Sovos Brands achieved double-digit volume growth last year, bucking price-driven unit declines among many of its US food peers.
While US grocery manufacturers have been raising prices in multiple waves to combat cost-inflationary headwinds, volumes have tended to drop, albeit with a boost to top-line revenues. Even so, the general trend of thought has been elasticities have held up compared to historical levels.
Sovos Brands, the Italian sauces and ready meals supplier, saw volumes rise 10.8% in the year to 31 December, despite price increases of 8.7%. That was short of the “low-double-digit” cost inflation the business experienced across the 12 months, prompting another round of price hikes in February.
Alluding to the prospect of a US recession, Sovos Brands’ finance chief Chris Hall, hosting an analyst call yesterday (8 March) with president and CEO Todd Lachman, suggested the relationship between price and volume may change through the course of the new financial year.
“We expect our growth to be balanced across volume and price, with price moderating during the year as we lap last year’s actions. We also assume that elasticities will normalise given the potential that macro-economic challenges could materialise,” Hall told analysts during a discussion of the 2022 results.
On a bright note, inflation appears to be abating for Sovos Brands, as Hall said he sees cost pressures “moderating across 2023”, adding that “right now, we’re in more of the mid-single-digit range”.
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Sovos Brands has been built up through M&A but the Colorado-based business announced the disposal in January of Birch Benders, a supplier of pancake and waffles mixes.
The company will now focus on investing in and driving sales of its Rao’s, Michael Angelo’s and Noosa Yogurt brands.
CEO Lachman said yesterday he has aspirations to drive sales in Rao’s to US$1bn. The brand features Italian sauces, pasta, frozen entrees and soups. Rao’s sales rose 34.9% last year in organic terms to $580m and a new frozen pizza range carrying the brand’s sauce toppings is expected to roll out to retailers in 2023.
Rao’s accounted for more than half of the company’s total revenue of $878.4m, which was up 19.5% on an organic basis.
“Our ongoing efforts to create a more focused portfolio allow us to direct more resources and investment towards our most meaningful value-creation opportunities, notably accelerating Rao’s to $1bn of net sales and beyond,” Lachman said.
The gap between volume growth and pricing was more pronounced in the final quarter of last year – 16% against 12.4%. “The combination of our pricing and productivity efforts in 2022 will provide a tailwind as we enter the first half of 2023,” CFO Hall said.
For the new year, Sovos Brands has set sales guidance in a range of $900-$925m, representing an organic print of 10% to 13%.
Lachman said of the 2022 volume-price relationship: “Importantly, our top-line performance was driven primarily by volume as opposed to price, which highly differentiates us from the majority of our packaged food peers.”