The food business blog from Katy Askew
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Lidl to up expansion rate in UK
02 Dec 2013 17:11
News that Lidl wants to more than double its number of stores in the UK within the next three years could signal competition is heating up further still in what is already a hotly-contested market.
The retailer has 600 UK stores, commanding a 3% market share. It is eyeing taking that network to at least 1,200 outlets, Ronny Gottschlich, MD of the German grocer's UK arm, said at the weekend.
The chain plans to step up the rate of store openings and increase the pressure it is putting on the "big four" - Tesco, Sainsbury's, Asda and Morrisons.
In an interview with The Sunday Telegraph, Gottschlich said Lidl expects to spend around GBP170m in the UK this year. Annual investment is likely to rise to GBP300m within two years as Lidl accelerates from opening 15 to 20 stores per year to at least 30 to 40 stores.
"There are no restrictions to the openings we can do in a year. The funding is there," he said.
The bulk of that spend will be on store openings, but the group is also planning to introduce in-store bakeries at its existing locations in order to increase its mainstream appeal.
Here in lies the key to Lidl's success in the UK. The retailer has gone from being viewed as a bargain basement outlet pedalling a random assortment of products shipped in from Europe to a supermarket operator with mainstream - albeit still value - appeal.
Lidl has adjusted its ranging strategy and increased its focus on fresh products, including significant investments in expanding its meat and poultry offering.
And it is that kind of investment that has helped Lidl grow its share of the UK market. It accounts for 3% of sales, low compared to the likes of Tesco and Asda, but its double-digit growth rate will be causing furrowed brows at its larger rivals.
Peltz ups pressure on Mondelez
30 Oct 2013 15:59
Activist investor Nelson Peltz is apparently not a man to be easily disparaged.
Through his investment vehicle Trian Fund Management, Peltz issued a call this summer for PepsiCo to split into pure-play drinks and snacks businesses and merge the latter with Mondelez International. The move, which Peltz said would generate significant value for shareholders, was roundly rebuffed by the management of each company, with PepsiCo's CEO Indra Nooyi mounting a particularly strong defence.
Peltz's analysis on Mondelez focused on the group's lower-than-average margin. Peltz insisted that the company is struggling to get its margins up to standard. Even on a stand-alone basis, Peltz insisted Mondelez can get its margins moving in the right direction - and a lot more quickly than management has targeted.
According to Trian's analysis, the investment firm has identified a 400 basis point margin opportunity. This is consistent with management's long-term 14-16% margin target. However, Peltz is apparently working to a different timetable and believes that margin improvement can be achieved more quickly than Mondelez is currently targeting. As he said at CNBC's Delivering Alpha conference in July, he is "not getting any younger".
With a large stake in Mondelez - as the group's fourth largest shareholder - it would seem that Peltz is unwilling to let the issue drop.
According to a report in the Wall Street Journal, Peltz has gone on the offensive again. In a presentation delivered in Chicago this week, Peltz insisted Mondelez could nearly double EPS through tighter cost management. Peltz also said Mondelez should be able to boost its operating income margin to 18% from 12%, the WSJ reported.
Peltz has reportedly shared his proposals with members of the Mondelez board, but not yet gone fully public with his plan.
Meanwhile, Mondelez is moving ahead with its own plan to boost margins. Last month, the Oreo and Cadbury owner revealed details on a revamp of its production network as well as supplier and SKU rationalisation. Nevertheless, the group is also pushing forward with high levels of investment in its emerging markets business.
Whatever the impact of this latest offensive from Peltz, it is clear that Mondelez's margin will remain in the spotlight for some time to come.
Mondelez is watching you
21 Oct 2013 17:48
Mondelez International is preparing to launch a pilot programme to test a "smart shelf" system to track shoppers - and then "engage and influence" them.
The programme uses Microsoft Windows Kinect technology, a Mondelez representative has told ABC News.
"Our goal is to understand how shoppers see, scan, spot, show interest and select products from the shelf in the store. We can also engage and influence the purchase decision by delivering a targeted shopper experience. For example, we can deliver audio or play a video based on demographics, distance and even the time of the day," the spokesperson explained.
In order to dispel any concerns the project could be intrusive, Mondelez emphasised the targeting would not be personal - but rather based on broader demographic characteristics such as age and gender.
Microsoft is not directly involved with Mondelez's plans. However, it is interesting the news comes just a few weeks on from the controversial suggestion Microsoft was considering providing advertisers with Xbox One Kinect data collected in people's living rooms. Microsoft moved quickly to deny the reports.
I'm not one for conspiracy theories... But I did see 'Minority Report'. Frankly the idea that I am so easily tracked puts me off Facebook and other social media (I was not overly impressed when I was delivered a targeted advert for a product, right after buying it online). Meanwhile the Snowden revelations clearly raise question marks over the level of scrutiny we are placed under from various governments. I am therefore a little dubious - as a consumer - about inviting this level of surveillance into the grocery store.
Now, where's my tinfoil hat?
Have shares in Chinese infant formula firm Huishan Dairy turned sour?
27 Sep 2013 14:46
Investors in China Huishan Dairy Holdings Co could be left feeling a little sour today (27 September), after the dairy firm's debut on the Hong Kong stock exchange saw shares close down on their IPO price.
Shares closed at HK$2.58 after their first day of trading. The group's fully-subscruibed IPO had been priced at $2.67.
The slide could simply be a reflection of dampening investor sentiment in Hong Kong. Overall, the Hang Seng Index closed up a sluggish 0.35%.
However, it could also suggest deeper concerns about Huishan's ability to navigate the turbulent waters of the Chinese dairy market.
In its prospectus, the company hinted it expects to benefit from government steps to encourage good practice in the dairy supply chain, including tax benefits and grants to promote safety standards. "Companies with complete control over their raw milk sources and stringent safety and quality assurance measures, such as Huishan Group, are expected to benefit from the implementation of such policy," the company predicted in its IPO filing.
However, subsequent reports in state media detailing plans to provide Chinese dairy makers with a state-backed financial boost of around CNY30bn (US$4.9bn) failed to mention Huishan.
According to official state publication the China Business Journal, the country's largest dairy firms, including Yili Industrial Group, Feihe International, Heilongjiang Wondersun Dairy Co Ltd and China Mengniu Dairy, will benefit from government subsidies, funding from China Development Bank and beneficial tax rates.
The prospect of Huishan's competitors receiving support from Beijing, leaving the company out in the cold, could certainly provide investors with some cause to feel less bulllish.
Nevertheless, in many ways Huishan still looks a safe long-term bet. The company's "grass to glass" proposition provides it with full control over the supply chain. As a result, it has managed to sidestep the safety scares that have plagued the Chinese dairy industry in recent years. It is also able to communicate a strong message to Chinese consumers, a market where the national obsession is food safety.
Moreover, Huishan plans to use the proceeds from the IPO to strengthen its integrated model further still. The company plans to open 45 new dairy farms and build a new milk powder processing plant.
If Huishan can deliver on this promise, even in the face of stiffening competition in the market, it is well-placed to benefit from the rising appetite for dairy in China.
McKee should refresh returning Drake's cake brand
23 Sep 2013 14:20
US firm McKee Foods, the new owner of Drake's cakes, has said it is celebrating 125 years of the iconic brand by returning the four most popular varieties to the shelves.
McKee snapped up the iconic Drake's business after Hostess Brands was liquidated earlier this year. The company is relaunching Devil Dogs, Coffee Cakes, Ring Dings and Yodels today (23 September).
"The launch of these top four varieties is just the beginning for Drake's," said Chris McKee, EVP marketing and sales. "Our first mission is to get the most popular and familiar tastes back into the pantries and lunch boxes of Drake's loyal fans."
So, will McKee be bringing a new take on an old favourite? No. The company will be using the same recipes and same carton formats to pick up Drake's "right where it left off".
Now, obviously Drake's has a strong core of loyal customers and it makes sense to initially focus on cashing in on the goodwill that the return of Drake's will elicit. Nostalgia can be a key purchase driver.
However, in the longer term McKee would be wise to bring something new to the brand. Sales of packaged cakes are flat - at best - in the US. Consumers are increasingly concerned about issues surrounding health and wellness and growth pockets - such as gluten-free or premiumisation - are bright spots in an otherwise gloomy category.
If McKee is to leverage the full brand power of Drake's, it will need to expand and modernise an iconic brand that currently has its place firmly in a nostalgic past.
Baby food brands coming up short on nutrition - study
10 Sep 2013 14:37
The nutritional content of commercial baby foods came under the spotlight this week, when a new study suggested that on the whole they fail to meet the dietary needs of weaning infants.
The research, from a team led by Dr. Charlotte Wright of the University of Glasgow, found that commercial foods are predominately too sweet and provide little nutritional benefit over breast milk or formula. The researchers also suggested that baby foods are marketed to infants that are too young.
"The most commonly used commercial foods considered in this study supply no more energy than breast or formula milk and yet they are promoted at an age when they will replace the breast or formula milk, which is all that babies under six months really need," Dr. Wright commented.
The study analysed the nutritional content of all 462 baby foods on sale in the UK that can be used during weaning. The products included ready-made wet foods, powdered meals, breakfast cereals and finger foods. Nearly two-thirds of the products were sweet foods.
The researcher's conclusions raise a number of important issues.
With obesity never far from the public eye, could we be weaning generations of children that will grow up with a predisposition towards sweet foods?
The authors of the study certainly think so, adding that repeated exposure to foods during infancy "promotes acceptance and preferences".
The food industry is increasingly focused on the development of products that promote health and wellness.
Responding to the needs of an ageing population, manufactures are more frequently developing foods that offer health benefits later in life. But, as the industry looks to narrow the gap between life expectancy and healthy life expectancy, perhaps it is worth remembering that a good diet should be promoted from the earliest age.
Chocolate is good for your health... honest
06 Sep 2013 16:07
It's official: chocolate is good for your health.
At least, according to the European Commission. Brussels has agreed Barry Callebaut's claim that a daily intake of 200 milligrams of cocoa flavanols from either 2.5 grams of the B2B chocolate giant's registered trademark Acticoa cocoa powder or ten grams of its dark chocolate support healthy blood circulation.
Approval from the European regulator means the health benefits can be flagged on Acticoa products in all European Union countries. Health claims can also be applied by Barry Callebaut customers who use Acticoa cocoa and chocolate products.
"Receiving the right to use a health claim on cocoa flavanols by the EU Commission is most valuable for us as it is a great reward for long years of extensive research. The health claim is opening up new market potential. Since we received the positive opinion from EFSA on our submitted health claim, we saw a lot of interest among our customers," Peter Boone, chief innovation officer at Barry Callebaut, said.
And it works well for me too. Now "heart healthy" will be my reason for eating chocolate. This will sit neatly alongside "doctors say its good", my justification for drinking red wine. I forget why wine is good, and I'm not entirely sure the EC approves, but I do like the idea that it is backed by health professionals.
China's infant formula probe still in the headlines
27 Aug 2013 17:48
Chinese regulators have reportedly rebuffed the wide-spread suggestion that it targeted foreign infant formula companies through its competition probe into infant formula pricing.
According to reports in the Chinese press, the recent government investigation into the infant formula sector did not single out foreign brands. "There is no such thing as specially targeting foreign companies. Our investigations focus on monopolistic conduct, not the entities behind it," the China Daily quoted an unidentified official from the National Development and Reform Commission, China's antitrust watchdog, as saying.
The NDRC probe drew in almost all the leading international formula makers operating in China, including Nestle, Mead Johnson, Danone, FrieslandCampina, Abbott Laboratories and Japan's Meiji. Hong Kong-listed Biostime and Chinese firm Beingmate were also examined by the regulator.
The NDRC found the eight companies carried out "various forms of resale price maintenance". The regulator said "specific measures and means" varied between enterprises, but included the imposition of direct fines, disguised fines, deduction rebates and limiting supply to downstream operators who sold products below the company's minimum price. This, the NDRC argued, lessened competition in the market and kept formula prices artificially high.
Concluding the probe earlier this month, the NDRC imposed fines totalling CNY669m (US$109.3m), the largest antitrust ticket in China's history.
On the one hand, Beijing's reasoning that the investigation was prompted by escalating infant formula prices seems highly plausable. According to government statistics, Chinese infant formula prices have increased by 30% since the melamine contamination scandal of 2008.
However, the fact that it comes at a time when it is pushing for the consolidation of domestic formula manufacturers does make the probe seem a little suspect. The Chinese government reportedly aims to reduce the number of domestic infant formula manufacturers to between three and five companies with revenues of over CNY50bn (US$8.17bn) by 2018.
In the long term, regulators believe that fewer, bigger companies operating in an arena that has had more than its share of safety scares will boost safety. The government is simultaneously stepping up its food safety oversight of the sector. Higher safety standards should lead to improved consumer confidence, which should grow demand for home-grown formula and lessen the country's reliance on foreign formula makers. So the argument goes.
It is difficult to see the pricing probe as divorced from the government's ambition to consolidate the domestic sector. By forcing international formula makers to reduce prices, the Chinese government has increased the completive pressure being exerted on Chinese firms, who are already operating under margin pressure. This could, potentially, squeeze smaller firms out of business.
That - almost a month on from its completion - the formula probe is still making headlines in China says a lot about the importance that the public gives the controversial category. But this level of ardent denial does rather make one wonder if the lady doth protest too much.
For just-food's detailed analysis of the fall-out from the formula probe click here.
Mead Johnson faces conference call backlash
25 Jul 2013 15:31
Infant formula giant Mead Johnson had a bit of a nightmare conference call today. And not for the reason you might think.
As expected, the US company was grilled over the development of its operations in China, where it has been forced to drop prices amid an anti-trust probe from the country's regulators. The group has predicted the cuts will have a negative impact on sales of around US$30m.
But questions over the group's operations weren't the only thing challenging management this morning.
First, the company was berated for limiting the conference call length to just 45 minutes - with 30 minutes of this taken up with prepared remarks. "With so many questions around China you should be taking calls... until the last dog dies," one analyst insisted. "It is totally bogus".
The sentiment was seconded by the next analyst, while subsequently further commentators passed the line due to the "unfortunately short" nature of the call.
And then, like a comedy of errors, the fire alarm went off.
Saved by the bell? Not quite. Just as Mead announced it would reschedule the remainder of the call because the "alarm is real" it stopped. The call continued, with a slight extension to make up for the interruption.
Not the smoothest of conference calls.
Food sector consolidation a drop in the ocean
19 Jul 2013 16:26
We all know that the food sector is highly fragmented. It is a phrase thrown around all the time. And, as a publication that attempts to cover the major developments in this crowded industry, just-food writers can attest to this fact first hand.
But I was quite surprised by some research that crossed my desk this morning (19 July). According to Bernstein, the top 12 largest food and soft-drink companies account for just 18.3% of global sales.
Let me put this in context: Unilever accounts for a greater proportion of global home care sales (with an 18.9% share of the market) than all the major food companies combined. As the largest food company, Nestle holds a comparatively piddly 4.3% share, followed by PepsiCo with 2.9% of the market. The 12 biggest purveyors of household products account for over 60% of global sales and the 12 largest personal care and beauty companies account for more than 50% of total sales.
Compared to other FMCG sectors, why is the food industry so fragmented?
There are relatively low barriers to entry and historically a plethora of different firms have operated in the arena, meaning that while a degree of specialist skill is required these skills are comparatively accessible. The taste preferences of consumers is likely to play a role too. There is no need for global standardisation. In fact, it is a disadvantage, because tastes differ so widely from region-to-region or even person-to-person. There is also a really strong need for trust - and familiar local firms are often most trusted by consumers.
Are we likely to see consolidation step up? It is possible. We have, for example, seen a spate of M&A in the organic baby food sector as larger firms from Campbell Soup Co. to Danone have snapped up challenger brands. But frankly, this activity is but a drop in the ocean. Certainly, I doubt that we will see a player with a comparable market share to Unilever in household care emerge in the food sector any time soon.