As the consumer world continues to shift and slide alarmingly, Pittsburgh-based H.J. Heinz Co. has strategies to keep profits going up and market share from eroding toward private label or second-tier brands.
But to hear Heinz Chairman Bill Johnson tell it, a rush to offer consumer promotions to match competitors' deals on frozen entrees isn't one of them. At least for now.
"Chasing volume in this category right now is chasing a consumer walking out the door for a period of time," Johnson told a roomful of analysts gathered in Florida this week to hear reports from several consumer packaged goods companies.
That may not be what retailers, or consumers, want to hear, but it is indicative of the debates going on within the food industry.
Shoppers crumpling under the pressure of rising unemployment, a weak housing market, declining investments and a general terror of what may come next have changed how and where they're shopping.
Shopper traffic and shopper frequency is down across most food, drugstore and discount channels, according to TNS Retail Forward Shopper Scape research done in October. Some people are cutting out discretionary items, while others are trading down to places seen as value-oriented, such as dollar stores, limited assortment grocers such as Aldi and Save-A-Lot, or Wal-Mart.
And at most food retailers, private-label brands have gained some market share even as national brands lose some, said Jim Hertel, senior vice president of consulting firm Willard Bishop in Barrington, Ill.
Those trends put the pressure on traditional retailers to keep customers from straying, and on national brands to keep customers from both going further down the aisle or out the door entirely.
The stress is being felt.
In a TreeHouse Foods Inc. earnings discussion last week, an analyst cited several reports that branded companies were getting dropped by their retailers for being too slow to reduce prices.
Johnson said conversations between retailers and consumer packaged goods companies have gotten more difficult. "There's no doubt the tone of the discussion has been a little more intense," he said.
Many brand-name manufacturers, who had cited soaring gas costs and commodity costs last year as they raised their prices, are resisting slashing them. They argue that, except for gas, many commodities have not dropped and they still haven't covered the expenses that rose so quickly last year.
Still, the pressure is building. If the economy doesn't improve soon, something's going to have to give, Hertel said. "It will be harder for everybody to sustain the food prices that we're seeing in the system right now," he said.
Just two weeks ago, Kraft Foods Inc. announced it had lowered some cheese prices because of shifts in that segment. For the time being, that sort of announced drop seems to be less common than companies saying they need to do more promotions to battle the competition, Hertel said.
Johnson preached against the practice of sacrificing profits for market share. He described a situation in the mid-1990s when his competition was taking business in the frozen entree category by offering discounts.
Directed to fight back, he said his team doubled their market share within three months with buy-one-get-one-free offers. The move turned a profitable business into a money-losing one.
Heinz has plans to try to protect its profit margins, including shifting its ketchup offerings toward larger containers and away from smaller, slim-necked bottles, as well as saving costs on packaging materials used for Ore-Ida, Classico and Smart Ones products. Compensation expenses are being "tightly controlled."
"I think patience and prudence to a point is going to be our strategy," he said. Then, he added, "To a point."
(E-mail Teresa F. Lindeman at tlindeman(at)post-gazette.com)
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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