Dean Best

Editor's viewpoint: US consumer chill lingers

By Dean Best | 17 February 2014

A sense of gloom has emerged about near-term prospects for US economy

A sense of gloom has emerged about near-term prospects for US economy

Read the financial statements and listen to the conference calls from US food manufacturers in recent days and it is clear: companies operating there are still facing tough conditions and cautious consumers.

There was optimism about the prospects for the US economy in 2014. In the fourth quarter of 2013, US GDP increased at a 3.2% annual rate. As one economist wrote, the US economy had "solid momentum entering 2014".

However, there have been some signs it may be too simple to call a complete recovery in the US. In December, employers hired the fewest number of workers for three years, rounding off a year when the steady decline in jobless claims had cheered the market.

The poor weather in the US has added to the sense of gloom over the country's near-term economic prospects - and there have been forecasts the freeze could lower US GDP by 0.3 percentage points - but, speaking to analysts in recent days, some of its leading food makers have noted how difficult underlying trading conditions are.

"We are in the midst of a turbulent period. Retailers are wrestling with challenged consumers who remain under pressure and consumer behaviour is becoming less predictable," Campbell Soup Co. president and CEO Denise Morrison said last week.

Some are also seeing a difference in sales at different times of the month. "We continue to see a polarisation between business being much better the first of the month versus the end of the month," Allen Shiver, the head of bakery giant Flowers Foods, noted.

As Euromonitor analyst Virginia Lee notes, lower-income consumers are under pressure. "The reduction in SNAP benefits and concerns about healthcare costs have weakened a consumer who was already fatigued by high unemployment rates, wage stagnation, and the federal government shutdown of October 2013," Lee tells just-food.

However, even Whole Foods, a company with a relatively more affluent clientele that could be said to be better protected from the continued challenging economic conditions, last week lowered its earnings forecast - and pointed to its continued need to invest in price, expand the "value offerings" across its store and increase its promotional activity.

In the last three weeks, companies from Tyson Foods to Dean Foods have expressed caution about the impact the end of SNAP benefits could have on food purchases.

"With approximately 80% of supplemental nutrition assessment program or SNAP benefits spent in the dairy category we remain cautious about the impact of the recent 5% reduction in those benefits," Dean Foods CEO Gregg Tanner said last week.

However, amid the flurry of financial results in recent days, an announcement from US food group ConAgra Foods stood out - and spoke to many of the trends highlighted by its domestic peers.

ConAgra issued its second profit warning in five months, sending its shares tumbling. The company has specific issues - not least the integration of private-label supplier Ralcorp Holdings, which it acquired last year - but the Hunt's ketchup and Banquet ready meals owner is continuing to see sales of its consumer brands under pressure, even after ramping up offers.

Janney Montgomery Scott analyst Jonathan Feeney said: "No income growth since 2009 for 95% of US consumers, alongside 2% retail inflation and concerns about healthcare costs, payroll taxes, and SNAP benefits, is clearly having an outsized drag on ConAgra's portfolio, as well as other center-store US-focused food companies."

When ConAgra issued its first profit warning in September, the company said it would look to invest more behind its brands. However, those moves have, thus far, only had a limited effect on its sales. 

And analysts see ConAgra's plight as both a warning to the sector. "The fact that volumes have not yet improved much, despite a heavier bent towards promotional spend, is telling for the group as a whole, in our view," Barclays Capital's Andrew Lazar wrote.

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Over the next fortnight, we'd like to hear how you see the outlook for your business in 2014.

Now in its third year, the just-food Confidence Survey provides a snapshot of how you and your colleagues in the industry see the year unfolding. The latest survey is live and takes just a few moments to fill in.

In the coming weeks, we'll be reporting on the highlights from the survey in a free webinar live on just-food.com.

As a thank you for filling in the survey, you'll receive an executive summary detailing the results.

Sectors: Canned food, Cereal, Condiments, dressings & sauces, Dairy, Frozen, Meat & poultry, Natural & organic, Private label, Retail, Snacks

Companies: Tyson Foods, ConAgra Foods, Dean Foods, Flowers Foods, Ralcorp Holdings, Campbell Soup Co

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