How to overcome the problem of dropping sales volume?
The companies can boost their advertisement and promotional activities to build consumer loyalty. All the aforementioned companies have enough potential to grow their advertisement expenditure due to their low level of spending in this area. The following table shows advertisement spending as percent of sales for the three companies.
| Companies | Advertisement Spending as % of Revenue |
|---|---|
| General Mills, Inc. (NYSE:GIS) | 6% |
| ConAgra Foods, Inc. (NYSE:CAG) | 3.5% |
| Kraft Foods Group Inc (NASDAQ:KRFT) | 3% |
Source: Annual Reports
All three companies can afford to increase their advertisement spending to an industry average of 8% of total revenue, which creates a potential for the companies to fuel volume growth. Promotional activities can also be used to give support to the dropping volumes by increasing discount price offers and opting out for other promotional activities.
Consumer tastes and preferences change time to time, leaving product innovation as a very useful tool for consumer companies to compete successfully and survive in the competitive industry. All three companies have realized the need of product innovation and have been working on it, which should result in increasing or maintaining their market shares and volumes.
Moreover, the U.S. has started to recover from a weak economic environment, evident by the stock market rally; the S&P is up 15% year to date. Furthermore, the Fed is expecting the unemployment rate to drop to 7.25% and 6.65% in 2013 and 2014, respectively. This will increase economic activity and the purchasing power of people. The drop in the unemployment rate and improved economic conditions will translate into higher demand for branded consumer products.
Risk
If the economic conditions remain sluggish or are slow to improve, volume decline remains a threat for the food industry. As private label brands are troubling market share of branded food companies, they will be continued to be preferred by the consumers as they are relatively cheaper than branded food.
Final words
Declining volumes are a significant hurdle. The branded food companies need to boost their promotional and advertisement spending to overcome the problem of declining volume. These advertisement and promotional initiatives will create brand loyalty and encourage consumers to buy branded products that will bode well for the above mentioned three companies. Product innovation and improved economic activity are the other important factors that will favor the three companies.
With the American markets reaching new highs, investors and pundits alike are skeptical about future growth. They shouldn’t be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies.
The article Volume Growth Remains a Headwind for These Companies originally appeared on Fool.com and is written by Faizan Chudhry.
Faizan Chudhry has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Faizan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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