The processed food industry has been going through tough times lately as volumes are deteriorating. Rising price levels and weak economic conditions are considered to be the primary reasons behind the volume declines. I believe that declining volumes also signal that developed markets have reached their maturity level and there are less growth opportunities offered by these markets.
Among the top 20 food categories, sales volume decreased for 14 categories over the past year. The $70 billion frozen food industry needs to come up with the solution for the problem; otherwise things can turn out really messy for the industry.
The volume pullback
General Mills, Inc. (NYSE:GIS) has been losing market share, which has adversely affected the stock price. In the first quarter of 2013, the company lost market share in six of its top 10 categories, with highest share loss of more than 4% in the yogurt category as compared to prior year. In the last month, General Mills, Inc. (NYSE:GIS)’s sales and volumes have dropped by 1.4% and 0.5%, respectively. However, if we look at last 12 weeks’ stats, the company enjoyed sales growth of 0.3% and volume surge of 1.9%, mainly due to 1.5% reduction in prices. Two food categories, snacks and canned soup, have experienced share gains of 9% and 8%, respectively, in the last twelve weeks as the company improved its distribution channels.
Sales volume growth has also been an ongoing concern for ConAgra Foods, Inc. (NYSE:CAG). The company has realized the sales growth problem, and intends to boost its advertisement spending to support and grow its sales volume in the given circumstances. In 3Q 2013, the company registered flat organic sales on a year over year basis, as volumes were down 3%, offset by a price rise of 3%.
However, in the recent twelve weeks, the company suffered sales and volume drop of 1.7% and 0.6%, respectively, despite a 1.1% reduction in prices.
Volume drop persists in the North American grocery business of Kraft Foods Group Inc (NASDAQ:KRFT). In the last one quarter, the company’s volumes have taken a hit, going down approximately 8%, but partially offset by a price increase of 7%. Cheese and Nuts have been the only sources of growth for Kraft Foods Group Inc (NASDAQ:KRFT) lately. Both the categories contribute 26% and 5%, respectively, and total revenue and sales volumes were up 4% and 9%, respectively in the last quarter.