Food industry heavyweights struggle with consumers' changing tastes
Cans of Campbell's soup are photographed in Washington on Jan. 8, 2014. (J. David Ake / AP)
Published Monday, March 11, 2019 9:51AM EDT
Buffeted by rising consumer taste for fresh ingredients, competition from upstarts and a tricky retail environment, 150-year-old Campbell Soup now finds itself having to rethink the business of soup.
It is a similar tale at Kraft, whose once-popular yellow and white cheese singles are no longer ubiquitous. And at Kellogg, which has seen demand for cereal go soft.
As the travails of these and companies show, iconic brands that dominated 20th century American supermarkets are having a much tougher time in the Amazon-Whole Foods era.
Kraft Heinz last month announced a steep annual loss following a US$15.4 billion asset impairment, partly from writing down the value of the Oscar Mayer and Kraft trademarks.
Some experts see a broader reckoning in the American food industry akin to the shakeout in other sectors, though technology is not really the main culprit in this case.
Many of Kraft Heinz' products are "geriatric brands" that were "created in the early or mid-20th century, at a time when consumers aspired to eat 'American food' and advertising reached almost everyone through television," said Anastacia Marx de Salcedo, author of "Combat-Ready Kitchen," a history of processed foods.
By contrast, today's consumers are more ethnically diverse, health conscious and food adventurous, she said, adding that many of the older brands will see market share fall further or disappear entirely.
Saved by treats, snacks
The industry's response thus far has included healthier options that are low-fat, low-sodium or gluten-free items. There are also more flavors of flagship products, with Special K breakfast cereal now available in vanilla and almond as well as blueberry with lemon clusters, among other options.
But these efforts have not reversed the trend.
Major food companies also have popular cookie and snack products that can make up for weakness in other products, although the industry's overall record with consolidation is mixed.
Campbell Soup, which has faced pressure from activist investor Daniel Loeb, has offset weakness in soup with solid Pepperidge Farm sales.
The company acquired Pepperidge farm, known for Milano cookies and "Gold Fish" crackers, in 1961.
But Campbell Soup last year wrote down US$748 million mostly on a 2011 acquisition Bolthouse Farms of refrigerated salad dressings, carrots and other fresh foods it now plans to divest.
Soups, meanwhile, remain challenged, suffering lower U.S. sales in 2018. Campbell's blamed the decline on the change in promotion strategy by a major retail customer and said retail sector consolidation and the rise of private label competitors could further affect sales, according to a securities filing.
Campbell's new Chief Executive Mark Clouse, said last month he was still developing a strategy for turning around soups but that a "much more holistic and comprehensive" approach was needed.
At General Mills, which announced a US$193-million writedown last year on Progresso soups and two other brands, part of the strategy is to diversify.
Last year, General Mills, which makes Cheerios cereal, Yoplait yogurt and Haagen-Dazs ice cream, bought natural pet food company Blue Buffalo for US$8 billion, a sum that raised eyebrows with some analysts.
Chief Executive Jeffrey Harmening gave a bullish outlook on the brand during a recent conference call, highlighting wet pet food and treats as two growth areas that have high profit margins.
Treats "are just pet food speak for snacking and we see snacking can trend in human food and we see it in Pet the same way," Harmening said, calling the dynamic the "humanization of pet food."
Whither Miracle Whip?
But the dangers of acquisitions were underscored with Kraft Heinz, which shareholder Warren Buffett has said was a case of spending too much.
Baruch Lev, an accounting professor at New York University, said big mergers like Kraft-Heinz usually underperformed, undermining the logic of further deal making by the company.
Daniel Binns, chief executive of Interbrand NY, said some of Kraft Heinz's brands, such as pasta sauce Classico or Philadelphia cream cheese can be successfully updated, while others, such as Jell-O or Miracle Whip sauce could fade further.
"It's so rooted in another era," he said. "You're not going to create a Miracle Whip for the 21st century that's going to appeal to the farm-to-table consumer."
But Moody's analyst Brian Weddington predicts leading food companies will adapt to changing consumer needs over time, adding that established brands still have credibility.
"Brands like these still resonate with the core consumer," he said. "There's no question that more consumers are looking for premium or fresher products, but there will always be a very large market for products that give you consistency and value as well. Everyone can't afford organic products."