value they receive (convenience, nutritional benefits, functionality, availability, fair trade, etc.). Perhaps addressing value with consumers is a strategy to be pursued.
The economy will push brands into opening up more entry points for extremely cost-sensitive consumers as the "new normal" becomes a prolonged normal in the developed world. So says agency JWT in that year-end forecast of consumer trends.
For instance, H.J. Heinz Co. is not a big fan of private label or dollar stores, but it has developed a flexible pouch for its Heinz ketchup that it can sell at or below $1 (as we revealed in our December Processor of the Year story.