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‘Post-holiday pressure’ to blame for weak consumption in US grocery, says Campbell Soup

By Elaine Watson , 20-Feb-2012

Post-holiday pressure” is to blame for lackluster sales figures across most packaged food categories in January according to Campbell Soup boss Denise Morrison.

Speaking on an earnings call Friday after posting a 14% drop in second-quarter 2012 earnings (slightly above analysts’ expectations) to $205m and a 1% dip in sales to $2.1bn, Morrison said:

Within the US grocery trade, this past quarter, dollar consumption softened dramatically, particularly in the last four weeks of the quarter.

Sales in 32 out of 39 tracked categories were lower year-on-year

She added: “We are tracking 39 categories in the center store. And 32 had trends in the last 4-week period that were much lower than the full year-to-date trends.

So there clearly is something going on. I believe it's just post-holiday pressure. Our hypothesis is that continued pressure on the consumer in the current economic environment increased after holiday spending cycles.

“And the resulting decrease in personal disposable income has forced consumers to reduce discretionary spending, including food.”

Dollar stores: ‘We have opportunities in the value channels in particular’

However, dollar stores were performing well, she said, echoing comments made by Heinz in its latest earnings call.

“We know alternate channels right now in the industry are performing about 7 to 8 points above traditional channels. And that shift is occurring, again, across most of the food business. I would say we have opportunities in the value channels in particular.”

Soup: The strategy is working

While ready-to-serve (RTS) soup sales slumped 12% in the quarter, overall soup sales were down a more modest 2% owing to a 5% rise in sales of condensed soup, a 3% rise in sales of broth and encouraging sales of new ‘Slow Kettle’ soups, said Morrison.

The poor RTS sales reflected a sharp rise in ticket prices as bosses raised prices to reflect higher costs and stopped offering heavy promotions, she said.

“This created wide price gaps against branded competitors that impacted our volume and market share.”

But she added: “Our strategy to increase brand building and reduce heavy discounting is working… We believe that we can be more competitive in RTS and still continue the momentum of profit improvement in the soup business.”

Meanwhile, sales trends should improve in the second half “as the heavy discounting is now behind us”, she predicted.

“We achieved our largest net gains in soup distribution in more than four years, total distribution points on-shelf increased mid-single digits. And we recognize that we still have opportunities to build distribution in value channels.”

Baking, snacking, beverages and US foodservice

There was also positive news from the US Beverages division, which posted a 4% rise in sales, said chief financial officer Craig Owens.

“Gains were primarily driven by growth in V8 Splash drinks and V8 V-Fusion juice, partly offset by weakness in V8 vegetable juice… Despite a weak shelf-stable juice category and intensified competition, V8 is outperforming the category and gaining share.”

Initial consumer response to the new V8 Fusion Smoothie launch was also “very encouraging”, he added.

Campbell also gained share in crackers although higher prices dented sales of cookies during the holiday season, he said.

However, the star performer was the North America Foodservice division, which notched up a 9% rise in sales, primarily due to volume-driven gains in fresh chilled soups. Operating earnings surged 33%.

BPA: On the way out?

Commenting on bisphenol A (BPA) – a chemical used in can linings that has attracted a lot of controversy on both sides of the Atlantic - Owens said Campbell aimed to phase it out of all of its canned products.

He said: As you know, we believe the current can packaging is one of the safest options in the world. However, we recognize that there is some debate over the use of BPA. The trust that we've earned from our consumers for over 140 years is paramount to us.

“Because of this, we've already started using alternatives to BPA in some of our soup packaging, and we're working to phase out the use of BPA in aligning of all of our canned products.”

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