“This is the highest inflation that I’ve seen in my career at General Mills,” Ken Powell, the US food giant’s CEO, reflected last week.
Powell joined the Progresso soup and Haagen-Dazs ice cream maker in 1979 and, in the last year, the company has battled, like many others throughout the industry, with a jump in commodity costs and with cautious consumers. Last month, General Mills issued a profit warning after it admitted US sales had been “weak” in December and January as shoppers reacted to the company’s moves to increase prices.
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The General Mills chief, speaking after the company reported falling third-quarter profits on Wednesday (21 March), insisted he was optimistic that input cost inflation would “moderate” and that volumes would “stabilise” as consumers adjust to higher prices.
Of course, such sentiments carry an element of uncertainty. Consumer confidence in many Western markets remains uneven and hard to predict. Data set to be issued tomorrow is expected to show consumer confidence in the US remaining near the 12-month high recorded in February. However, in the UK on Friday, data from the Centre for Economic and Business Research, compiled in association with retail giant Asda, showed disposable income in February was lower year-on-year.
Moreover, the expectation that pressure from commodity costs would ease in 2012 is not being seen across the board. European manufacturers are facing higher egg prices after the introduction of new EU rules on animal welfare, while sugar prices remain strong and the cost of palm oil has reached nine-month highs in recent weeks. And, as just-food exclusively reported from the Consumer Analyst Group of Europe investment conference in London last week, ingredient giants like International Flavor and Fragrances and Givaudan are again looking to push through price increases to their manufacturing customers this year.
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The theory that less pressure from commodity costs could help improve margins this year in the face of still weak consumer sentiment may not materialise as quickly as many manufacturing giants had hoped.
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By GlobalDataAt the CAGE conference on Wednesday, we also heard from UK M&A advisory firm Spayne Lindsay on its thoughts on the likely deal-making activity in the global food sector this year. Again, not an exact science but, in a thought-provoking presentation, Spayne Lindsay co-founder Tom Lindsay indicated he believed private equity would play a central role in M&A in 2012.
Private equity could be active players in the sector this year, he argued. “Food companies do have relatively stable cash flows and, even though they are relatively low growth at the top line level, they can be made to grow at the bottom line level through cost savings, consolidation synergies and improved focus. And there’s plenty of capital in the private-equity world.”
That said, Lindsay also listed a number of assets owned by private-equity firms that could be up for grabs and two – United Biscuits and Iglo Group – have subsequently grabbed the headlines in the last 72 hours. On Friday, it emerged that UK firm United Biscuits is to split its biscuit and snacks units in its domestic market, which will add more fuel to the speculation that its owners, private-equity firms Blackstone and PAI Partners, are looking to sell off one or both parts of the business separately.
And, over the weekend, it was reported that Permira has put frozen-food business Iglo Group up for sale after unsolicited approaches for the owner of the Birds Eye brand in the UK.
Commodity costs, consumer confidence and M&A will be just three of the topics to be discussed in under two weeks in just-food’s first webinar. On 5 April, we will report on the findings of our 2012 confidence survey, which asked you to reveal just how you thought the year would shape up for the industry. Rod Street, executive vice president for the international consulting group at global FMCG analysts SymphonyIRI, will join us in discussing the results and outlining the prospects for the sector in the year ahead. If you have yet to register, you can do so here. It’s free but places are limited.
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