Quest and Atkins outperform the competition in active nutrition and weight management categories
"Simply Good Foods' retail takeaway and measured channels increased 14.4%, and as has been the case throughout the pandemic, both our brands have outperformed their respective subsegments of weight management and active nutrition," said president and CEO Joe Scalzo on the company's Q3 2022 earnings call.
To battle with inflation and increasing costs, Simply Goods Foods announced a price increase in April across its portfolio, which will have more of a financial impact in FY 2023, said Scalzo.
"We have good visibility into our cost structure and our costs are largely covered for the balance of the year. Therefore, there is no change to our fiscal 2022 supply chain cost inflation and gross margin outlook."
Atkins sees temporary decline in keto
In the subsegment of weight management, category sales were down -4.7% for the quarter whereas Atkins saw retails sales grow by 3.4% over the same time period, driven by growth in cookies and chips (which both represent 30% of brand sales) partially offset by declines to its bars (-4.2%) and snack confections including its dessert bar line (-8.1%) spurred by lower consumer interest in keto confections, said Scalzo.
"Keto interest is off by half right now. Obviously, we are seeing some impact on our confection business from that declining interest," noted Scalzo, who doesn't see the decline as a long-term trend adding how consumer snacking trends are still stabilizing.
On Amazon, Atkins' saw stronger growth registering 39% increase in sales in Q3 2022 compared to the year prior.
Total buyers and household penetration for the Atkins brand was also strong and up by double digits on a percentage basis compared to the year-ago period, reported the company.
"If I look at the Atkins, it’s helpful to have it in total perspective as opposed to zoom into one piece of the business. We’ve been pretty successful over the last 18 months in growing new buyers on Atkins. So, the interest in the category, which I would broadly characterize as better for you snacking for people who care about weight on our brand has been particularly good," said Scalzo who added the Simply Good Foods has managed to increase household penetration of the brand by challenging the notion that consumers are only interested in weight management products in the early months of the year.
"We actually think that the seasonality of the business is more skewed by how manufacturers invest their marketing dollars. And we started spreading our marketing dollars out both media as well as customer programming... And we've seen our business become less seasonal because of it," he said.
Quest Nutrition performance
Turning to Quest, which Simply Good Foods acquired for a reported $1bn in 2019, performance was also positive despite the company's business agreement to license its Quest frozen pizza business to Bellisio Foods which put a dent in North American sales growth.
Total retail takeaway for Quest, which is categorized as an active nutrition brand, was up 30.6% for the quarter compared to the overall segment which was up by 18.9% in Q3.
On Amazon, sales for Quest products increased 23% in Q3 2022 compared the year prior.
"Quest core bar business in the quarter measured channel retail takeaway increased 14.1% with solid growth across all major channels. The snackier portion of Quest products that's cookies, confections and chips continued to do well, with third quarter measured channel retail takeaway up 65%," said Scalzo.
Scalzo added that Quest cookies (launched three years ago) are another area of growth for the brand.
"I'm pretty optimistic about the format. I think there's a lot of innovation opportunities in that space in both the type of cookies, flavor, sizes, and textures. It's an incremental consumption occasion to our core bar business and shake business," he said.
Scalzo said that the company expects to hit net sales growth of 14-15% for the full year 2022 with no change to its gross margin outlook and a high single-digit increase to its marketing spend from last year.
"We are excited about the growth opportunities that exist within our business and our category.
"Atkins and Quest provide us with two uniquely positioned brands that are aligned around the consumer mega trend of wellness, snacking, convenience, and meal replacement. And consumer feedback indicates that these mega trends will become increasing more relevant as consumers return to more normal post pandemic routines."