JUST-FOODS MARKET OUT LOOK (September 05, 2011)...

Editorial


The notion that Japan's powerful food manufacturers were a factor in the failure of Tesco's venture in the country will cause a wry smile or two among UK suppliers.

However, Japan as a "supplier-dominated market" was a theory put forward by at least one UK retail analyst last week as industry watchers picked over why Tesco had decided to quit the market after eight years in the country. 

Moreover, as we reported last week, Tesco's departure from Japan prompted questions about some of the retailer's other international operations, particularly the US, where the company's Fresh & Easy venture is still to make a profit.

The decision to quit Japan proves CEO Philip Clarke will make tough decisions but, at least in the short term, it does not mean Tesco is set to raise the white flag across the Atlantic. The Tesco chief is on record as saying he is confident the US chain will be profitable by the end of 2012/13 and Clarke appears willing to show patience towards Fresh & Easy - for the next 18 months or so at least.

Another leading retail executive facing questions last week was Carrefour CEO Lars Olofsson. 

The French retailer reported a slump in half-year earnings, which led to an expected profit warning for 2011. Carrefour's "growth markets" are now more profitable than its operations in France, where Olofsson, once again, is set to launch a strategy to try to revive the business.

After Carrefour's "Transformation Plan" and its "Action Plan", the retailer is to embark on a "new game plan", a programme that this time focuses squarely on France. 

Analysts, however, remain uneasy, with Carrefour facing the accusation that the new plan is not that much different from previous attempts to revitalise its business. After two-and-a-half years in the Carrefour hot seat Olofsson is facing growing pressure to deliver.

This week, Morrisons chief executive Dalton Philips will be in the spotlight when he announces the retailer's half-year results. The UK's fourth-largest grocer has been growing sales ahead of the market, although, like its rivals, its growth is lagging the inflation seen in the sector.

However, Philips will face questions about his plans to move the business further into convenience and online. A year ago, Philips said Morrisons would look to open convenience stores on a trial basis and would consider developing an online service. 

Since then, Morrisons has opened its first M-local store (and plans to open two more) and acquired a 10% stake in US online retailer FreshDirect, a move to help it set up its first online service, to be launched in London.

Oriel Securities analyst Jonathan Pritchard says the retailer had "exceeded" his expectations on like-for-like sales. 

However, he is less complimentary about Morrisons' diversification. "Customers want more than plain vanilla superstore food retailing these days - non-food, convenience, internet etc and, whilst the self-help open to the company is worthwhile and deliverable, we fear that the LFL form will wane eventually."

Philips is a man unwilling to be rushed into hasty expansion; last March, when Morrisons announced the FreshDirect deal, he was asked about the retailer's online ambitions. The decision to launch a service in London pushed back Morrisons' plans to enter the online space but Philips was quick to point to his rivals' records online. 

However, some industry watchers still want him to go further - and faster.

Until next time...

Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
Twitter: http://twitter.com/just_food

JUST FOODS EDITORIAL: NEWS FROM AROUND THE FOOD WORLD...(August 30, 2011)

Issue 587

August 30, 2011

Editorial


It's been clear for some time that UK businesses and consumers are being buffeted by some severe economic headwinds.

However, last week, one of the country's top retail executives, with some characteristic plain speaking, highlighted just how tough he believed the environment is. 

Peter Marks, chief executive of The Co-operative Group, the UK's fifth-largest food retailer, said trading conditions were "the worst I have seen in over 40 years of retailing".

Marks made his comments as The Co-op reported a drop in half-year profits from the company as a whole and from its food business, which suffered amid the intense promotional activity in the sector. Of course, with profits from its food retail stores down by 21%, it would suit Marks to paint a negative picture of the sector and of the UK economy. 

However, his comments were supported by data from UK business organisation the CBI and from rival retailer Asda, which said yesterday that rising costs were making UK families worse off than a year ago.

US food manufacturers and retailers are facing similar economic headwinds - as evidenced by comments from Heinz last week when it reported its financial results for the three months to 27 July - but, as news reports worldwide showed this weekend, some have battled real, rather than metaphorical, storms in recent days.

Hurricane Irene hit the US mainland on Saturday when it reached North Carolina and, although the intensity of the storm did not meet some projections, millions of people lost power and homes and businesses were damaged.

 As of yesterday, Wal-Mart and Belgium-based retailer Delhaize (which runs chains including Food Lion and Hannaford in the US) still had dozens of stores closed.

 Already, analysts are looking at what Irene has meant for the retail sector, with some predicting that there were winners and losers from the storm.

The storm appeared at a time when US retailers and manufacturers are facing weary consumers. 

Dutch retail giant Ahold, one of the grocers that closed stores due to Irene, faced questions over its US performance last week. 

Ahold's identical-store sales excluding fuel in the US increased 1.2% in the second quarter of 2011 but admitted that inflation was over 4%. Ahold, which also runs chains including Stop & Shop and Giant Carlisle in the US, also saw its margins across the Atlantic fall due to the change in timing of Easter, partial success in passing on higher fuel costs to consumers and increased promotional costs. 

Nevertheless, Ahold CEO Dick Boer said the retailer had  performed better than its rivals in the US. "Compared to our competitors, we outperformed them again in the second quarter," he told analysts.

Heinz, which reported its first-quarter numbers last week, faced questions over consumer sentiment in the US and warned that some consumers in its domestic were "really struggling". 

The ketchup maker's comments on Australia, where it generates around US$1bn in sales each year, were also illuminating. 

CFO Art Winkleblack said Australia, where the country's two main food retailers, Woolworths and Coles, are in an intense battle for market share, had become "an inhospitable environment for grocery manufacturers".

Goodman Fielder, one of Australia's largest domestic food makers, will agree. The company said today that its annual underlying profits were down 17%.

Until next time...

Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
Twitter: http://twitter.com/just_food

JUST FOODS EDITORIAL: NEWS FROM AROUND THE FOOD WORLD...(August 22, 2011)...

Editorial


August it may be - and even our over-worked editor is off on his holidays this week - but the M&A rumour mill has continued to turn in the food industry.

On Friday it was reported that private-equity firms Kohlberg Kravis Roberts and Bain Capital may be preparing a bid for premium food retailer Whole Foods Market.

The two private-equity firms remained quiet on rumours that they are looking at a cash offer that would value the company at a substantial premium to the current stock price of around US$90 a share. 

According to the reports, a figure of close to US$6bn is being mentioned.

Elsewhere, Bright Foods announced the acquisition of Australian manufacturer Massanen Foods.

 If reports over the last 12 months are to be believed, China's state-backed food group, keen to expand overseas, has held talks or lodged an interest in some of the best-known food makers in the West.

This deal begins to confirm the scale of Bright's ambitions. 

In this week's Spotlight, Dean Best takes a look at the potential for this Chinese group to expand further.

Elsewhere in the industry, our story on Nestlé's overhaul of its product labelling system attracted a lot of interest. The Nutritional Compass, found on 97% of Nestlé products worldwide, has now been updated to include new questions and answers boxes with product-specific queries such as "How many cups of coffee can I have in one day?".

Meanwhile, just-food has also seen something of an update with the news that our senior reporter Petah Marian has moved on to take up the news editor's role on our sister publication just-style.com, which tracks the global apparel industry. 

Although sad news for those in the food industry who have enjoyed her coverage of the retail industry in particular, we are happy to welcome on board Sam Webb, who joined us last week. 

A business journalist of considerable experience, you can read Sam's opening salvo on the UK share gains of the discount retailer here. I am sure you will all welcome Sam onto the just-food team and you'll see him out and about in the industry soon.

Chris Brook-Carter, publisher. Dean Best is on holiday.

Until next time...

Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
Twitter: http://twitter.com/just_food

JUST FOODS EDITORIAL: NEWS FROM AROUND THE FOOD WORLD...

Issue 585

August 15, 2011






Sustainability Strategy Leaders in the Global Food & Drinks Industry

The report profiles some leading multinationals and their efforts to reduce carbon and water footprints. Highlighted are innovations in the health and wellbeing sector, recycling of packaging and supply chain improvements.







Editorial


Private label has long been a defining feature of the industry landscape in Europe. The US, however, is different.

Historically, US consumers have preferred brands and the own-label sector is smaller in size when compared to this side of Atlantic. 

Nevertheless, the tide has changed over the last few years. There has been an increase in demand for "private-brand" foods, particularly during the economic downturn.

Against this backdrop, the likes of Treehouse Foods and Ralcorp Holdings have made a series of acquisitions to strengthen their position in a buoyant market. 

Nevertheless, branded food companies have shown little interest in expanding in own-label, not won over by the sector's growth and wary, perhaps, of the lower margins on offer.

ConAgra Foods, the maker of brands from Healthy Choice ready meals to Hunt's ketchup, is different. The company is keen to increase its presence in private label and, for at least five months, has pursued Ralcorp. ConAgra has made two approaches, snubbed by Ralcorp, which has instead pushed ahead with expansion and unveiled plans to split itself in two - one company focusing on own label and the other on its Post Foods business, a branded cereals maker struggling against Kellogg and General Mills in a fiercely competitive US cereals market.

Last week, Ralcorp, which wants to "aggressively" pursue acquisitions in own-label, struck a deal to buy a private-label business owned by meats and coffee maker Sara Lee for US$545m. At the same time as announcing the acquisition, Ralcorp again outlined the benefits of its plans to divide in two. 

Analysts wondered what ConAgra, seemingly still in the background, would do next.

ConAgra upped its offer.

 On Friday, Ralcorp announced it had received a takeover bid worth $5.2bn. It also announced that it had turned down the offer.

Will ConAgra return to the table? 

Even the finest minds on Wall Street are unsure. Until now, the company has insisted it wants to buy the whole of Ralcorp. 

However, perhaps ConAgra could bide its time, wait for its target to split in two and make an offer for the private-label operations on their own, which would at least mean it would not be saddled with Post.

A number of M&A deals were struck last week. As well as Ralcorp's acquisition of Sara Lee's North American refrigerated dough business, in Europe, 

Irish food company Valeo Foods Group continued its consolidation of the country's food sector with a move for Jacob Fruitfield Food Group and UK firm Symington's snapped up two brands from Unilever.

Valeo was formed last year when it was spun off from Irish agribusiness company Origin Enterprises. 

At the same time, Valeo acquired Batchelors and created a business selling brands from Odlums baking mixes to Batchelors baked beans.

Now, Valeo has moved to buy Jacob Fruitfield, the maker of Jacob's biscuits, Fruitfield jams and Silvermint confectionery. 

And, as we reported in our In the spotlight column last week, analysts believe Valeo could follow other Ireland-based food companies and expand into the UK.

Symington's is a UK company known for the Golden Wonder pot noodle brand and a line of products made under licence for celebrity chef Ainsley Harriott. 

More recently, Campbell Soup Co. appointed Symington's to make a range of products for it in the UK, including the US company's hallmark condensed soup.

Now, Symington's has added Unilever's Chicken Tonight and Ragu brands to its portfolio.

 The deal, Symington's largest-ever acquisition, sees the company acquire the rights to the brands in the UK and Ireland. 

It said the brands had been "in decline" as Unilever shifted its priorities elsewhere but chief executive David Salkeld added: "We have a proven track record of taking on heritage brands, rejuvenating them and introducing new product developments."

Revitalising Chicken Tonight and Ragu will be a challenge but its work with Golden Wonder and Campbell suggests Symington's does have the credentials to succeed.

Until next time...

Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
Twitter: http://twitter.com/just_food

2011 ON TRACK TO BE BIGGEST YEAR FOR SPIN OFFS AS MAJOR GROUPS DECIDING THAT "SMALLER IS BIGGER (BETTER)"..."

Issue 584

August 8, 2011




Editorial


Divide and conquer. It seems to be the corporate mantra of the moment.

At the start of the year, meats, bread and coffee maker Sara Lee surprised industry watchers with the announcement that it would split in two. 

Last month, US food maker Ralcorp Holdings said it would spin off its branded cereals business Post Foods. And there have been many similar moves across the business world this year.

Last week, our industry saw one of the biggest spin-off announcements this year, with Kraft Foods' decision to create two publicly-listed companies - a North American grocery business and a global snacks maker.

The move stunned the industry, not least because the global snacks business will have Cadbury, which Kraft acquired just eighteen months ago, at its heart. Kraft's pursuit of Cadbury was a bitter one. 

Then Cadbury chairman Roger Carr dismissed Kraft as a "low-growth conglomerate". He argued the Dairy Milk maker's status as a "pure-play" confectioner with "sharp category focus" meant it should stay independent.

When Kraft finally won over the Cadbury board with a higher offer, the US firm's chairman and CEO Irene Rosenfeld said the UK confectioner would in fact benefit from its new owner's increased scale.

Kraft's split effectively reverses the controversial acquisition and, last week, when Rosenfeld outlined the advantages of the move, she insisted the two new businesses would benefit from better focus. 

The decision was welcomed by Wall Street. One analyst said the move "made complete sense".

However, Rosenfeld's comments suggested Carr's argument had - belatedly - prevailed. Has her apparent volte-face dented her reputation?

Once analysts had digested Kraft's news, thoughts turned to who could be next. 

Almost immediately, there was speculation that PepsiCo could look to split in two, with Morningstar analyst Phil Gorham suggesting the US food and drinks giant's stock was being "weighed down" by its beverage business. 

The cola and crisps maker, however, insisted its business model was "right for today and right for moving forward".

Over at Sanford Bernstein, Alexia Howard wondered if Campbell Soup Co. or Heinz could also look to break up their businesses. 

"Campbell's has two very distinct businesses in the form of soup, sauces and beverages and its baking and snacking business," she said. "With Heinz, its North American frozen products are focused in the US, while ketchup and sauces and baby food are much more global."

According to Bloomberg, 2011 is set to see the most spin-offs on record. 

Will Kraft be the last food company to believe smaller is better?

Until next time...

Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
Twitter: http://twitter.com/just_food

"CHANGE COULD BE ON THE HORIZON" AS INDIA LOOKS TO FREE UP OWNERSHIP OF FOOD COMPANIES...AND CHINA'S BATTLE FOR MARKET SHARE COULD BE WON IN THE EMERGING CITIES...

Editorial


"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.

In an interview with just-food last week, Richard Hollandaise, 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 withpossible 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. Hollandaise was sanguine about the level of promotional activity in the category but his comments were perhaps instructive of how many in the industry feel. This week, Uni lever 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, Dan one 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, Dan one faced questions on the performance of its business in Russia, while Hershey new CEO was quizzed over its future in India.

Uni milk, the Russian dairy firm Dan one 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. Dan one defended its strategy for Uni milk and pointed to the desisting of a number of Skis for the slowing sales. Co-COO Emmanuel Faber said Dan one's priority for Uni milk was to "build a platform for next year". Nonetheless, the jury is out on Buttermilk's prospects, with one analyst arguing that the Russian company could be "another Ms&A disaster for Dan one".

Hershey second-quarter results were the first presided over by new CEO John Bilberry and much of the questions fired at him focused on the US confectioner's international operations. Bilberry said Hershey international sales were on track to increase by up to 25% in 2011 - faster than it needs to hit its target of US$1b to come outside the US by 2015.

However, Bilberry faced questions on the future of Hershey business in India, which has been the subject of much speculation. Bilberry, predictably, was coy about the subject, praising Hershey local venture partner Godfrey 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 Dan one 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 Buchanan, leads the market, rivals including Carrefour and Al-Mart are not far behind. And the battle for market share looks increasingly likely to be won in China's emerging cities. Ed Chang, the CEO of Al-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 e-commerce operation. 

Retailers have found success on-line hard to come by but some, including Coates, Switzerland's Micros Group and Buchanan, have made notable progress - with the UK retailer looking to roll out its on-line 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.



Until next time...

Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
Twitter: http://twitter.com/just_food