A number of trends are observed in the US and Canadian prepared foods industry. Sales grew by a mere 2.7% although profits increased due to a better economy, low inflation and increased consumer purchasing power. International expansion was the main focus of the firms Coca Cola, Anheuser-Busch and Kellogg while efforts to improve efficiency have finally yielded results in the form of savings and reduced cost of doing business. A ranking of the top 250 food and beverage companies is also presented.
Full Text :COPYRIGHT Delta Communications Inc. 1995
AS OUR ANNUAL RANKING GOES GLOBAL, IT APPEARS U.S. FOOD FIRMS ARE AMONG THE WORLD'S MOST PROFITABLE.
"Dieting at home, feasting abroad" was the title of our 1994 report on what was then The Leading 200 food and beverage companies. In the intervening 12 months, the world and its food and beverage manufacturing companies have taken a 180-degree turn.
As we assess the performance of the world's food processors this year, it's apparent that U.S. firms have put a painful period of reorganization behind them. Whereas last year's report noted the imperialistic designs of European food companies and the growing prosperity in Latin America, this year's assessment finds weakness in those two regions and a growing head of steam in the U.S.
From interviews with officials at food processing companies and reviews of dozens of annual reports, the following picture emerges:
* Overall sales growth in the industry was minimal, increasing 2.7% before inflation, according to the Commerce Dept. But profitability generally was up, aided by a stable economy, low inflation, a weak dollar and more purchasing power in the hands of American consumers.
* Some categories were better than others. International growth was key to improvements at Coca-Cola, Anheuser-Busch and Kellogg, among others. Ample supplies of hogs and cattle and stable prices meant good business at IBP and ConAgra. Poultry remained a steady gainer. Soft drink manufacturers posted healthy gains. Beer sales were flat, with the only gains driven by new products, but brewers managed to remain profitable because of cost-reductions.
* Recent efficiency improvements at all levels are beginning to pay off. From downsizing to more prudent use of discounting and promotions to efficient consumer response, food companies are beginning to realize savings from these efforts at lowering the cost of doing business.
So while no one was doing hand-stands over 1994's performance, it wasn't a bad year. One quick gauge of how the year went: There were only two firms on this year's Public 65 chart that reported operating losses in '94, and the first was all the way down at No. 51 on the list. Last year's [TABULAR DATA OMITTED! list had six companies with losses and 1993's had five.
"1994 was a difficult year; the third in a row," says Caroline Levy, senior vice president and food & beverage analyst at Lehman Brothers Inc. "There was no pricing flexibility, private label was still growing, and ECR was just being tapped into.
"I definitely see improvement in 1995," she continued. "Selectively, companies are raising prices. Costs should look better because of all the restructuring that went on the past two years. And the cost savings of ECR are beginning to show up."
SOME SURPRISE ACQUISITIONS
1994 may be remembered as the year of the medium-sized acquisitions.
On the one hand were the one-trick ponies. Early in the year, Gerber Products Co. was bought by Switzerland's Sandoz AG for $3.7 billion. The end of the year saw the sales of firms like Pace Foods Ltd. (bought by Campbell Soup Co. for $1.2 billion) and Snapple Beverage Corp. (sold to Quaker Oats Co. for $1.7 billion).
All were very good at the one thing that they did and largely had created the hot categories they managed (barely) to dominate. But they also were plateauing after a long joyride. Acquisition by a larger and more diversified company with a good distribution system may have been just what they needed.
On the other hand were the mid-sized diversifieds like Pet Inc. (to Grand Met/Pillsbury) Borden Inc. (to investment firm Kohlberg Kravis Roberts) and Dr Pepper/Seven-Up Cos. (to Cadbury Schweppes). Old war-horses but not dominant in any category anymore, they found themselves competing not so well in a world in which everyone else either was a behemoth or was small, specialized and agile.
There also was some significant asset-swapping. The frozen dinner category may have been too competitive for Budget Gourmet under Kraft Foods, but the unit may be just what the doctor ordered for the under-utilized and diet-only Weight Watchers division of H.J. Heinz Co.
The same thinking is sending Continental Baking Co. from Ralston Purina Co. to Interstate Bakeries Corp. (the deal still is under government review). And a Procter & Gamble coffee plant in Houston to Brothers Gourmet Coffees Inc.
ConAgra Inc., always active in mergers and acquisitions, made two notable buys during 1994: the frozen foods business of Universal Foods, and MC Retail Foods, which owns the Marie Callender's brand and had sales of $103 million. The former purchase also knocked Universal Foods off our annual list.
In the poultry business, Perdue Farms Inc. bought Showell Farms Inc., WLR Foods Inc. bought the turkey operations of Cuddy Farms Inc., and Tyson bought Culinary Foods Inc. (Currently, Tyson is closing on the purchase of International Multifoods' surimi business.)
"For the [food processors] group to achieve double-digit earnings growth still won't be easy, but a number of companies have clearly strengthened portfolios by shedding low market share positions and by adding synergistic businesses," says John McMillin, food industry analyst at Prudential Securities.
A number of companies had great years. Among the biggest companies, No. 1 Philip Morris increased sales just 4% but grew profits by 25% - helped more by earnings in cigarettes and a doubling of profits in beer than by 4.9% growth in foods.
No. 2 ConAgra turned in its usual double-digit increases in both sales and profits. No. 5 IBP Inc. doubled profits, helped only in small part by a 53-week fiscal 1994.
Campbell Soup earnings were up 67% - but only by 13% when last year's special charges are excluded. Domestic soup sales dipped 7% while overseas soup volume rose 12%. All other products and units did well.
Anheuser-Busch's profits were up 46%, aided by sales of premium brands and specialty products.
RJR Nabisco's income leaped 49% (1993 was an off-year, however). Worldwide Nabisco sales were up 10% and operating profits rose 16%. Credit was given the introductions of reduced-fat products in various lines, including Chips Ahoy, Oreos, Ritz and Triscuits. Planters finished development of reduced-fat nuts for introduction this year. And if you're tired of reading SnackWell's success stories, check out the annual report: the mega-brand is barely mentioned there.
The biggest sales increases among the larger companies were notched by fierce competitors Pepsico Inc. (15%) and Coca-Cola Inc. (16%). Moled model Cindy Crawford is featured on the cover and throughout Pepsi's annual report. "As I was telling Cindy," Chairman/CEO Wayne Calloway wrote in the booklet, "sales earnings and dividends hit all-time highs. Particularly strong were domestic soft drinks and snack foods, our two most profitable businesses."
Calloway said cost-cutting in soft drinks "beat private labels at their own game." Lipton became America's best-selling iced tea. All Sport, launched nationally in 1994, became the No. 2 sports drink.
The introductions of Wavy Lays and Lay's KC Masterpiece barbecue flavor chips added more than $300 million in retail sales to snack foods. Reduced-fat Rold Gold pretzels also helped, and reduced-fat products throughout the snack foods segment should be a big contributor this year at Pepsi.
At Coca Cola, "After three years of our international volume growing at a pace below our own demanding expectations, our focused actions helped us solidly achieve our long-term volume and earnings growth rate targets in 1994," Chairman/CEO Robert Goizueta wrote in his company's annual report. Led by 11% growth in overseas markets, worldwide case volume grew 10%, and operating income jumped 20%.
The biggest sales increases in the Top 65 were notched by Canandaigua Wine Corp. (106%) and Cott Corp. (59%). Canandaigua did it by acquisition, acquiring Barton at the end of 1993 and Vintners International Co., America's fifth largest wine company, in '94, plus the Almaden and Inglenook brands.
Cott did it by going global. Cott soft drinks were launched in Spain, Japan and New Zealand. The company started Cola Wars in England by supplying the huge Sainsbury's chain and by launching, in a joint venture, Virgin Cola.
RELATED ARTICLE: The Leading 250 Goes Global
As recently as 1992, the annual Prepared Foods listing of leading food and beverage companies totaled just 50 companies and focused only on the U.S. But this is a constantly growing and increasingly global business, so each year since we've increased the length and breadth of our coverage. This is the first year we can call our listing truly global.
For 1995 we've made two additions to what is now The Leading 250. First, a ranking of Asia/Pacific companies has been added to our coverage, with the help of our friends at Datamonitor, a London-based market research and consulting firm. Second, Canadian companies have been added to what is now a combined list of U.S. and Canadian public companies.
As always, our listings focus on only the food and beverage sales of all ranked companies. With that mandate, it becomes difficult to keep the figures current, especially in other parts of the world. We have provided the most recent data available, but have noted when those figures are not from 1994.
RELATED ARTICLE: METHODOLOGY
The Prepared Foods Leading 250 includes the 65 largest public food and beverage companies in the U.S. and Canada, the 35 largest privately held firms in the U.S. and the 50 largest each in Latin America, Europe and the Asia/Pacific region. In all cases the rankings and the sales figures are intended to represent only the qualified, value-added food and beverage sales of the companies. Commodity-based companies are excluded.
In most cases, the figures are from public reports of the companies with follow-up calls to verify and qualify the data. The U.S. Private 35 list is assembled with the cooperation of most of the companies, although some cross-checking and estimation is necessary. For this we thank the Research Dept. of Cahners Food & Lodging Group.
Named Works: Prepared Foods (Periodical) Statistics
Fusaro, Dave. "Cost-reduction efforts begin to pay off." Prepared Foods 164.8 (1995): 12+. Academic OneFile. Web. 29 Oct. 2009.
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