Consumer Goods Registry: Food
A recent BrandWeek article read, "If you're a brand you eat, drink, smoke or wash yourself with, you're going to be OK" during these tough economic times. If this prediction rings true, and if our list is an indicator of things to come with growth across the board, food manufacturers will likely hold their own next year.
Food News
1. Nestle SA
To reinforce its leadership in nutrition, Nestle agreed to acquire Gerber, the iconic U.S. baby food brand, from Novartis for $5.5 billion in 2007. The move elevated Nestle to the No. 1 position in the United States and established Nestle Nutrition as the global leader in this sector. Also, around the same time, Nestle selected Cognos 8 Business Intelligence to complement its SAP Business Warehouse reporting solution. Having already deployed SAP as its global standard for data warehousing and analytical reporting, Nestle used Cognos 8 BI to complement the front end, giving users the ability to handle ad hoc reporting and grouping of data.
2. Kraft Foods Inc.
Kraft Foods Inc. announced a definitive agreement in 2007 to merge its Post cereals business into Ralcorp Holdings Inc. The transaction was deemed worth approximately $2.6 billion and was part of a company effort to focus on growth strategies. On the technology side, Kraft recently adopted the NetWeaver technology platform from SAP AG as the backbone of its information and business transformation strategy. In less than nine months, Kraft's master data management project rolled out data repositories focused on customer, product, vendor and materials data, to lay a foundation of comprehensive, real-time data as the company embarked upon a North American rollout of SAP ERP.
17. Wm. Wrigley Jr. Company
On Oct. 6, 2008, Mars Inc. successfully completed its acquisition of the Wm. Wrigley Jr. Company for a total of approximately $23 billion wherein Wrigley became a subsidiary of family-owned Mars Inc. and retained its current headquarters in Chicago. The Wrigley business segment operates alongside existing Mars' business units of Chocolate, Petcare, Food, Drinks and Symbioscience. As part of the transaction, Mars transferred its global non-chocolate confectionery sugar brands to the Wrigley subsidiary. This brand portfolio includes Skittles, Starburst, Lockets, Rondo and Skwinkles brands, as well as production facilities in Australia, Czech Republic and Mexico.
A View from Wall Street
Examining the Health and Wealth of the Food Market
By Erin Ashley Smith, CFA, Securities Analyst--- Consumer Staples, Argus Research Company
Without a doubt, 2008 has been a tumultuous and painful year for the stock market, with a 21 percent decline in the S&P 500 as of the end of the third quarter 2008. However, as investors have fled financial stocks and other hard-hit sectors, many have moved to more defensive holdings such as food companies. As a result, the S&P food, beverage and tobacco index has only seen a 7 percent decline for the first three quarters of 2008. Still, food companies have had their share of challenges this year, with historically high cost inflation, aggressive competition and slower consumer spending in the United States.
In this challenging environment, the companies that have fared best are those with a large number of No. 1 or No. 2 brands and those with a strong international presence. H.J. Heinz, which generates approximately 70 percent of sales from outside the United States, and General Mills, which has many category-leading products, are two stocks that have positive share gains despite the overall market decline.
More recently, the credit and financial sector crisis in the United States has spread to international markets, and consumer spending is slowing overseas. Furthermore, input costs so-far this year have been greater than expected. Although costs are expected to moderate in fiscal year 2009, they are likely to remain high by historical standards. As a result, food companies are working to cut sourcing, manufacturing costs in any way possible and develop more cost-effective packaging. They have also increased prices, though even these increases are expected to only partially offset inflation.
Moreover, price hikes have led more and more consumers to trade down to lower-margin "value" and private-label products. We are now starting to see companies focusing more on lower-margin value products rather than trying to develop premium higher-priced products as had been the focus in the past.
Going forward, we think that the best performance will come from companies that have leading brands in categories that are less sensitive to private-label competition and that have a strong product development pipeline. We expect investment in R&D and marketing to remain high, despite the challenging cost environment. Companies with a more geographically diversified portfolio, and especially those with a strong presence in emerging markets, may also fare better over the next 12 months.
| COMPANY | 2007 SALES (millions) | YEARLY SALES GROWTH | BRANDS | |
| 1 | Nestle | $95,479* | 9% | Kit Kat, Friskies, Poland Spring |
| 2 | Kraft Foods Inc. | $37,241 | 8% | CapriSun, Oreo, Philadelphia |
| 3 | Tyson Foods Inc. | $26,900 | 5% | Tyson |
| 4 | Groupe Danone | $12,776* | 6% | Activia, Evian, Numico |
| 5 | General Mills | $12,442 | 6% | Bisquik, Cheerios, Progresso |
| 6 | Sara Lee Corporation | $12,300 | 7% | Ambi Pur, Hillshire Farm, Senseo |
| 7 | ConAgra Foods Inc. | $12,028 | 5% | Chef Boyardee, Egg Beaters, Healthy Choice |
| 8 | Smithfield Foods Inc. | $11,911 | 4% | Butterball, Farmland, Smithfield |
| 9 | Dean Foods Co. | $11,822 | 17% | Horizon Organic, International Delight, Silk |
| 10 | Kellogg Company | $11,776 | 8% | Nutri-Grain, Morningstar Farms, Kashi |
| 11 | H.J. Heinz Company | $9,002 | 4% | Ore-Ida, Weight Watchers Smart Ones, Plasmon |
| 12 | Land O'Lakes Inc. | $8,925 | 26% | Land O'Lakes |
| 13 | Campbell Soup Company | $7,867 | 7% | Pepperidge Farm, Prego, V8 |
| 14 | Pilgrim's Pride Corporation | $7,599 | 45% | Pilgrim's Pride |
| 15 | Hormel Foods Corporation | $6,193 | 8% | Jennie-O Turkey Store, Stagg, Valley Fresh |
| 16 | Grupo Bimbo | $5,994* | 8% | Bimbo, Lara, Tia Rosa |
| 17 | Wm. Wrigley Jr. Company | $5,389 | 15% | Altoids, Juicy Fruit, Orbit |
| 18 | The Hershey Company | $4,947 | 0.1% | Bubble Yum, Reese's, Twizzlers |
| 19 | Chiquita Brands International | $4,663 | 4% | Chiquita |
| 20 | Fresh Del Monte Produce Inc. | $3,366 | 5% | Del Monte |
* Denotes live exchange rates on Oct. 9, 2008
Food News
1. Nestle SA
To reinforce its leadership in nutrition, Nestle agreed to acquire Gerber, the iconic U.S. baby food brand, from Novartis for $5.5 billion in 2007. The move elevated Nestle to the No. 1 position in the United States and established Nestle Nutrition as the global leader in this sector. Also, around the same time, Nestle selected Cognos 8 Business Intelligence to complement its SAP Business Warehouse reporting solution. Having already deployed SAP as its global standard for data warehousing and analytical reporting, Nestle used Cognos 8 BI to complement the front end, giving users the ability to handle ad hoc reporting and grouping of data.
2. Kraft Foods Inc.
Kraft Foods Inc. announced a definitive agreement in 2007 to merge its Post cereals business into Ralcorp Holdings Inc. The transaction was deemed worth approximately $2.6 billion and was part of a company effort to focus on growth strategies. On the technology side, Kraft recently adopted the NetWeaver technology platform from SAP AG as the backbone of its information and business transformation strategy. In less than nine months, Kraft's master data management project rolled out data repositories focused on customer, product, vendor and materials data, to lay a foundation of comprehensive, real-time data as the company embarked upon a North American rollout of SAP ERP.
17. Wm. Wrigley Jr. Company
On Oct. 6, 2008, Mars Inc. successfully completed its acquisition of the Wm. Wrigley Jr. Company for a total of approximately $23 billion wherein Wrigley became a subsidiary of family-owned Mars Inc. and retained its current headquarters in Chicago. The Wrigley business segment operates alongside existing Mars' business units of Chocolate, Petcare, Food, Drinks and Symbioscience. As part of the transaction, Mars transferred its global non-chocolate confectionery sugar brands to the Wrigley subsidiary. This brand portfolio includes Skittles, Starburst, Lockets, Rondo and Skwinkles brands, as well as production facilities in Australia, Czech Republic and Mexico.
A View from Wall Street
Examining the Health and Wealth of the Food Market
By Erin Ashley Smith, CFA, Securities Analyst--- Consumer Staples, Argus Research Company
Without a doubt, 2008 has been a tumultuous and painful year for the stock market, with a 21 percent decline in the S&P 500 as of the end of the third quarter 2008. However, as investors have fled financial stocks and other hard-hit sectors, many have moved to more defensive holdings such as food companies. As a result, the S&P food, beverage and tobacco index has only seen a 7 percent decline for the first three quarters of 2008. Still, food companies have had their share of challenges this year, with historically high cost inflation, aggressive competition and slower consumer spending in the United States.
In this challenging environment, the companies that have fared best are those with a large number of No. 1 or No. 2 brands and those with a strong international presence. H.J. Heinz, which generates approximately 70 percent of sales from outside the United States, and General Mills, which has many category-leading products, are two stocks that have positive share gains despite the overall market decline.
More recently, the credit and financial sector crisis in the United States has spread to international markets, and consumer spending is slowing overseas. Furthermore, input costs so-far this year have been greater than expected. Although costs are expected to moderate in fiscal year 2009, they are likely to remain high by historical standards. As a result, food companies are working to cut sourcing, manufacturing costs in any way possible and develop more cost-effective packaging. They have also increased prices, though even these increases are expected to only partially offset inflation.
Moreover, price hikes have led more and more consumers to trade down to lower-margin "value" and private-label products. We are now starting to see companies focusing more on lower-margin value products rather than trying to develop premium higher-priced products as had been the focus in the past.
Going forward, we think that the best performance will come from companies that have leading brands in categories that are less sensitive to private-label competition and that have a strong product development pipeline. We expect investment in R&D and marketing to remain high, despite the challenging cost environment. Companies with a more geographically diversified portfolio, and especially those with a strong presence in emerging markets, may also fare better over the next 12 months.