Summary
As commodity and energy costs continue to rise it has put more pressure on the botton lines of all food companies.Food companies have had to raise prices to offset these increases.However not all food companies are losing share to private label as a result of the price increases.
Analysis
Food companies are facing one of the toughest retail environments in the last 20 years. A combination of higher commodity costs and price sensitive consumers has made shopping decisions more critical than ever. As food companies raise prices consumers are scrutizing their purchases and making trade offs between branded and private label more than ever.
When we review food company Q2 results we can clearly see that all brands are not created equal. Top brand and marketing companies like General Mills,Kraft and Kellogg's all performed reasonably well with growing sales, profits and for the most part improved market share.That's because they own some of the top brands in their respective categories and that coupled with ongoing marketing support made consumers less likely to trade down to private label competitors.
Other companies like ConAgra, Hormel & Hain achieved less satisfactory results.Conagra suffered from pressure in its frozen food and popcorn markets where the brands were unable to support higher prices.Raising prices meant a decline in volume leading to lower profits.Hormel's meat products all performed less than satisfactory as consumers traded down more frequently to private label competitors.
The key to understanding food companies performance is to analyze the strength and market share positions of each their major brands.The best companies have invested in differentiating their brands and constantly improving and upgrading product quality.Consumers will pay extra for their favorite brands but only if they truly believe they offer greater value than their private label and branded counterparts.
