The food business blog from Katy Askew
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Danone goes beyond digital marketing
20 Feb 2014 17:16
Starbucks JV will help Danone target 170m US consumers, French group's CEO said
Danone is hoping to reach out to US consumers and "educate" them on the merits of dairy through its joint venture with Starbucks, CEO Franck Riboud suggested today (20 February).
Speaking during a conference call to discuss the group's full-year results, Riboud insisted the tie-up, which was announced last summer, goes far beyond representing a "new channel" for Danone. Instead, he argued, it is a new way to interact with consumers.
"It is much more than a new channel. It is my Facebook, my Google. Why? Because every morning in the US, 170m consumers have had their breakfast and go into a Starbucks... and they will explain to them fresh dairy."
There is an almost subversive element to this approach, which goes beyond conventional and even digital marketing. Danone is feeding into established consumption patterns and altering them from within. A smart way to boost US yoghurt consumption, which still significantly trails European consumption levels.
Manuka welfare scandal another blow for NZ dairy
22 Jan 2014 11:40
The reputation of the New Zealand dairy industry has taken another blow, with Chilean authorities reportedly launching an investigation into alleged animal cruelty by Manuka Dairy.
Reports in the Chilean and New Zealand press have accused Manuka's operation in the country of killing "thousands" of calves not needed in the milk processing process by "leaving them starving, slitting their throats or beating them with objects of great forcefulness".
The media outcry prompted Chilean politician Fidel Espinoza to denounce Manuka in the Chilean House of Representatives. An investigation has been launched into the company's activities and any psychological impact these practices may have had on workers, reports say.
While Manuka lacks the clout of New Zealand dairy giant Fonterra, the fresh scandal comes as an additional setback for the country's dairy industry on the global stage.
New Zealand dairy has benefited from being well-known for offering high-quality, safe and responsibly produced products. Allegations of animal abuse are hardly in keeping with the country's green reputation.
Fonterra's false botulism recall last year dented consumer confidence in the sector - particularly in key markets in Asia, including China. More recently, an E.Coli recall this month could go some way to tarnishing Fonterra's reputation further still.
The NZ government has focused on re-establishing the reputation of NZ dairy exporters, with a particular focus on bringing the message that the country's industry is safe to China, a key market. This new controversy can do little to build bridges.
ConAgra fined for... lead in paint?
17 Dec 2013 10:56
ConAgra Foods has been ordered to contribute to a damages payment totalling US$1.1bn to replace lead paint in millions of homes in California.
The link between ConAgra, which is best known for grocery brands including Healthy Choice and Chef Boyardee, and the use of lead paint in construction might seem tenuous at first. Certainly ConAgra believes so.
"ConAgra Foods vehemently disagrees with the decision," the company vented in a statement to the press. "ConAgra Foods is absolutely not an appropriate defendant and was never in the paint business. As a food maker who employs thousands of people in California, we believe this case is an unfortunate example of extreme overreach."
However, Superior Court Judge James Kleinberg would beg to differ.
According to his assessment, ConAgra assumed the liabilities of paint manufacturer W.P. Fuller & Co. when it acquired Beatrice Company and its former subsidiaries in 1991. As such, the company was ordered to pay damages along side two other defendants - Sherwin-Williams Co. and NL Industries Inc.
In a statement to the stock exchange filed before the California ruling, ConAgra revealed it has faced various litigation and environmental proceedings related to businesses "divested by Beatrice prior to its acquisition by us", including W.P. Fuller. In similar proceedings, the company saw favourable decisions in Rhode Island, New Jersey, Wisconsin and Ohio.
ConAgra said it would appeal the California ruling.
Sanlu's new owners turn to organic to escape melamine's shadow
16 Dec 2013 14:37
The now owners of the Sanlu brand, Zhejiang Sanlu Industrial Co, are reportedly hoping that they can rebuild consumer trust and leverage - what remains of - Sanlu's brand equity by moving into organic grains.
Sanlu is a name synonymous with the 2008 melamine contamination scandal, which resulted in the deaths of six babies and sickened 300,000 more. Sanlu Group, which had been worth CNY14.9bn in 2006, was pushed into bankruptcy in the wake of the scare. It was then snapped up by Zhejiang Sanlu Industrial Co for CNY7.3m.
According to The Global Times, Sanlu's new owners now hope to build the brand into a force in the organic grain sector.
Linking the brand with the organic movement is a cleaver ploy. Organic sales in China growing apace. According to the China-Britain Business Council organic sales are expected to grow by more than 20% a year until 2020.
The key driver of this expansion is the widespread belief that organic products are safer. This selling point helps provide organic food manufacturers with a strong identity and clear message in a market where food safety concerns are almost a national obsession.
In obtaining organic certification in various markets - including China, Japan, Europe and the US - the message is clear. Sanlu grain products are safe.
Whether this will be enough to allow the brand to emerge from the long-shadow cast by the melamine contamination scare remains to be seen.
UK food exports continue to trail EU peers
13 Dec 2013 15:58
The UK Food and Drink Exporters Association yesterday held a conference in London and the message was clear: the UK food sector is improving its export profile, but more work lies ahead.
According to Steve Barnes, director of economic and commercial services at the UK Food and Drink Federation, food exports account for 20% of the country's food production. In the first nine months of 2013, the "disappointing" trends of 2012 were reversed and the country recorded export sales growth of 4%, bringing UK food and drink exports to GBP14bn.
However, despite an increased focus on - and step-up in Government support for - exports the UK's performance significantly trails its European peers. "Every country has reacted in the same way: we have a recession, let's export our way out," Barnes explained.
"The UK exports the least food and drink by value of also the lowest percentage of total production. We are benchmarking below our peers."
For example, Barnes said Germany exports ten times as much food to the BRIC markets as the UK. Only 3% of UK exports are destined for these high growth economies. "We have great opportunities and we are not quite seizing them collectively," Barnes cautioned.
An important question, then, must surely be why? For the most part, the UK faces the same trade barriers and benefits from the same free trade areas as our European cousins. So what is unique about the UK that means we are "failing" to capitalise fully on export opportunities?
When this question is posed to the food industry, a fairly standard answer is to point to a perceived lack of government support. However, since austerity measures have kicked in around Europe those seemingly endless Italian or Spanish stands you see at trade shows are no longer heavily subsidised by their respective governments. At the same time, the UK government has stepped up its support of would-be exporters in the food sector. This year, UK Food Secretary Owen Paterson has attended trade shows in the Middle East, Asia and Europe.
Perhaps, then, the issue of one of culture. The importance of language barriers and cultural differences when establishing trade relationships cannot be overlooked.
Could our island mentality be standing in our way?
Stereotypically, the European Union is often portrayed as a means to open markets for German finished goods and support French agriculture. While this is obviously a gross over-simplification, the idea that the economics of trade underpin the Union seems fairly sound. But the UK has always remained somewhat separate. Has this contributed to the reticence of UK companies to look overseas to drive growth?
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.