Conagra sees consumer inflation lifting eat-at-home sales

Conagra Brands anticipates consumer inflation will amplify the boost eating at home has given sales during the pandemic, even as the US snacks and frozen-foods major pushes up prices.

After raising the company’s organic sales outlook, president and CEO Sean Connolly pointed to suggestions from the US Department of Agriculture the cost of eating out will rise almost twice as fast as retail prices this year. Conagra expects to reap benefits, particularly from young consumers on tight budgets, and a demographic the Hunt’s canned tomatoes owner bets on driving long-term “value creation” as eating at home becomes a more permanent trend.

Presenting Conagra’s second-quarter results to analysts yesterday, Connolly explained: “Younger consumers represent a large and growing part of the US population and they want to optimise the value that they get for the money they spend on food. A large part of optimising their food spending includes shifting more dollars from eating away from home to eating at home.”

Conagra now expects its full-year organic sales to rise 3%, compared to a previous estimate of 1%. The result for the quarter ended 28 November was US$3.1bn, a 2.6% increase in organic terms. Year-to-date sales rose 0.7% to $5.7bn.

Out-of-home is a relatively small part of Conagra’s business. The sector accounted for $834m of the Gardein plant-based foods maker’s group sales of $11.1bn in the previous financial year. While foodservice sales increased 14.9% to $246m in the quarter, CFO Dave Marberger said the segment is a “lower-margin” business than retail.

CEO Connolly said the eating-at-home trend driven by the pandemic is likely to become more solidified amid the young, providing support to sales going forward.

“Our confidence is underpinned by the many changes we’re seeing in consumer behaviour that are proving to be structural, especially given that these changes are driven by younger consumers that represent the most significant opportunity for long-term value creation,” Connolly said.

Millennial and Gen Z consumers were also pinpointed as consumers likely to slant more towards eating at home for varied reasons other than the pandemic and higher food costs – some settling down to have families or the income-gap with the older generation.

Funds for capacity, new labelling rules in US bid to shake-up meat industry

The US government has said it is to spend US$1bn on meat processing and issue new rules on labelling as part of moves to create “a more competitive and more resilient” supply chain.

President Biden believes the US meat industry is too concentrated to the detriment of farmers and consumers.

The plans, which also include funds for R&D and lower inspection costs for small processors, follows the Biden administration’s arguments in recent months the US meat industry is not as competitive as it should be and has been a notable factor in rising food prices in the country.

It also comes six months after the US government outlined measures – including more than $600m of funding for processing capacity – to invest in production and “revitalise” trading rules.

Meat industry associations questioned the new announcement. Mike Brown, president of the National Chicken Council, said the White House was using the meat industry “as a scapegoat for the significant challenges facing our economy”.

Biden’s team has consistently pointed to the market share of the country’s largest processors, citing, for example, the 85% of the beef market divided among four companies.

The White House believes competition needs to be increased and, through the US Department of Agriculture, grants totalling $375m will be made available to build capacity.

Access to credit will be improved through a $275m scheme for independent processors while there will also be USDA funds for innovation “to help independent business owners” and reduced inspection costs for smaller plants.

On labelling, Biden wants to bring in new “Product of USA” rules. Under current regulations, meat can be labelled Product of USA “if it is only processed here – including when meat is raised overseas and then merely processed into cuts of meat here”, the statement read. 

The USDA, meanwhile, will also work with the US Department of Justice to set up a way “for farmers and ranchers to report complaints of potentially unfair and anticompetitive practices in the agricultural sector to them”.

A spokesperson for trade body The North American Meat Institute said: “According to USDA data, cattle producers are getting the highest prices on record since [the] record prices they received in 2014. This is because packers have begun to clear the backlog of cattle created by the pandemic. The herd size is shrinking while demand remains high.

“Labour remains the biggest challenge. Our members of all sizes cannot operate at capacity because they struggle to employ a long-term stable workforce. New capacity and expanded capacity created by the government will have the same problem.”

On the plans to change labelling regulations, Brown added US rules “already require that chicken sold at retail clearly and accurately identify the product’s country of origin”.

General Mills paints bleak outlook for cost inflation

General Mills has painted a bleak picture for the potential pass-through effect to the consumer from rising input costs, with the US inflation rate already standing at an almost four-decade high.

The US food major expects input-cost inflation to reach 8-9% this fiscal year, higher than the 7-8% predicted in September, when the outlook was raised from 7%. Reporting first-half results, chairman and CEO Jeff Harmening said further pricing will be initiated in the third quarter to add to increases already put in place earlier in the year.

Harmening provided some insight into the operating environment affecting the whole US food industry and other sectors, factors that are also being witnessed in some overseas markets.

“The current operating environment is as dynamic and challenging as I’ve seen in my 27-plus years in the industry. At-home-food demand remained elevated, input-cost inflation is at a ten-year high, and labour shortages and other issues are causing disruptions across our supply chain, from our suppliers to manufacturing to distribution. These disruptions are driving down service levels and driving up costs above and beyond inflation throughout the industry.”

General Mills said raw ingredients and packaging materials account for 55% of the current extra input costs, with 30% in manufacturing and the remainder in logistics. The Nature Valley snack bar owner has seen double-digit increases in raw materials, packaging and logistics, and single-digit increases in manufacturing.

The Annie’s pizza to Old El Paso Mexican foods producer estimates the impact from input-cost inflation and supply chain disruptions will be around half a billion dollars more than it initially anticipated.

CFO Kofi Bruce said: “On the cost side, we expect double-digit input-cost inflation in the back half. On a full-year basis, we are now estimating cost of goods sold headwinds to be approximately US$500m higher than what was assumed in our initial fiscal 2022 outlook. This includes full-year input-cost inflation we now estimate to be 8% to 9%, as well as elevated costs related to supply chain disruptions.”

Major investors urge Big Food to tackle “global nutrition crisis”

Investors managing US$12.4trn in assets are calling on large food and beverage companies to engage with them to fix what they describe as a “global nutrition crisis”.

The group, which includes Pimco, UBS Asset Management and Nomura, urged policymakers to use fiscal and regulatory measures to help promote healthy packaged foods and to do more to meet the World Health Organization’s nutrition targets.

In a pledge made at the Tokyo Nutrition for Growth Summit 2021, the investor group plans to engage with the 20 listed companies in the ATNI Global Index 2021, including Nestlé and Unilever, or ask fund managers that invest on their behalf to do so.

It said the response from those businesses would guide future investment decisions.
In a document entitled Investor Expectations on Nutrition, Diet and Health, the investors said: “As institutional investors, we acknowledge the global nutrition crisis. Poor diets provide inadequate nutrition and drive high levels of death and preventable non-communicable diseases, while also putting individuals at greater risk of contracting and dying from communicable diseases such as Covid-19.

“The high individual, societal and economic costs of poor diets and nutrition impact on our holdings, portfolios and asset values in the short, medium and long term, both in the food and beverage sector and more widely.

“Understanding these growing trends and impacts, we recognise the need to scrutinise how well food and beverage companies manage the related risks and opportunities.”

The investment group said companies should use an independently developed system to define what constitutes a healthy product, and adopt the commitments laid out in its document, which was produced with the support of the Access to Nutrition Initiative.

Kraft Heinz buys majority stake in German D2C firm Just Spices

Kraft Heinz has snapped up 85% of Just Spices, a German direct-to-consumer business.

Since the start of the Covid-19 pandemic, the US giant has invested in building direct-to-consumer operations in Europe, including the service Heinz to Home in the UK.

Just Spices, set up in 2014, sells products including spice blends and salad dressings. Around 70% of its spice blends are sold online, with its remaining sales through retailers in Germany, Spain, Austria, and Switzerland.

The firm generates annual sales of around EUR60m (US$67.6m), Kraft Heinz said. Just Spices’ founders will retain a 15% stake in the business. Financial terms were not disclosed.

Rafael Oliveira, the president of Kraft Heinz’s international business, said: “This is a great opportunity to further accelerate our growth agenda by strengthening our ability to anticipate trends in consumer tastes and preferences, as well as our speed to innovate. We also see tremendous potential to strengthen and enhance our own direct-to-consumer operations and go-to-market expansion.”

Florian Falk, Just Spices’ CEO and one of the company’s three founders, added: “We are extremely excited by the potential for expansion that comes from combining Just Spices’ innovation and brand power with the Kraft Heinz team and the scale they bring to the table.”

Speaking to Just Food in November, Jean-Philippe Nier, head of e-commerce for Kraft Heinz’s businesses in the UK and Ireland, said the company intended to make Heinz To Home a permanent fixture and would continue to offer more personalised products and limited editions.

However, he conceded making Heinz to Home a major revenue stream for Kraft Heinz would take a lot of investment and time. “We haven’t built a proper scalable business in 18 months,” he said. “It will take years and years probably to get it to be a big revenue generator. I think for us, the main objective is really to use this platform as a brand experience and get closer to our consumer.”

UK, Australia strike trade deal

The UK and Australia have signed a trade agreement after months of talks – with British farmers and campaigners hitting out at the deal.

London said the “historic” agreement – the first trade deal signed “from scratch” since the UK left the EU – is “expected to unlock GBP10.4bn (US$13.85bn) of additional trade, boosting our economy and increasing wages across the UK, while eliminating tariffs on 100% of UK exports”.

In Canberra, the Australian government highlighted what it saw as the benefits of the deal for producers of beef, sheep meat, sugar and wine.

The UK’s National Farmers’ Union (NFU) said the agreement “serves to heap further pressure on farm businesses at a time when they are facing extraordinary inflationary pressure and sustained labour shortages”.

UK food campaign group Sustain argued the agreement “betrays consumers, farmers and the environment”.

The deal was agreed in principle by UK Prime Minister Boris Johnson and Australian counterpart Scott Morrison in June. Negotiators have now finalised all chapters of the agreement.

London insisted the accord is also a “gateway into the fast-growing Indo-Pacific region”. The UK government said the deal will boost its bid to join the CPTPP, a trade agreement covering 11 nations bordering the Pacific.

Australia said the deal would end tariffs “on over 99%” of goods exports to the UK.

Minette Batters, the president of the NFU, said: “We will analyse the detail in full but, on the face of it, this is a one-sided deal. When it comes to agriculture, the Australians have achieved all they have asked for and British farmers are left wondering what has been secured for them.

“In particular, it is disappointing that the UK government has capitulated to Australian demands to time-limit any safeguards for sensitive sectors.”

The UK and Australian legislatures will now vote to ratify the deal.