Economy changes product line-ups, package sizes

by Pan Demetrakakes
Executive Editor

As the economy continues to tank, consumers and food companies are finding long-term ways to cope—some predictable, others counterintuitive.

Pruning product portfolios has always been a common tactic among companies in bad times, and the current crisis is no exception. It’s not uncommon for 20% of the brands in a large company’s portfolio to bring in 80% or more of the profit. That’s why some companies are pulling marketing dollars from second- and third-tier brands, or even axing those brands entirely.

Kraft Foods, for instance, is removing its Handi-Snacks ready-to-eat pudding and Kool-Aid gelatin, preferring to put marketing bucks behind Jell-O brands in both categories. H.J. Heinz Co. has announced plans to cut between 15% and 20% of its stock-keeping units (SKUs) in three years, on top of a 50% cut from 2002 to 2006. Even Dean Foods, which just reported one of the strongest quarters in its history, has announced plans to reduce its portfolio of more than 50 brand names, although it did not give details.

Economic anxiety is affecting consumer behavior in ways that companies are starting to notice. ConAgra recently got rebuffed by consumers when it tried to raise prices for its economy Banquet line of frozen dinners to reflect increased commodity prices. Banquet dinners rose above $1 a meal, and consumers rejected them—leading to a 40% drop in ConAgra’s stock price last year. ConAgra promptly revamped the Banquet line, jettisoning expensive SKUs like barbecued chicken and country-fried pork, to bring prices back below a dollar. Heinz CEO Bill Johnson recently told an analyst conference that frozen-food margins were becoming brutally narrow and threatened food processors with “profitless prosperity”—that is, high volume with low profits.

Many companies have taken to downsizing packaging—offering less product in smaller packages, but not reducing prices. However, a recent report from Packaged Facts warned that a backlash may be brewing. It cited a Nielsen survey in which most consumers preferred to pay more for the same amount of product, as long as they felt they were getting good value, rather than pay the same for less.

One small ice-cream processor is counting on the backlash to invigorate sales. Gifford’s Ice Cream “upsized” its 56-ounce ice cream carton to 64 ounces while keeping the price the same. The 56-ounce carton will be phased out.

The Wall Street Journal recently reported an interesting twist on consumer preferences for packaging sizes. Executives from several large companies, including Heinz and PepsiCo, told the paper about a “paycheck cycle” in which consumers prefer to buy larger sizes at the beginning of the month, then downsize in following weeks as their money runs out. Food companies could take advantage of this by making sure the proper sizes are in stock at the right times, and timing their promotions of various package sizes.

TOP DEVELOPMENTS

Bar codes help Kroger protect consumers
Kroger is using bar code checkout technology to keep consumers from buying recalled products—or to warn them if they do.

After removing products from its shelves that were recalled in the wake of the peanut salmonella crisis, Kroger set up registers at its supermarkets across the country to flash a “do not sell” message matched to those products’ bar codes, ensuring that any possibly tainted products that were missed in the sweep did not get purchased.

Kroger also used its buyer-card program to identify consumers who had bought affected products before the removal. They were warned in two ways: by automated phone calls, and with a personalized message on their cash-register receipt tape on their next two visits to the store.

DuPont exec: Reduction not enough
Packaging suppliers and users should look to alternative strategies like incineration and composting to improve the green profile of packaging, a top DuPont executive said last week.

Speaking at the Packaging Strategies’ Annual Summit Meeting in Clearwater Beach, Fla., William Weber, DuPont’s vice president for packaging and industrial polymers, said that reduction by itself is not enough to improve packaging’s green cachet.

He also raised the possibility of packaging suppliers and users engaging in the cap-and-trade approach to carbon emissions associated with packaging, with companies that surpass a limit buying “credits” from those that stay under the limit.

Canadians still not cool with COOL
The Obama administration is pushing for tougher rules for country-of-origin labeling (COOL), and Canada is pushing back.

Agriculture Secretary Tom Vilsack said Feb. 17 that the U.S Department of Agriculture would ask the meat industry to be more specific about where animals used for meat are born, slaughtered and processed. If it doesn’t comply voluntarily, the USDA may rewrite the guidelines more strictly, he said, although a scheduled announcement of new guidelines was abruptly canceled without explanation the day after Vilsack spoke.

After Vilsack’s briefing, the Canadian Cattlemen’s Association urged the Canadian government to renew its complaint over COOL before the World Trade Organization. Canada suspended its WTO challenge to assess the situation after final COOL rules were issued in January.

NEW PACKAGES

Heinz adds to Friday’s line
H.J. Heinz Co. has rolled out a new product in its T.G.I. Friday’s line of frozen foods. T.G.I. Friday’s Complete Skillet Meals comprise individual packets of protein, vegetables, sauce, starch and toppings, all packaged in a 24-ounce stand-up pouch. They come in five flavors: Cajun-Style Alfredo Chicken & Shrimp, Firecracker Sesame Chicken, Creamy Chicken Pasta Carbonara, Sizzling Steak Fajitas and Sizzling Chicken Fajitas. The reverse-gravure-printed pouches are converted by Alcan Packaging.

Shearer rolls out own chip brand
Shearer’s Foods, a regional salty-snack processor based in Brewster, Ohio, has brought out its first line of snacks under its own brand. Shearer’s Tortilla Chips have been rebranded as Tangos Tortilla Chips. Packaging for the new brand features vivid graphics, color-themed for its three flavors (Multigrain, Restaurant Style and Cheesy Nacho). Film for the bags is converted by C-P Flexible Packaging on a 10-color flexo press.