For the packaged-good industry, the sales environment this winter has been about as bad as the weather. Consumers are still reeling from the weak labor market and cuts to a food-stamp program. Emerging markets -- normally a reliable source of growth -- have slowed. And a growing segment of the population is being lured by fresh foods and smaller brands.
It was under that gloomy backdrop that executives of some of the world's-largest food marketers gathered in sunny Boca Raton, Fla. this week at the annual meeting of the Consumer Analyst Group of New York. And while CEOs tried to put a positive spin on their future prospects, the tone of the conference reflected the harsh realities facing the industry.
Executives spent considerable time talking about how they are cutting costs and operating more efficiently, while discussion of new product launches -- normally a big part of CAGNY conferences -- seemed more muted than usual. But the silver lining for Adland is that the most of the CEOs presenting at the conference pledged to pour the cost-savings back into brand-building, including marketing and advertising -- though how they spend it will increasingly be in digital.
Campbell Soup Co. executives noted that the company had closed five plants and reduced headcount by 2,000. Mondelez International announced plans to use "zero-based-budgeting," meaning every expense must be justified. Kellogg Co. touted its "Project K," a four-year program that seeks to generate up to $475 million in annual savings through efforts like plant closures and streamlining back-office functions. And while there was discussion of product innovation, the mantra for the most part was "fewer, bigger, better" launches.
As several financial analysts noted, the new emphasis on cost-cutting has been prompted by declining sales volume as well as the precedent set by H.J. Heinz Co., which has maniacally focused on savings since being taken private by 3G Capital last year. "This has [other companies] sifting through their own business operations for savings knowing that if they do not, they might just find themselves on the menu of private equity," Nicholas Fereday, a senior food analyst for Rabobank International, stated in a report this week.
$43.6B U.S. agency revenue
Kraft Foods, for instance, said it would reinvest 50 cents on every dollar of cost savings into its "brands and people." Kellogg execs said the company would use some of the Project K savings to unleash a new "masterbrand" marketing approach that will use the Kellogg's name to tout the benefits of cereal, which has suffered from new competition from the likes of yogurt and other morning-food options.
But even as companies put more money into marketing, they are increasingly looking to digital as a way to spread their message more efficiently. Kraft CEO Tony Vernon said the company's digital marketing group "generated about $80 million of savings in 2013, because they were able to achieve the same, if not more, quality impressions at a lower cost." Mondelez, which sells brands like Oreo and Trident, pledged to pour more than half of its North American media budget into digital by 2016.
ConAgra CEO Gary Rodkin bluntly stated that "traditional marketing is not as effective as it once was. And what we do in-store, close to the shopper, at the moment of decision-making, is key to driving growth for both the retailer and us."
Even as brands embrace digital, the growing use by consumers of online media could be hurting big brands. "Social networking may be contributing to increased concerns about packaged food, and also enabling the rise of smaller brands as the increased availability of product information and online product reviews diminishes the critical role of brands in assuring consumers of key product attributes and quality," Sanford C. Bernstein analyst Alexia Howard stated in a report on the conference this week.
Big companies are fighting back by re-evaluating their ingredients and innovation pipelines. Campbell Soup Co. said it would make a "further expansion" into a $12 billion category it calls "packaged fresh." That includes putting more marketing and innovation money into its Bolthouse Farms division, which makes fresh juices, carrots and salad dressings. Campbell CEO Denise Morrison teased new Bolthouse "roots" juices made from beets, purple carrots, and sweet potatoes. "We also plan to launch new juicing carrots to tap into the trend of in-home juicing," she said.
Kraft is removing artificial preservatives from Kraft Singles, while its Philadelphia brand is running a campaign touting "farm to fridge in just six days."
"Freshly made and simple ingredients are becoming primary purchase drivers, and we must incorporate this into our new product development and brand renovation plans," Mr. Vernon said.
Meanwhile, just about every company is trying to seize on the protein and snacking trend. Kraft plans to pour $25 million in marketing behind a new product called P3 Portable Protein Pack that combines Oscar Mayer meats, Kraft cheese and Planters nuts in a snack pack targeting millennial males. A new TV ad by McGarryBowen plugs meat, cheese and nuts as the "original protein."
The messaging is meant to differentiate the product from more-complex protein products, including bars, gels and powders. A digital campaign will serve up content based on a consumer's search history, like showing a funny video involving basketball and P3 if people search for basketball terms.
Hillshire Brands is planning a new brand platform called Hillshire Snacking that includes packs of meats and dipping sauces, like grilled chicken and sweet chili sauce. The company is also launching a new line of Ball Park hotdogs called "Park's Finest" that will be marketed as being uncured, with no nitrates or artificial preservatives, while packed with flavors such as "cracked dijon mustard."
But even as Hillshire unveiled an aggressive new product lineup, the company, like so many of its packaged-food peers, talked up how it would operate efficiently. Hillshire has a "culture of having a relentless approach to cost savings and cost efficiency," said CEO Sean Connolly. "It's not growth or cost savings. Its cost savings that fuels growth. That's just the way we run the company."