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P&G COOKS UP SUCCESS IN FOOD COST CUTTING, NEW PRODUCTS ARE MAJOR FACTORS IN TURNAROUND

By Published on .

Procter & Gamble Co. is nursing its food and beverage business back to health, thanks to a large dose of cost cutting and new-product initiatives.

After streamlining operations and getting out of the Citrus Hill orange juice money pit, P&G in the past six months has begun to rejuvenate the Duncan Hines brand; introduced new products like Crisco Natural Blend oil and Reduced Fat Jif peanut spread; and is testing products like calcium-fortified potato crisps called Pringles Plus, concentrated Ultra Folgers ground coffee and Sunny Delight Solar Surge, a fruit drink made with tea.

P&G's food and beverage revival comes less than four years after Wall Street had written the sector's obituary. Rumors were rife in 1991 that P&G would sell the ailing business, despite the company's insistence to the contrary. Operating profit margins then were a mere 1.3% compared with the corporate 13%, recalled Andrew Shore, analyst at PaineWebber, New York.

"The goal was to take the margins up to the company average, and they've pretty much done that," he said. "Last year, the food and beverage sector's operating margins were 11.3% and the overall company's were 12.6%."

Food and beverage earnings were up 45% to a record $371 million for the fiscal year ended June 30 due to the full-year effect of the Citrus Hill divestiture in fiscal 1993. The company said unit volume was up 1%-largely from the growth of Sunny Delight in the U.S. and Pringles worldwide. Net sales came in at $3.29 billion, up 0.6% from fiscal 1993-a little more than 10% of the company's total $30.3 billion in sales.

"It still comes down to one specific thing: Overall, does food and beverage really fit strategically?" Mr. Shore said. "Procter feels the need to be in those categories because some categories are so large. And they can leverage their technology as they are doing with Pringles Plus-a clear example of using Citrus Hill orange juice-plus-calcium technology on potato chips."

Pringles Plus Potato Crisps, testing in Denver since October, offers the same amount of calcium as an 8-ounce glass of milk. The product is positioned as an alternative to regular potato chips. TV advertising from Wells Rich Greene BDDP, New York, is themed "Once you pop with calcium, you can't stop."

Besides expanding internationally, Pringles' U.S. supermarket volume jumped 10.5% to $173.9 million for the 52 weeks ended Oct. 9, Information Resources Inc. said.

And the company isn't shy about taking on market leader Frito-Lay. Pringles Ridges, which replaced Rippled Pringles nationally in August, aims at Frito-Lay's Ruffles.

P&G Chairman-Chief Executive Edwin Artzt told shareholders in October: "Three years ago, Pringles was sold mainly in the U.S. and was a distant fifth-place brand. With a combination of product improvements and highly successful advertising, Pringles has staged a remarkable turnaround. Pringles sales have grown by 74% since 1990-91, and today Pringles is transferring its success in the United States to more than 40 other countries."

Mr. Artzt also credited product innovation for the success of Sunny Delight, a regional brand five years ago and now the leading refrigerated juice drink with nearly 30% of the $932 million category, IRI says. New products like Sunny Delight Plus Calcium and California Style Punch are providing a boost.

"Since the acquisition [in 1989], Sunny Delight's volume has tripled," Mr. Artzt said.

P&G on Jan. 9 begins shipping Sunny Delight Solar Surge into two test markets, Phoenix and Cincinnati. Unlike its parentbrand, Solar Surge is shelf-stable and is made with tea for a "chuggable, thirst-quenching" positioning. TV spots, themed "Solar Surge. Feel the surge," from GBF/Ayer, Los Angeles, begin in March (AA, Dec. 19).

"P&G is broadening the Sunny Delight franchise," said Michael Bellas, president of New York-based consultancy Beverage Marketing Corp. "They are carrying the Sunny Delight name to new consumer markets-the tea flavor places it more as an adult beverage-and they are broadening the brand's placement in supermarkets by putting it on the shelf" instead of the refrigerated case.

Still, some parts of the business present bigger challenges-namely Duncan Hines, competing in the steadily declining baking mix category.

The line, playing No. 2 to General Mills' Betty Crocker, across the board has been more active in the past year than in recent memory. Advertising from N W Ayer & Partners, New York, introduced the brand's new "Great homemade taste with a minimum of fuss and bother" ad theme in August to herald a number of new products and flavors.

"Duncan Hines is having some success," said Heather Hay, analyst at J.P. Morgan Securities. She said no area in food and beverage is proving to be a disaster like Citrus Hill.

The new year could seal the fate of olestra, P&G's $300 million fat substitute under review by the Food & Drug Administration. The extension on the core patent expires in January 1996, and P&G is disappointed that approval didn't come at the end of 1994 as expected.

"We are proceeding with our plans to get ready for the commercialization of olestra .*.*. but all I can say is we're closer than we've ever been, but we're not there yet," Mr. Artzt said at the October annual meeting. "We're a little bit frustrated and disappointed, but there are no new questions, there are no new issues."

And at least P&G can breathe a sigh of relief about its overall food and beverage business.

"Food and beverage growth was responsible for about 34% of the company operating profit growth over the last three years-it's impressive because food and beverage represent only 10% of operating profits but it's responsible for 34% of growth," said PaineWebber's Mr. Shore. "Stephen Donovan [group VP-food and beverage sector] deserves to open up a bottle of Sunny Delight and drink it out of a champagne glass."

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