The food business blog from Dean Best
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Indian retailer steals march on Wal-Mart
17 Aug 2007 16:25
For all Wal-Mart’s pleasure at setting up its first venture in India, a domestic rival looks to have stolen a march on the US group with ambitious plans to expand throughout the country.
Reliance Retail wants to spend a whopping US$6bn expanding its store network from around 250 to 5,000 outlets in just four years.
Now, Wal-Mart – which earlier this month made its first foray into India with a cash-and-carry deal – is hamstrung by a ban on direct foreign investment in India’s retail sector.
Nonetheless, should Reliance follow through with its plans, Wal-Mart will be faced with a pretty strong competitor if and when government controls on investment are lifted.
Kraft under the spotlight - again
16 Aug 2007 18:51
Talk that Kraft Foods is looking to offload some of its businesses just won’t go away.
Last month, it was Kraft’s cheese business under the spotlight; now, it’s the US group’s cereals arm.
As you’d expect, Kraft has remained tight-lipped on the latest speculation.
However, the possible sale of Kraft’s cereals business – home to brands including Shredded Wheat – was first signalled on these pages a few weeks back when an analyst in the US said the company could offload businesses that lag behind their rivals in certain sectors.
What is certain is that all this speculation on Kraft’s future structure has come after activist investor Nelson Peltz bought a small stake in the company. Industry watchers have argued that Peltz’s investment could spark the disposal of some of its operations.
What’s more likely, however, is that rising raw material costs could prompt Kraft to sell off some of its operations to boost margins – leaving the company with a set of stronger businesses with which to drive value.
Kraft boss Irene Rosenfeld has been quoted as saying that there is a “perfect storm” in global dairy markets as milk prices rise.
Could a sale or two be the perfect way to shield the company from the fall-out?
The cloud over Whole Foods remains
15 Aug 2007 22:45
Acquisition stories often become fairly compulsive viewing but the struggle Whole Foods Market is having in its bid to take control of its competitor Wild Oats is rapidly becoming a classic.
Unlike many other takeover sagas, the tension here is not hinging on a reluctant target holding out against a relentless predator, praying for a white knight to clip-clop into view. The deal was done comparatively quickly back in February when the Wild Oats board accepted the terms of Whole Foods’ US$565m offer.
But since then, things have not gone smoothly.
Whole Foods twice extended the offer period because the Federal Trade Commission (FTC) requested more information, and then the FTC announced that it would seek to block the deal on antitrust grounds. The offer deadline has continually been extended ever since.
It was then revealed that Whole Foods chief John Mackey had posted anonymous comments on Internet blogs about Wild Oats and his own company between 1999 and 2006 which it was suggested might land him in hot water with the Securities and Exchange Commission (SEC). The SEC announced that it would be looking into the affair; Mackey apologised.
Ironically, Mackey had launched a blog to put his company’s case in the FTC proceedings. Two of his favourite pastimes would appear to be blogging and doing battle with corporate regulators, and sometimes he can clearly manage both at once.
Then CtW Investment Group, which has links to union pension funds holding shares in Whole Foods, called for Mackey to relinquish his role as chairman, in favour of an independent chairman "who can quickly establish credibility with regulatory authorities and shareholders".
This week it became apparent that the black cloud firmly tethered above Mackey’s head is still casting its shadow. On Monday, a number of consumer pressure groups weighed in on the FTC’s side, saying that the merger would lead to "higher prices, less service and diminished consumer choice".
And to cap it all, yesterday confidential information being submitted as part of the FTC’s case was accidentally disclosed to the media. The information appears to add grist to the FTC’s mill, as it contains plans to close Wild Oats stores and Whole Foods' projections for its own sales in local markets where an existing Wild Oats outlet would be closed. It also included details of business and marketing strategies which were meant to remain confidential.
The court will rule soon on whether to extend the FTC's injunction blocking the acquisition but one wonders what will happen if the deal is eventually blocked. Could Whole Foods sue for the breach of confidentiality?
After all, the information disclosed is not only pertinent to the Wild Oats acquisition; Whole Foods could claim its publication could compromise it commercially in more general terms.
And could the very disclosure of that information make the outcome of the antitrust case itself appealable by Whole Foods should the merger be blocked?
One might argue that the information would have been seen by the judge in any case, so its wider availability is not strictly relevant to the case.
But in the litigious US where people with overwhelming cases against them for murder can walk free on a technicality, one wouldn’t be surprised if further legal wranglings ensue.
Wal-Mart's warning is a warning for all
14 Aug 2007 15:57
Today’s profit warning from Wal-Mart will send repercussions throughout the retail community.
The US retail giant said this afternoon (14 August) its sales are under pressure as consumer spending is being squeezed.
Aside from the obvious concerns for Wal-Mart’s management, employees and investors, the warning will raise serious questions about how the ever-more gloomy outlook on consumer spending will affect the food industry.
In recent months, many brand-owners and retailers have talked up the potential for “premiumisation” but, in reality, how lucrative will moves in this direction be when consumers are facing rising bills and interest rates?
A number of UK food producers, hit by the severe recent weather in the country, have called on the help of the country’s retailers as they look towards recovery. But, with consumers increasingly watching what they spend, how easy will it be for retailers to increase prices and help producers and manufactures generate a decent turnover this year?
A number of food manufacturers around the globe have also spoken out about the mounting cost of raw materials, prompting concern that food prices will rise in the coming months.
And with the prospect of rising food prices – or, in economist speak, agflation – comes the double whammy to consumers of higher interest rates. This would only compound retailers’ concerns over the spending power of consumers, while also strengthening retailers’ fears that their growth will be squeezed.
In fact, there have been signs that retailers, if only in the UK, are realising that something’s got to give. Tesco, Asda and Morrisons have all slashed thousands of prices in recent weeks and retailers are increasingly flagging up that they represent the best value for money for consumers.
It seems there will be a bumpy ride ahead.
Agflation - the new story
13 Aug 2007 16:15
Agflation. It may not be a word you are all yet familiar with. But, rest assured, over the coming months it will be. It is the term being adopted by economists to described the rising costs of food products, such as cereals, dairy and other basic groceries.
The rising costs of food across the globe is not yet front-page news in most countries, but it's our belief here at just-food that it is steadily moving up the agenda.
Those who have been concentrating hard on just-food's news pages in the last month will have noticed the growing number of food producers showing concern over mounting raw material costs - Dean Foods, Cadbury Schweppes and Barry Callebaut to name a few. The moment when these costs are seriously passed onto the consumer will be the moment that this phenomena will take centre stage in the consumer press.
Despite its rising importance when describing the current outlook for the global food industry, agflation remains a worryingly woolly term and its causes shrouded in confusion.
One newspaper report I read blamed the supermarket sector for the concept in their pursuit for greater profits. No doubt increasing demands on global food supplies by the likes of India and China will get their fair share of coverage, as will the freakish weather we have experienced over the last quarter.
The auto industry is also copping flak with moves to replace a dependence on petroleum and diesel to run cars with biofuels - petrol made from corn to the likes of you and me.
But as ever when looking at the complex way the global economy interlinks, the picture is more complicated than that and economists are even at odds as to whether agflation is a cause or symptom of global inflation.
"But to say that rising food prices produce an inflationary (or, I suppose, an 'agflationary') effect is to say that inflation is, itself, an occurrence of rising prices. While modern use of the term "inflation" has been corrupted to reflect this meaning, it is incorrect in light of its classical definition, an increase in the supply of money and credit," one financial blog commented earlier this year.
What is certain is that the concept is one we will all have to get used to dealing with, whether as consumers or traders.
The US producer price index for raw food and feedstuffs was up 19% or more year-over-year from February to June - topping 30% in May for the first time since 1974. And this month, the Economist Intelligence Unit forecast the price of grains and oilseeds will rise 16% and 29%, respectively, this year.
As one analyst I read this week said: "Costs will rise across the economy, and 20 years of disinflation are coming to an end, worldwide. The new story is food."
Godiva sale to herald Campbell soup push
10 Aug 2007 11:41
Campbell Soup Co.’s decision to consider the sale of upmarket chocolate business Godiva is likely to mean one thing – the US group is going all guns blazing into Russia and China.
The company has admitted it is mulling the future of Godiva, a brand it has owned for 40 years.
Campbell boss Doug Conant even admitted that Godiva has been “a strong performer” but insisted the brand doesn’t fit with the company’s focus, a strategy that centres on more “everyday” products
A brand with such a well-known, premium image in the minds of consumers is likely to command a hefty price tag – and Campbell would love to plough that cash into its offensive into Russia and China.
Campbell has embarked on an ambitious bid to tap into Russia and China, the world’s two largest soup markets. The sale of Godiva will no doubt give Campbell the money to invest in distribution in these two vast markets, as well as marketing its products to Russian and Chinese consumers, well-versed in their own soup-eating traditions.
Last month, Larry McWilliams, the head of Campbell’s international business, told just-food that the Russians and Chinese are “very emotionally involved in soup”.
Campbell’s apparent readiness to sell Godiva shows where the US group’s emotions lay.
Wal-Mart raises stakes with India venture
08 Aug 2007 12:39
In terms of direct investment into the retail sector, India remains a closed shop for foreign firms.
Nevertheless, Wal-Mart’s move into the country’s wholesale business is a smart move from the US retail giant.
Wal-Mart’s cash-and-carry venture with Indian conglomerate Bharti Enterprises – announced on Monday after months of negotiations – should leave the company handily placed if the Indian government allows foreign retailers to expand.
And by partnering with Bharti, which, for instance, owns India’s largest mobile phone network, the venture should be able to tap into a wide distribution network in a country where transportation remains a key challenge.
However, German retailer Metro, one of Wal-Mart’s fierce global rivals, already has a strong foothold in India with a presence in a number of states.
If and when the Indian government gives the green light for multinational retailers to wade into the country’s retail sector, there will surely be a fierce fight for the wallets of India’s ever-burgeoning middle class.
UK farmers on edge
07 Aug 2007 15:44
At just-food, our focus is on food manufacturing and food retailing.
However, it would be remiss of us not to analyse the potential business impact of the fresh foot-and-mouth outbreak in the UK, especially after the crisis that hit the country’s farming industry in 2001.
The UK’s larger retailers told us today (7 August) that they had so far seen no “panic buying” of meat in the wake of the first identified case of foot-and-mouth, which was discovered on Friday.
Nevertheless, it would be appropriate to get across to those of you outside the UK just how on edge the farming community is right now.
Memories of the burning pyres scattered across the UK countryside after the slaughter of millions of cows are still fresh in the minds of the country’s farmers, who lost millions of pounds due to the last outbreak.
The EU has praised the UK government for reacting quickly to this latest outbreak and announced that, after consulting with the country’s authorities, it has banned the export of live animals and all fresh milk and meat from most of the UK.
The EU is renowned for reacting quickly to incidents like this and such action should be welcomed. However, there is no denying that farmers elsewhere in the EU could stand to benefit commercially should the UK ban become entrenched.
OFT keeping its powder dry on Sainsbury's
06 Aug 2007 13:25
just-food was surprised to read reports this weekend that the Office of Fair Trading had held informal talks with Delta Two, the investment fund looking to buy UK retailer Sainsbury’s.
The OFT was said to have approached Delta Two and discussed the fund’s proposed bid for Sainsbury’s.
Delta Two, an investment vehicle backed by the Qatar government, has indicated that it would bid GBP10.6bn (US$21.5bn) for Sainsbury’s and borrow some GBP6bn to fund the takeover.
There have been concerns over the amount of cash Delta Two would look to borrow to finance the deal, not least from UK trade unions worried over the level of debt that could be placed on the business.
However, to suggest that the OFT would act on those concerns at this point in proceedings is misguided. First, there has been no official bid from Delta Two for Sainsbury’s and secondly, should the OFT wish to hold talks with the fund, it would do so under standard official procedures as an impartial, administrative body.
UK shoppers happy to cast a wide net
02 Aug 2007 16:18
Are UK consumers really buying into the “food miles” concept and demanding more locally produced food?
Market analysts Mintel says they are; a report from the organisation claims that over half of UK shoppers feel that there is not enough local food available in stores.
At first glance, these are worrying findings for those immersed in the sustainability debate. As has been argued on these pages before, concept of food miles remains easy for consumers to grasp but, in practice, it is too simplistic and we lose sight of a raft of wider sustainability issues.
How does, for instance, the issue of Fairtrade fit into a concept of food miles? And just how do the latest figures on Fairtrade sales fit with the idea that UK shoppers are clamouring for food from Kent instead of Kenya?
Figures from the Fairtrade Labelling Organizations International (FLO) said the amount of money spent on Fairtrade products soared by 41% in 2006.
Consumers worldwide spent EUR1.6bn (US$2.2bn) on Fairtrade goods last year, with cocoa, coffee, tea and bananas showing robust growth.
UK shopping habits are, indeed, a complex beast.