Optimism Among DepressionOkay, let’s be honest. I won’t tell. Which would you rather have? Would you like to be mired in the unpredictable, skyrocketing commodity crisis of last year or stuck in the current Great Recession?
The politically correct answer would be the commodity crisis of last year since no businessman wants to see fellow Americans out of work, losing their homes and generally feeling pretty miserable.
To be politically incorrect, if not blunt, the current state-of-the-industry for many snack and baking companies is a heck of a lot better than last year when the price of wheat doubled, energy skyrocketed, profits were under pressure, forecasting for the future was impossible and nobody could raise prices fast enough to cover their costs.
Certainly, commodities and energy prices haven’t come down to the good ol’ days of a few years back, and volatility remains a variable that has kept purchasing agents on their regular anti-depressants. While volume is flat to down in many categories, sales are up over last year mainly because of the hefty price increases over the last two years that, admittedly, have come down a bit of late.
But they haven’t come down that much, have they?
As a result, many bakers and snack producers are reporting that business has been “bery, bery” good these days. Take The Inventure Group, based in the Phoenix, Ariz., area, for example. I’m not picking on them, but because it is a publically traded company, its numbers are recent and readily available.
For the second quarter, which ended June 27, the snack and frozen fruit producer generated net revenue of $33.4 million, or 14.3% over the previous year.
For the snack division, sales rose 13.5% over the same period last year, thanks to a 25.7% in itsBoulder Canyon Natural Foodsbrand, a modest 3.5% increase inT.G.I. Friday’s sales, a hefty 45.6% boost inBURGER KINGsnack purchases and a whopping 155% increase in private label revenue. The only decline was in itsPoore Brother’sbrand.
Again, The Inventure Group is not alone in reporting very un-recessionary type of numbers. In fact, its financials reflect the solid health of many companies in the snack and baking industries, although some categories such as the cookie and sweet goods continue to struggle.
Several trends continue to drive sales. Anything that is private label or that’s perceived as a value proposition remains gold as consumers search for bargains and comfort foods. Exposure to dollar stores and other discounters provide an added bonus, but lower prices aren’t the only solution.
Instead of shrinking their products’ packages, as some companies did to lower their costs and price points during the first part of the recession, many snack producers such as Plano, Texas-based Frito-Lay have bought into the bigga-is-better concept and are adding 20% more snacks to some bags. It really doesn’t cost that much more, especially with lower ingredient costs than last year. Additionally, if consumers think they’re getting more bang for the buck, they may be a little less price-conscious and purchase these products more frequently.
Other companies are taking the opportunity to expand. Despite the worst quarterly decline in restaurant sales in 28 years, Panera Bread reportedly plans to open 80 more stores this year, and Brewster, Ohio-based Shearer’s Foods just broke ground for the first phase of its $100 million facility in Massillon, Ohio. As they say, the best way to beat a recession is to act like there isn’t one. It only makes your company stronger when the economy fully rebounds.
Ironically, the commodity crisis that wreaked so much havoc last year forced many bakers and snack producers to be more efficient, better disciplined operators, and that’s paying dividends today.
So don’t feel depressed. Look at the bright side, once and a while.
Dan Malovany, editor