The Supply Side: Food companies move from core to chase consumer

Retailers are not the only companies pulling out all the stops to appease changing consumer demands. Several food companies that supply retail grocers are also busy shifting their businesses away from what may have historically been their core products.

Whether it’s soup, chicken or candy, some of the nation’s largest food suppliers are aggressively shifting resources into areas they believe consumers prefer.

Springdale-based Tyson Foods ponied up more than $8.5 billion last year to buy Hillshire Brands in order to gain bigger market share in branded meats and a leg up in the breakfast protein category, which is one of the fastest growing food segments.

“By investing in Hillshire Brands and its collection of leading brands, we have a unique opportunity to transform an important segment of our business, and position Tyson Foods to meet American consumers' growing demand for protein at breakfast and throughout the day,” Donnie Smith, president and CEO of Tyson Foods, said following the merger. 

Smith previously noted that Tyson was attracted to Hillshire in part because of the strength the merger would bring in the growing breakfast category, where the Springdale meat giant has been trying to capture market share with its own DayStarts products, a line that has since been discontinued.

The combined companies jumped over ConAgra taking the No. 2 market share ($3.3 billion) in the frozen value-added category, according to the meat companies. In terms of individual brands, Tyson has the No. 3 spot with $2.4 billion, and Hillshire ranks eighth at $1.3 billion.

Tyson Foods recently added production lines in three facilities to allow for more tray pack fresh chicken that Smith said is high demand by consumers. Smith expects chicken production to be up 3% in fiscal 2015, which began Oct. 1 for Tyson Foods. He said there are key changes in consumer behavior, including a move to more fresh chicken in the retail case and uptick in fully-cooked frozen sales.

“We see more people eating out with the relief they are getting in gas prices, which should benefit food service customers,” Smith said. “We also see a structural demographic change in demand as more Millennials enter the workforce they index higher toward chicken than previous demographics. We expect to see food service customers begin to offer more chicken promotion in the coming months as supplies come back up.”

SOUP WOES
In January, the Campbell Soup Co. and Hershey Co. made announcements they were shifting resources away from their core product portfolios into ventures they view as having clear paths to growth and better aligned with consumer preferences.

Soup is a category that has struggled in recent years amid more competition in convenience categories. A wider variety of flavors and more health conscious products did not improve the company’s sagging soup sales.

“Soup makers have been introducing new varieties and supporting them with marketing efforts,” according to Euromonitor, a data marketing firm. 

But the marketing has not always helped. Euromonitor noted that marketing campaigns featuring Millennials using microwavable pouches in 2012 did not resonate with American consumers.

Even a No. 1 position in the soup category has not helped Campbell’s, which is why CEO Denise Morrison created a new organizational structure that will revolve around three business units – Simple Meals and Beverages, Global Biscuits and Snacks, and Packaged Fresh. She admitted that Campbell’s future growth lies elsewhere, and said the adoption of this new enterprise structure will be an important milestone for Campbell.

“This reorganization will help unlock the value of our brands and the growth potential of our business. It will drive focused investment on our largest growth opportunities. It is the logical next step in our ongoing effort to shift our company’s center of gravity, accelerate our growth trajectory and maximize value for our shareholders,” she said.

CANDY CHALLENGES
A more health conscious consumer today is not as likely to reach for the chocolate bar at the grocery checkout. Young Millennial parents who favor organic foods, fresh produce and locally sourced products are throwing a wrench in candy sales outside of the holiday seasons.

Hershey CEO J.P. Bilbrey noted in a Jan. 29 conference call with analysts that lackluster 2014 sales were a result of changes in consumer spending patterns and a more competitive snacking environment.

“Specifically, growth in snacking alternatives and an evolving retail landscape are impacting what consumers buy and where and how they make purchases,” Bilbrey said.

With that, Hershey announced it would acquire Krave meat jerky snack brands. Now the confectionery giant will have the opportunity to expand its snack product line to include protein-based snacks along with dips and spreads.

According to Euromonitor, jerky sales accounted for close to half of the $5.9 billion in sales of what the research company calls “other sweet and savory snacks,” or snacks other than chips, pretzels, nuts, popcorn and dried fruit treats. 

“It almost warrants its own category like chips or pretzels at this point, it’s getting so big,” said Matthew Hudak, a Euromonitor analyst.

Even so, analysts in the call raised concerns that the $250 million deal to expand into meat snacks could distract Hershey management away from its confectionery product lines.

“We will always be diligent to not distract ourselves from the core business that we’re in, but we’re also in the consumer products business, and have to make sure that we’re meeting (the needs of) what consumers are always desiring,” Bilbrey said in response.