Heinz is the latest company reporting continuing sales weakness in western Europe, with the US multinational's first quarter results in the region damaged by falling demand for its frozen and seafood products.
When the effects of currency exchange rates are taken out, the company's European sales fell by about three per cent in the first fiscal quarter ended 27 July, compared to the same period lastyear.
Heinz, like other companies such as Nestle, Unilever and P&G, has struggled to boost food sales in Western Europe as consumers rein in spending. The EU's supermarkets have been cutting prices,forcing producers to provide goods for less at a time when input and commodity costs have been rising.
Discount supermarkets such as Aldi have also eaten into market shares by carrying own-label products at relatively cheap prices.
This week the Sunday Times in the UK reported that Unilever is about to off load its frozen foods division, where sales have dropped 3.4 per cent over the past year. Unilever has refused tocomment about the rumour.
Heinz's European operating income dropped 15.8 per cent to $116.3m (€95.1m), when reorganisation costs and other non-recurring items are excluded. Margins fell further to 16.5 per cent from 19per cent, the company reported yesterday.
Heinz's European results were pulled down by the same problems the company had in the region during the last financial year - poorly performing seafood and frozen foods sales. The non-recurringitems include costs for a review of the company's operations to see whether the units, which the company describes as "non-core", should be offloaded.
The US company has also put its HAK prepared vegetables unit up for sale.
Heinz yesterday reported overall sales grew by 5.3 per cent in the quarter ended 27 July to $2.11bn (€1.74bn), while margins fell from 26 per cent to 13 per cent. Currency exchange rates made up1.5 per cent of the sales growth, acquisitions 1.4 per cent, while pricing increases made up another 0.2 per cent.
This means overall sales grew by 2.2 per cent. The company's growth is mainly driven by its North American consumer products segment, Heinz Australia and the Italian infant food business.
Europe contributes 37 per cent of the company's food sales and North America 42.5 per cent.
The UK's frozen foods and soup business is not doing well, the company reported. Declines also occurred in the European seafood business. Volume declines were partially offset by increases in theItalian infant nutrition business and ketchup sales.
Heinz ketchup now holds nearly a 79 per cent market share in the UK. Heinz's recent acquisition of Petrosoyuz increased sales of the company's trademark product to 2.5 per cent. Petrosoyuz, basedin Russia, makes ketchup, condiments and sauces.
The quarter's results included charges of $24.5m related to previously announced job cuts and a review of units for potential sale, Heinz stated in an earnings release.
Overall the group reported sales at its ketchup, condiments and sauces division rose 5.3 per cent, frozen foods, 9.2 per cent, convenience meals one per cent and infant food 8.6 per cent for thequarter. Ketchup, condiments and sauces make up 38.1 per cent of the company's sales, convenience foods make up 21.5 per cent of sales for the quarter.
Heinz has said it plans to grow its organic and nutritional foods segments. The segments are growing at a 15 per cent to 20 per cent rate in the US and is projected to expand in Europe at a 25 percent annual rate over the next four years.
This week Heinz closed its $820m acquisition of HP Brands from France's Danone group.
Despite the company's poor performance in Europe, Heinz's chief executive, William Johnson, said the company's full-year outlook was unchanged. Operating profit is expected to increasedespited increases in commodity costs. He said the company is making good progress in its reorganisation plans.
"As previously announced, we are conducting a strategic review of our international portfolio and our global organisation structure," he said. "We have strengthened ourinnovation programme and halted the decline in overall market share."