The Parsippany, N.J., firm launched several new frozen foods and line extensions in the third quarter ending Sept. 28, which increased volume mix 1.8% and helped hold sales of its frozen foods “in-line with a year ago” at $257.4 million despite a 2% lower net pricing impact and an unfavorable 0.7% impact from an insurance recovery last year.
New launches in the Duncan Hines Grocery division also helped increase volume mix 2.5% and secure $271.2 million in sales, a 21% increase from the year ago period including a 19.5% benefit from the $580 million acquisition of Wish-Bone from Unilever announced in August. 2013.
These launches and gains come at a time when some competitors are lowering prices through promotions in an attempt to gain market share.
But CEO Bob Gamgort disagrees with the long term viability of this strategy noting that consumers who buy on price will step back when the promotions are discontinued and the overall size of the market is not enhanced.
“It is not that we’re winning through aggressive pricing and promotion. We are winning through innovation and the distribution gains that are associated with the innovation, which is not only a win for us from a market share standpoint, but we really view it as a win for our customers because they don’t really care about market share,” Gamgort said.
He explained: “They care about category growth, as do we, and if we are able to drive new users into the category … with more value added items that are higher margin for us at slightly higher price points for our retailers, that is the win.”
“So that is that game we have been planning and it served us really well and we are going to continue to play that game,” he added.
Innovation in frozen foods
In the frozen foods segment, Pinnacle specifically saw double-digit growth of Birds Eye Voila! Skillet meals “stemming from the introduction of new family size varieties,” which combined with the introduction of a broccoli and cheese variety to the Birds Eye Steamfresh line and a sweet potatoes and brown sugar variety to the Steamfresh Chef’s Favorite line, Gamgort told investment analysts. He added it also helped the firm expand distribution and secure more space in frozen cases.
He noted Pinnacle also saw “strong growth” of Hungry-Man frozen meals thanks to the bifurcation of the brand with the recent launch of Hungry-Man Selects products.
A Deutsch Bank analyst noted during the call “with all respect” that the success of the Hungry-Man products in the quarter runs “counter to what seem like trends for simple ingredients, wellness and organic.”
Gamgort explained the iconic brand is able to hold its own against that trend and even thrive because “there is a core group of users that really love it,” and because Pinnacle made “a strategic choice a couple of years ago that countered what happened in the industry across the board, which is instead of cheapening the product [to offset commodity cost increases] we decided to create two price tiers and actually enhance the product quality and price.”
He explained the Hungry-Man Selects line launched as a premium product “with really good quality food” and that helped maintain and even expand the category sales in the face of emerging trends to buy fresh and natural foods.
The brand also is succeeding by tapping into consumer demand for protein by taking a “unique positioning in the marketplace and then staying true to that position by not cheapening or reducing the quality” of protein the Hungry Man products, Gamgort said.
The firm is further building on this trend by acquiring Canadian plant-based protein specialist Garden Protein International (Gardein) for $154 million in a deal announced Nov. 14. (Read more about the sale HERE.)
Line extensions in cakes engage consumers during holidays
The firm also applied its innovation strategy to help its Duncan Hines Grocery segment grow in the quarter.
Specifically, during the quarter it launched several limited edition fall varieties of Duncan Hines baking mix portfolio including Decadent Pumpkin Spice Cupcake, Decadent Caramel Apple Cupcake, Duncan Hines Autumn Velvets and Decadent Red Velvet brownie mix.
The innovation will continue in the fourth quarter, Gamgort said. The firm will “focus it on Decadent and signature, which is at a slightly higher price point, and it is really focused on seasonal items and special editions that the consumer can only get for a limited period of time.”
He added: “We specifically sell them in display only vehicles. So they don’t go on the shelf, they get put out on the floor. And that is what has allowed us to continue to win.”
Wish-Bone innovation hinges on manufacturing
As for innovation in the recently acquired Wish-Bone line, the firm first wants to have in place new internal manufacturing capabilities, which are slated to start-up at the end of the first quarter of 2015, Gamgort said.
Having the plant up and running is a “real enabler to innovation” because it spares the company from exposing its innovation pipeline to co-manufacturers, which “quite frankly we don’t like the idea of,” Gamgort said.
But he remains excited about the potential synergies and innovative opportunities between Wish-Bone and the Birds Eye brands.
These strategies are paying off not just for the individual segments, but the company overall. It saw overall net sales for the company’s third quarter increase 9% to $624 million compared to $572.5 million in the same period last year. This reflects a 2.5% increase from higher volume and mix and a 7.9% benefit from Wish-Bone, the firm said.