Big Food Companies Seek New Strategies for Growth

After two years of declining sales and an uncertain future, leaders of the biggest food and beverage companies must be questioning their relevance in an era of unprecedented change.

By Dave Fusaro, Editor in Chief

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These are tough times to run a huge, age-old business. Just ask Sears or JCPenney, Radio Shack or Kodak. Or Conagra and many other big-name food and beverage companies.

One by one, the CEOs and CFOs of 15 of the largest food and beverage companies told financial analysts in February to expect a year of lower sales but potentially higher profits, the latter thanks to aggressive cost-cutting. While it worked last year and may work again this year, lower sales plus cost-cutting is not a formula for long-term success.

Six weeks later and half a world away, Ulf Mark Schneider, Nestle SA’s CEO of just three months, called that approach self-defeating. “Many companies are focusing on radical cost-cutting to deliver higher profits in the short term [while] experiencing lower or even negative organic growth. This approach is not sustainable,” he told his company’s annual meeting on April 6. “Meanwhile, start-up businesses are capitalizing on trends towards more local, organic or artisanal products. They innovate fast and respond swiftly to changes in the market. We at Nestlé believe that sustained value creation is the result of both growth and operating efficiency.”

So how will big food and beverage companies return to growth?

The Consumer Analysts Group of New York (CAGNY) meeting, held every February in Florida, is a four-day pulse-check of how Big Food is doing. This year, executives attended from General Mills, Tyson, Hostess, Kellogg, Mondelez, Snyder’s-Lance, J.M. Smucker, Campbell Soup, PepsiCo, Clorox (don’t forget Hidden Valley Ranch dressings) Danone, Coca-Cola, Constellation Brands, Nestle and Unilever.

With the exception of the leaders of Tyson and Hostess, the CEOs were talking headwinds, not tailwinds, and implicitly struggling with the relevance of Big Food in an era when small, local and minimally processed are prized attributes. They were defending 100-year-old brands and products with sales north of a billion dollars … but have been slipping in sales for several years now. Campbell soups, Oreos and Frosted Flakes were what baby boomers grew up on. But as that generation dies off, millennials, already the biggest demographic, are stocking their refrigerators with other things.

Several speakers made reference to the week-earlier news of Kraft Heinz offering $143 billion to buy Unilever. It wasn’t just an acknowledgement of that recent news event; it was a concern hanging over all of them. Rumors have been circulating for a year that Kraft Heinz was interested in Mondelez, then General Mills. Who else? If Kraft Heinz (and its investors 3G Capital and Berkshire Hathaway) could raise $143 billion, no American (or global) food and beverage company was beyond reach.

But the CEOs at CAGNY were brand- and company-builders, not slash-and-burn industry consolidators. How will any of these companies respond if presented with a hostile offer?

Going global once was seen as the holy grail for lagging sales. Seven billion people outside the U.S., especially in developing nations, were clamoring for better-quality, American-style food, so the thinking went, and their incomes were rising enough to let them afford it. So every American food and beverage company set up shop in foreign lands to mine the gold there.

However, the world has become an inhospitable place. China’s economy is stalled, several other nations are devaluing currency and Venezuela is seizing assets. The European Union may be breaking up. A strong dollar isn’t helping. What’s a multinational to do?

Rosenfeld IreneFood companies are doing business “in a world where volatility is the new normal,” Irene Rosenfeld, chairman and CEO of Mondelez, told the CAGNY audience. “Those of us who have been in this business a while see this not as an evolution but a revolution.”

“Nobody’s talking about globalization anymore,” offered Benno Dorer, chairman and CEO of Clorox. So if you can’t find growth overseas, how do you grow your company in this climate?

‘America first’

Putting America first is not just President Donald Trump’s slogan; it’s being adopted by America’s largest food & beverage companies. With what’s going on in the rest of the world, they seem to be embracing the philosophy, maybe even taking seriously the president’s threats that there will be consequences for American companies that make products abroad and sell them at home.

Mondelez is one of the most global of U.S.-based food companies, so with trepidation Rosenfeld talked at CAGNY of a worldwide “backlash against globalization,” including Britain’s withdrawal from the European Union, many countries closing their borders to immigrants and the U.S. president’s disdain for trade agreements. She also noted a slowdown in gross domestic product in most of the world’s economies.

While her company remains global, Mondelez is pulling back a bit. In 2015, it contributed the European coffee business that it inherited with the Jacobs Suchard acquisition into Jacobs Douwe Egberts, now based in Netherlands, and Mondelez recently divested local brands in France and Australia.

Denise MorrisonDespite all her concerns, Rosenfeld still sees huge potential in the rest of the world catching up to the U.S. in snacking. “Snacking is a $1.2 trillion global market,” she claimed. “It’s highly correlated to GDP [gross domestic product], so when income goes up, so does snacking. Consumption is expandable. It’s especially under-developed in emerging markets.”

Most of the product success stories she offered at the CAGNY meeting were Mondelez’s foreign brands that are being adapted into U.S. products. Barni is a Russian brand that is reinvigorating Teddy Grahams. Big Crunch Bars are taking the Oreo brand into the candy bar space, thanks to development work from Mondelez’s German holding Milka. In his CAGNY remarks, Chief Growth Officer Tim Cofer lauded breakfast biscuit BelVita as “the little French brand” that Mondelez has built into a $600 million global brand.

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