On-trend products, leaner organizations and acquisitions offer “green shoots” of hope in prepared food markets.
by Bob Garrison
Green shoots. In selecting last year’s “Top 10 Buzzwords,” Time completed the list with this phrase from Federal Reserve Chairman Ben Bernanke, who used it during a March 2009 interview with 60 Minutes.
In context, Bernanke was discussing Federal Reserve efforts to stabilize and support economic markets. He compared lower mortgage rates, renewed activity in money market mutual funds and greater access to business loans as so many springtime “green shoots” – signs of new economic growth.
Picking up the “green shoots” phrase in April 2009 was Daniel Gross, Moneybox columnist for Slate, a daily web news magazine.
He wrote, “Analysts and journalists, desperate for any sign of hope, have taken to repeating the phrase ‘green shoots’ as a soothing mantra. Economists are now walking around, eyes fixed on the ground like French rustics hunting for truffles, searching for verdant signs of growth.”
One year later – in springtime, no less – it’s only fitting to look for green shoots across the food industry landscape. In researching its annual “Top 150 Food Processors” feature, Refrigerated & Frozen Foods found many companies (foodservice and retail alike) still struggling with flat to declining sales – like so much barren ground. Then again, there are encouraging signs of growth (strong sales) with on-trend healthy and/or value items. Moreover, rightsizing efforts now have several companies (such as Dean Foods and General Mills) posting some dramatic improvements in operating profits and net income. Not surprisingly, some sizeable acquisitions fueled strong, quick growth for companies such as Nestle USA (which bought Kraft Pizza), JBS USA (which bought Pilgrim’s Pride) and Pinnacle Foods (which bought Birds Eye).
For a look at who’s still standing - and how category leaders are responding - read on in R&FF’s 13th annual industry feature.
About This Report
Refrigerated & Frozen Foods’ 13th annual industry leaders report profiles the top 25 processors in each of six refrigerated and frozen food sectors. Processors are ranked by annual net sales and listings represent R&FF’s best efforts to reflect pertinent sales from all channels. Sales figures and estimates are based on company reports, news releases, market analysts’ reports, industry media and other sources. Figures exclude shelf-stable products.
CATEGORY LEADER PROFILES - MEALS & ENTREES
Nestlé sates appetite for growth
Talk about an appetite for growth. With brands such as Stouffers, Lean Cuisine, Hot Pockets and Buitoni, Nestlé USA was the nation’s largest refrigerated and frozen entrée processor in 2009. One year later, the company is back again – and even larger – thanks to a blockbuster $3.7 billion deal in March 2010 for Kraft Foods’ frozen pizza business.
Completed in just two months, the deal between parent Nestlé SA and Kraft netted such popular market-leading brands as DiGiorno, Tombstone, California Pizza Kitchen, Jack’s and Delissio (Canada).
With Kraft reporting net frozen pizza sales revenues of $1.6 billion in 2009, the deal propels Nestlé USA’s pro forma sales in refrigerated and frozen prepared entrees to an estimated $5.6 billion. In its own fiscal 2009 annual financial statement released in February, Nestlé SA said its Zone Americas sales of prepared dishes and cooking aids were relatively flat, posting a flat 0.8 percent increase in 2009, led by growth from Stouffer’s multi-serve family meals and Hot Pockets hand-held offerings.
“This frozen pizza business greatly enhances Nestlé's frozen food activities in North America,” noted Paul Bulcke, CEO at Nestlé SA. “[It’s] bringing together a selection of great U.S. and Canadian brands, industry-leading R&D and excellent route-to-market capabilities, which complement our existing ice cream direct-store-delivery. With total sales of around CHF 3 billion (US $2.8 billion), Nestlé will become the world leader in the attractive, fast-growing frozen pizza category.”
Officials said the business – now led by from Chicago by 23-year veteran and President Paul Bakus – will report to Nestlé USA in Glendale, Calif. In conjunction, Nestlé said it promoted Tony Sarsam to president for a newly formed Direct Store Delivery (DSD) Division, based in Oakland, Calif. Officials said DSD Division will manage direct store delivery operations for the pizza brands as well as Nestlé Ice Cream’s popular ice cream lines.
“Our combined capabilities in direct-store-delivery, R&D, innovation and commitment to quality, taste and convenience make this a good strategic fit with our frozen food portfolio,” said Brad Alford, Nestlé USA chairman and CEO.
Speaking of that frozen food portfolio, Solon, Ohio-based Nestlé Prepared Foods has taken its industry leadership responsibilities seriously – and literally demonstrated that in many ways. These included …
… creative consumer promotions: Stouffer’s is partnering with Columbia University’s National Center for Addiction and Substance Abuse to promote family meals.Stouffer’s created the LET’S FIX DINNER Challenge. A dedicated website, provides meal ideas and information about the proven benefits of eating together as a family.
… new product development: Nestlé has refreshed its core brands with new lines such as Hot Pockets SideShots mini sandwiches, Stouffer’s Corner Bistro stromboli and flatbread melts and new Lean Cuisine Spa Cuisine entrees – each featuring at least 5 grams of fiber.
… environmental initiatives: Stouffer’s recently adopted new paperboard packaging in its family and large family size multi-serve products.
CATEGORY LEADER PROFILES - SNACKS, APPETIZERS & SIDE DISHES
Lamb Weston: Lead by example
It’s one thing for a market to be down or sluggish. Yet that’s not an option for a market leader.
New products, creative new customer outreach efforts and even plans for a new factory have Lamb Weston, the leader in foodservice frozen potato and snacks, moving ahead – even while restaurant industry sales remain soft.
Perhaps most importantly, this 60-year-old business (with offices in Eagle, Idaho, and Tri-Cities, Wash.) enjoys strong support from corporate parent ConAgra Foods Inc.
In the company’s 2009 annual report, CEO Gary Rodkin noted, “In less than a decade, Lamb Weston – with sales made up primarily from frozen potatoes – nearly doubled in size, from $1.2 billion in net sales in 2000 to $2.2 billion in net sales in fiscal 2009. We make 7.5 billion pounds of food each year at Lamb Weston, creating happy customers and consumers around the world – all loving that perfect French fry.”
Rodkin later identifies potatoes and snacks, respectively, as ConAgra’s second and third areas of concentration companywide – categories “where we have a right to win and where were are set up to succeed.”
Although it recently announced plans to close an older potato plant in Prosser, Wash., Lamb is building a $155 million-plus factory in Delhi, La., to process sweet potatoes and other specialty items. Scheduled to start up this November, the operation also will be designed and built in accordance with LEED (Leadership in Energy and Environmental Design) standards for environmentally sustainable construction, officials say.
Why build a factory? Because sweet potatoes – with a more attractive nutritional profile – are a popular, on-trend product area for restaurant and retail customers alike. That’s why Lamb Weston developed such new offerings as Sweet Things Vanilla Sugar Fries (sweet potato fries with a hint of vanilla but zero grams of trans fats), Sweet Things Peppercorn Fries (with cracked black pepper seasoning and a retail Alexia Oven Roasted Potato Medley, which combines sweet potatoes and three naturally colorful heirloom potato varieties in purple, gold and rose hues.
Last year also saw Lamb Weston add a new line of dipNside appetizers to the business’ growing snack portfolio.
Perhaps most importantly, Lamb Weston has been an industry leader – by listening. For example, last year saw Lamb’s operations group host a farm-to-factory tour for members of McDonald’s Moms Quality Correspondents. This direct consumer effort gave these moms a look at everything Lamb Weston does to produce its product.
Yet another educational outreach involves customers more directly. Company officials created the “Lamb Weston Collaborative” as an educational research forum for restaurant industry leadership.
“Current economic pressures call for innovative perspectives that challenge traditional business practices,” said Jeff DeLapp, Lamb Weston president. “As both an industry leader and partner to our customers, we are obligated to advance the industry’s goals and work with our customers to shape the future. We are delighted that the Collaborative allows us to do both.”
Officials say the Collaborative will involve 10 to 13 chain restaurant executives who attend two strategic sessions (last November and spring 2010). The events explore industry issues such as the influence of value pricing and the role of consumer emotion as it relates to brand loyalty.
CATEGORY LEADER PROFILES - PREPARED MEAT & POULTRY
It’s “go time” for Tyson, new team
How’s your favorite baseball team doing? Although the Major League Baseball season has just begun, experts and fans already can assess a team’s chances for finishing over .500 or going to the post season.
This spring finds a new team at Tyson Foods Inc., Springdale, Ark., looking forward to a better fiscal 2010 performance. When it closed the books on fiscal 2009 last fall, the nation’s prepared meat and poultry leader reported that annual sales fell to $26.7 billion from $26.8 billion during the year ended October 3, 2009. Meanwhile, Tyson posted losses in annual operating income, net income and earnings per share.
The best news? Tyson would enter fiscal 2010 with an entirely new leadership team. Last November saw company directors name Donnie Smith, former senior group vice president of Poultry and Prepared Foods, as Tyson’s new president and CEO. Additionally, Tyson named longtime industry veteran Jim Lochner, senior group vice president of Fresh Meats, as chief operating officer.
Smith, a 29-year company veteran, wasted no time in assessing Tyson’s strengths, weaknesses and goals.
“Our operating cash flow exceeded $1 billion in fiscal 2009, which helped us make progress on our debt level,” he noted. “All operating segments were profitable in the fourth quarter, with Beef, Pork and Prepared Foods within or above historical operating margin ranges, excluding the goodwill impairment. These three segments are operating very well, and measures are in place for more improvement in our Chicken segment. The team knows what to do, and now it’s a matter of execution.”
Added Lochner, “Fiscal 2010 should be a much better year. We think Beef, Pork and Prepared Foods will continue with a solid performance, and we expect the steps we’ve taken to improve Chicken will manifest themselves. Also, USDA data point to lower overall protein supplies, and there is potential for good demand improvement as the global economy recovers.”
Before the first pitch of a new baseball season (New York Yankees at Boston), Tyson already had one quarter of fiscal 2010 in the books – and it looked as though the new season was off to a strong start. First quarter sales rose to $6.6 billion from a year before and quarterly net earnings per share were $0.42, up from a loss of $0.27 the year before. More importantly, Tyson said all operating segments were profitable, with three (of four) above their normalized ranges.
“With more than half a billion dollars in operating cash flow, we generated a record first quarter EPS of $0.42 and drove down net debt by $400 million,” said Smith. “Beef, Pork and Prepared Foods continued to execute well, and Chicken began to show the improvement we’ve been working toward for more than a year. Our team members did a great job of staying focused and making progress week after week. We’re developing momentum that I believe will continue through the year and into 2011.”
CATEGORY LEADER PROFILES - FRUIT & VEGETABLE
Fresh Express: Ready, set, grow
There’s something of an ugly transition between winter and spring in northern climates. Melted snow gives way to dull, brown ground. It won’t be long, however, before warmer temperatures and rain combine to spur new growth, waiting just below the surface.
Perhaps there’s no better way to describe fresh prepared salads leader Fresh Express. When parent Chiquita Brands International released its fiscal 2009 fourth quarter and year-end results, it reported Fresh Express’ annual sales fell 13 percent to $1.1 billion.
Yet there are signs of new growth just below the surface. Last year, this Salinas, Calif.-based subsidiary exited a large, unprofitable foodservice business. Behind the scenes, meanwhile, officials reorganized operations and distribution and invested in new products and marketing.
Chiquita would note that Fresh Express’ comparable operating income soared to $60 million versus a loss of $25 million in 2008, “as a result of sustainable cost reductions, such as improved network and manufacturing efficiencies, and improved pricing.”
“We doubled [companywide] profitability in 2009 despite the difficult recessionary environment by focusing on cost control, pricing discipline and relentlessly executing our initiatives,” noted Fernando Aguirre, Chiquita chairman and chief executive officer. “We are very pleased with the dramatic turnaround in salads. The sustained profitability of our North America banana business and structural improvements in our salads business helped diversify our company in both revenue and profitability, while reducing volatility.”
In a year-end conference call, Aguirre said Fresh Express expects sales growth with new retail customers and many new efforts to drive at-home consumption.
Case in point, Fresh Express kept its name in front of consumers during the last quarter of 2009 with a multi-faceted ad campaign (“A Salad Experience So Uniquely Fresh, Other Salads Wilt in its Presence”). Last November brought a second integrated national TV and print campaign (“Consistently, Deliciously Fresh”) to build consumer awareness and drive volume.
“We want to communicate the message that our unique and fresh flavors provide consumers with a range of salad varieties that are consistently, deliciously fresh,” said Joe Huston, Chiquita’s vice president of salads and healthy snacking.
Fresh Express also took consumer outreach to a new level this spring. In March, it introduced “Your Salad Story,” a micro-site with a “Leaf Locator” tool. Officials say this online resource (www.freshexpress.com/story) lets consumers identify the growing region of their particular salad product – and learn about what makes Fresh Express salad’s so fresh - from seed development, growth in the fields and master blending all the way through to distribution for store shelves.
“For the first time, consumers of value-added salads will gain new insights into the rigorous safety practices used in making their salads and will be able to learn important information about where they are grown,” said Aguirre. “This new level of engagement will further enhance the trust consumers place in the Fresh Express brand and underscores our commitment to invest in new advancements, technologies and practices that benefit our consumers.”
CATEGORY LEADER PROFILE - BAKERY FOODS
General Mills’ peak performance
When the growing gets tough, the tough get going. Perhaps there’s no better way to describe General Mills’ fiscal 2009 performance. The Minneapolis-based company turned in strong companywide results despite a continuing weak economy.
Officials said General Mills’ annual net sales grew 8 percent to $14.7 billion during the year ended May 31, 2009. More importantly, officials said annual segment operating profit increased 10 percent to exceed $2.6 billion. Annual earnings per share grew 2 percent to $3.80 and gross margin essentially matched prior-year levels despite 9 percent inflation in the company’s input costs.
Said Chairman and Chief Executive Officer Ken Powell, “In today’s very challenging economic environment, our leading food brands offer the quality, convenience and value that consumers are looking for and, as a result, our businesses are showing strong growth. In 2009, we held our margins in the face of sharply higher input costs, and we significantly increased the level of consumer marketing support for our brands. These actions have positioned General Mills to achieve another year of good growth in fiscal 2010.”
As reported in Refrigerated & Frozen Foods’ Dec.-January 2010 issue, General Mills has added more refrigerated and frozen foods to its product portfolio. Meanwhile, despite pound volume declines and bakery-related divestitures in its foodservice business, General Mills remains the nation’s largest refrigerated and frozen baker (all channel sales considered) with an estimated $2 billion in annual net category sales.
In regard to bakery, General Mills noted that U.S. Retail Segment fiscal 2009 sales grew 11 percent to exceed $10 billion for the first time. Contributing was the company’s Pillsbury USA division, which posted a 12 percent annual net sales increase with “strong growth” from Totino’s pizza and pizza rolls, Pillsbury refrigerated dough products and new Pillsbury Savorings frozen appetizers.
More recently, officials reported this March that Pillsbury Toaster Strudel and refrigerated dough contributed to a 2 percent rise in Pillsbury USA’s net sales during the fiscal 2010 third quarter ended Feb. 28, 2010.
During fiscal 2009, General Mills’ Bakeries and Foodservice business posted a 1 percent net sales gain to exceed $2.0 billion. Officials said pound volume declined 6 percent, reflecting weak foodservice industry trends. However, segment operating profits grew 3 percent to reach $171 million. Excluding grain merchandising earnings from both 2009 and 2008 results, officials said Bakeries and Foodservice operating profits grew 15 percent in 2009, reflecting successful efforts to emphasize higher-margin product lines and customer channels.
Officials noted, too, that fourth quarter 2009 net sales declined 9 percent reflecting the divestiture of two product lines. It was in March 2009 that General Mills Bakeries & Foodservice agreed to sell part of its frozen dough business – including four plants – to Fresh Start Bakeries’ Pennant Foods division.
Although that divestiture has hurt quarterly sales and volume comparisons, officials noted this March that Bakeries & Foodservice operating profits grew at a strong double-digit pace to $194 million during the nine months of fiscal 2010, ended Feb. 28, 2010.
CATEGORY LEADER PROFILE - DAIRY FOODS
Dean pours it on the bottom line
Fiscal 2009 proved to be 52 weeks of plusses and minuses for Dean Foods Co., the nation’s largest dairy processor. Even so, so many developments would add up to a record year for the Dallas-based company.
“The fourth quarter was a challenging finish to an otherwise highly successful year for Dean Foods,” said Gregg Engles, Chairman and CEO. “2009 operating profits, in total, and for each of our business segments, were the highest in our history. Full year adjusted operating income grew 10 percent in 2009, on top of the 7 percent growth we reported in 2008. Moreover, we built the necessary capability to transform our business, and our initiatives to reduce cost took hold. We delivered over $75 million in cost savings in the first year of our $300 million cost reduction program. Additionally, we strategically built our portfolio, adding [Europe’s] Alpro to become the clear global soy leader, and [domestic dairies] Heartland and Foremost Farms to strengthen our core fluid milk franchise.”
Net income attributable to Dean Foods totaled $240 million for the full year 2009, compared with $184 million in the previous year. On an adjusted basis, net income for the full year 2009 totaled $276 million, compared to $199 million in 2008.
Dean said net sales for the 12 months ended December 31, 2009 totaled $11.2 billion, compared to $12.5 billion for the same period last year. Officials attributed the decline to “the pass-through of lower overall dairy commodity costs,” although these were offset by higher volumes at Fresh Dairy Direct and increased sales at WhiteWave-Morningstar.
Dean noted the following results for its operating businesses:
Fresh Dairy Direct – Total year fluid milk volumes increased 2.7 percent in 2009, including the benefit of acquisitions. This strong volume growth was offset by the pass-through of lower overall commodity costs to result in net sales that declined 14 percent to $8.5 billion for 2009 from $9.8 billion in 2008. Conversely, full year operating income was $642 million, 9 percent higher than the $591 million recorded in the previous year and the highest in the segment’s history.
WhiteWave-Morningstar – Net sales were $2.7 billion, a 2 percent increase over $2.65 billion in net sales during the previous year. Included in this result, WhiteWave and Alpro net sales increased 9 percent to $1.67 billion in 2009 from total net sales of $1.53 billion in 2008. The increase in WhiteWave and Alpro net sales was primarily driven by the benefits of the Alpro acquisition. Morningstar 2009 sales declined 9 percent to $1.0 billion from $1.1 billion in 2008, primarily as a result of the pass-through of lower overall commodity costs and a modest volume decline.
For the full year 2009, commodity benefits at Morningstar, combined with solid pricing realization and strong operational leverage at WhiteWave, drove operating income for WhiteWave-Morningstar of $256 million, a 25 percent increase over 2008 full year operating income of $205 million, officials said.