Blog: Dean BestHow own-label is eating into food brand-owners

Dean Best | 9 February 2009

After a week of number crunching, food industry pundits would now have a clearer view on which companies are likely to shine - and which are likely to struggle - in 2009.

On Wednesday (4 February), Kraft Foods cut its sales and earnings forecasts for the year ahead and was swiftly followed by a similar move from US peer Sara Lee. The recent strengthening of the US dollar is set to weigh on the overseas sales of both firms but there is a deeper, more underlying trend affecting both businesses.

The weaker economy, particularly in the US, is weighing on sales of household food brands and private label, traditionally more popular in Europe, is now becoming increasingly accepted as a quality, but better value alternative, to big brands on the other side of the Atlantic.

That trend was further confirmed on Friday with a set of bumper first-quarter numbers from US private-label producer Ralcorp Holdings. Ralcorp's figures were boosted by its 2007 acquisition of the Post cereals business but the company's range of store-brand products is also proving a hit among cautious consumers.

Caution was the watchword last week for the new boss of Unilever, who refused to give financial targets for 2009 and 2010 due to the global economic downturn. Shares in the consumer goods giant took a hit as the company shied from setting targets but new CEO Paul Polman defended the firm's actions.

"It is not helpful to provide top- and bottom-line guidance for 2009, let alone 2010, as no-one can be clear about the extent of the current recession or the speed of the recovery," Polman insisted in a bullish session with analysts, when he also hinted Unilever is likely to make more acquisitions in the year ahead.

We heard different forecasts for the state of the organic sector last week, with analysts on both sides of the English Channel giving a different outlook for demand in 2009. While UK pundits said the recession had hit organic sales, industry representatives in France had a much more bullish view of the year ahead.

This week, Danone, one of France's food industry heavyweights, is likely to give its own prognosis for 2009 when it publishes its own numbers for 2008. Given the rather cautious outlook handed down recently by Danone boss Franck Riboud, perhaps we should not be expecting a favourable forecast from the French food giant.


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