Blog: Dean BestAll eyes on costs and volumes as Danone, PepsiCo kick off Q3 results

Dean Best | 16 October 2012

Danone and PepsiCo will be the first of the major food multinationals to report third-quarter results tomorrow, providing the first signs of how manufacturers see the outlook for inflation and volumes.

Food companies in a number of markets have been trying to eke out volume growth for around a year now. It was, according to ConAgra Foods, around after Thanksgiving that they noticed pressure on volumes as consumers in the US baulked at successive price increases.

Those hoping for a recovery this year would have been disappointed, with volumes still depressed in the US and in the UK in particular. And, of course, trading conditions in European markets like Spain are hardly rosy. Ask Danone.

Last month General Mills, one company that has suffered from the fall in US volumes, said it hoped things would improve on the back of NPD and a lower rate of inflation.

However, consumer confidence remains weak and those in the US looking beyond the result of the Presidential election are nervously eyeing the "fiscal cliff" that awaits.

In the UK, although food inflation fell in September, after the wet weather this summer (and drought in the US), there is likely to be pressure on suppliers' commodity bills, which would then keep volumes depressed, should they be able to pass some price through.

Suppliers will be relieved if they can push price increases through, although, of course, their retail customers, facing cautious and promiscuous consumers, will make them work hard. However, price hikes cannot mask the underlying issue of weak volumes; sustainable growth cannot be based simply on price increases, with consumer confidence so low.

In Europe, in Greece the unemployment rate is 25% and in Spain remains high (even if the euro gained today on talk Madrid could ask for a bailout). Economic conditions remain very challenging and it will be interesting to hear Danone reveal whether its price cuts have helped it revitalise its business in Spain, a key market for the business.

Quarterly numbers can sometimes be criticised for focusing on short-term measures but, read beyond the figures, and the industry should hear some vital insight in the coming weeks about how its peers are battling these tough trading conditions.

 


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