“This year will be a tough year. I don’t think anyone thought it would be as tough as it is.”
A note of pessimism can pervade even the better performing companies. First Milk, the UK’s largest dairy co-operative, saw sales and profits rise in the 12 months to the end of March and, even as the company managed to improve its bottom line, it paid its farmer-members more for their milk. The last year was, by most measures, a success for First Milk.
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In an interview with just-food last week, Richard Hollingdale, First Milk’s commercial director, hinted at the company’s optimism over the medium term, indicating that the co-op plans to follow its acquisition in June of two Scottish cheese makers with possible further purchases in the next year or two.
However, weak consumer confidence in the UK has meant manufacturers and retailers have turned to promotions across the store to drive volumes, which has had an impact even on categories like cheese, a sector notorious for the level of deals.
“Given that that consumer is looking for value and the retailer wants to deliver value, cheese is one of the core categories that they will promote. Probably more than they should but that’s their call. It’s going to be very difficult for most categories to come away from such high levels of activity. The only thing that will stop that is when products become in short supply,” Hollingdale said.
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Hollingdale was sanguine about the level of promotional activity in the category but his comments were perhaps instructive of how many in the industry feel.
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By GlobalDataAccording to a study published this month by SymphonyIRI, in the first quarter of 2011, manufacturers used promotions more to protect sales and profits amid what it called a “consumer recession”. In the UK, SymphonyIRI claimed, over 50% of FMCG products were sold on deal during the first quarter.
This week, Unilever and Premier Foods are set to announce their second-quarter numbers and their comments will be keenly watched for their thoughts on how tough trading is.
Last week, Danone and Hershey were among the latest food manufacturers to announce how they had performed over the first six months of 2011. Aside from their numbers, Danone faced questions on the performance of its business in Russia, while Hershey’s new CEO was quizzed over its future in India.
Unimilk, the Russian dairy firm Danone acquired last year, saw the growth in its sales volumes slow in the second quarter and was seen by analysts as a key factor in the slowdown in the French group’s fresh dairy sales. Danone defended its strategy for Unimilk and pointed to the delisting of a number of SKUs for the slowing sales. Co-COO Emmanuel Faber said Danone’s priority for Unimilk was to “build a platform for next year”. Nonetheless, the jury is out on Unilmilk’s prospects, with one analyst arguing that the Russian company could be “another M&A disaster for Danone”.
Hershey’s second-quarter results were the first presided over by new CEO John Bilbrey and much of the questions fired at him focused on the US confectioner’s international operations. Bilbrey said Hershey’s international sales were on track to increase by up to 25% in 2011 – faster than it needs to hit its target of US$1bn of sales to come from outside the US by 2015.
However, Bilbrey faced questions on the future of Hershey’s business in India, which has been the subject of much speculation. Bilbrey, predictably, was coy about the subject, praising Hershey’s local venture partner Godrej and emphasising the importance of India to the company. He did, however, hint that change could be on the horizon.
As well as the challenges faced by Danone and Hershey, just-food’s coverage of emerging markets last week also included a look at China’s fast-growing hypermarket channel. The successful listing of Sun Art Retail Group, China’s largest hypermarket retailer, in Hong Kong is proof of the potential that industry watchers believe the sector has.
The sector also remains fragmented and, although Sun Art, which is part-owned by French retailer Auchan, leads the market, rivals including Carrefour and Wal-Mart are not far behind. And the battle for market share looks increasingly likely to be won in China’s emerging cities. Ed Chan, the CEO of Wal-Mart’s operations in China, told just-food that the sector’s growth is being driven by urbanisation outside major cities like Beijing and Shanghai.
A further highlight of our retail coverage last week was our latest management briefing, which focuses on the challenge of building a viable online operation. Retailers have found e-commerce success hard to come by but some, including Tesco, Switzerland’s Migros Group and Auchan, have made notable progress – with the UK retailer looking to roll out its online business in cities like Bangkok and Bratislava. In our four-part briefing, we analysed how the sector could develop – from click-and-collect concepts to the wider use of technology.
