The Great Global Resetprofoodworld.com/covid-19/article/21198134/the-great-global-reset

The COVID-19 crisis has upended the food and beverage manufacturing industry.However, unlike other sectors of the economy that have been decimated by the pandemic,most processors are not only surviving, but thriving during this unprecedented publichealth crisis. Many of the manufacturers in ProFood World’s Global 250 Food andBeverage Manufacturers list are nimbly navigating the coronavirus pandemic withflexibility and resilience as they pivot their operations to focus on their legacy products andretail channels.

Consumers have changed their purchasing and eating habits in the wake of the worldwideCOVID-19 outbreak. As businesses shut down, more people work from home, andcountries around the world issue stay-at-home mandates, consumers are foregoingrestaurant visits and limiting their shopping trips in an effort to avoid contracting thevirus, prompting significantly more people to load up their grocery store baskets and eat athome more often.

Did you know more data is available for the GLOBAL 250? Use search and sortfunctions for the entire database here. Statistics on U.S. sales for each company,U.S. beverage sales by company, US package goods sales by company, globalbeverage sales by company and global package sales by company are available.Processing facility location information is also available. Don't miss the exclusivedata for the Global 50 alcoholic beverage manufacturers here.

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Home sweet home

At the height of the outbreak in the spring, food flew off supermarket shelves as consumersstockpiled pantry and refrigerator staples in preparation for extended stays at home.According to the Eating Occasions Compass research from the Hartman Group, a food and

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beverage research firm, at-home eating in the U.S. accounted for 88% of all eating anddrinking occasions in spring 2020, an increase of 12% from 2019. Away-from-home eatingoccasions were cut in half this year, dropping to 12% in 2020 from 24% in 2019.

Although panic buying has abated as many countries have eased their lockdownrestrictions and businesses have reopened, consumers will continue to pad their pantries atleast for the length of the pandemic. According to a study of more than 1,600 U.S.consumers from PwC, a multinational professional services firm, 64% of respondents saidthey will continue to maintain their current rate of pantry loading for the foreseeablefuture. The survey found that 42% of respondents won’t stop pantry loading until theCOVID-19 crisis is fully resolved, while 24% said they will continue to load their pantriesuntil grocery stores are consistently restocked. About 18% said they won’t stop stockpiling.

COVID-19 will also continue to impact the foodservice industry, which includesrestaurants, school and work cafeterias, and hotels, as consumers remain cautious abouteating out. A white paper from foodservice consultancy Technomic found that 3 in 10consumers said they plan on leaving the house less often, not go to restaurants, or notorder food or beverages from away-from-home venues.

Taking center stage

The reduction in foodservice demand combined with consumers continuing to stockpilefood have been a boon to Big Food. While the world’s largest food and beveragemanufacturers are experiencing a sharp drop in foodservice sales, they have been able tooffset those losses with a surge in retail sales. Companies with established center-storebrands have been reporting better-than-average results, including Nestlé, The J. M.Smucker Company, Kraft Heinz, Mondelēz International, and B&G Foods. Center-storesales have seen a resurgence, driven by consumers stockpiling frozen food and shelf-stablepackaged foods as items that offer convenience and a longer shelf life take on renewedimportance during the COVID-19 era. In addition, consumers are reaching for familiarnostalgic brands in this time of uncertainty. After years of seeing consumers flock tohealthy, fresh, artisanal, and other trendy foods, this surge in center-store sales hasbreathed new life into iconic legacy brands, including Kraft Macaroni & Cheese mix fromKraft Heinz and Conagra’s Chef Boyardee canned pastas, which experienced flat or saggingsales over the years.

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In addition, lifestyle changes consumers have made as a result of the COVID-19 crisis havefurther fueled demand for these old standbys. About 85% of consumers have changed thefood they eat or how they prepare food because of the pandemic, according to theInternational Food Information Council’s 2020 Food and Health Survey. The survey foundthat the biggest change is that 60% of consumers are cooking at home more. Additional

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consumers are indulging in snacking as well: About 26% of respondents say they snackmultiple times a day and another third snack daily. Snack food consumption has increasedmore than 8% during the pandemic as consumers turn to savory and sweet snacks forcomfort and enjoyment, according to the Snack Food Behaviors in Challenging Times studyfrom market research firm The NPD Group. Building on that need for comfort, analystsand experts say that consumers are reaching for these established brands from Big Foodbecause they provide nostalgia and familiarity as consumers deal with stressors, such aswork demands and financial hardships, during this time of uncertainty.

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To meet this sudden shift in consumer demand and keep store shelves stocked, manyprocessors have cut back their SKUs. They have been focusing on producing top-selling,popular products in order to streamline operations and maximize efficiency in their supplychains. This is a strategy Campbell Soup Co. had already been executing pre-pandemicwhen it divested its international and fresh divisions in 2019 in favor of bolstering its coreMeals & Beverages and Snacks divisions. The company accelerated the plan during thepandemic, refocusing production on its classic canned soups and snacks. The strategy paidoff. In the third quarter of fiscal 2020, earnings before interest and tax rose 11% to $273million, while net sales increased 15% to $2.24 billion. The company attributes the growthto a 35% increase in quarterly soup sales as well as strong gains with its Prego pasta sauces,V8 beverages, Campbell’s pasta, Pace Mexican sauces, and Swanson canned poultry. Itsays comfort foods like soup and Prego pasta sauces cater to “quick scratch cooking,”which allows home cooks to assemble meals quickly. “Consumers have gravitated to ourbrands because of the comfort they bring,” said Mark Clouse, Campbell’s president andCEO, during the company’s third-quarter earnings call with analysts. “Think of tomatosoup paired with grilled cheese or family spaghetti night with Prego pasta sauce or the funof sharing SpaghettiOs with your kids. All of them have seen significant consumption gainsduring the crisis.”

Net sales of snacks increased 9%, driven by strong gains in fresh bakery products, Goldfishcrackers, Pepperidge Farm cookies, Kettle Brand and Cape Cod potato chips, Pop Secretpopcorn, Snyder’s of Hanover pretzels, Lance Sandwich crackers, Late July Snacks, andSnack Factory Pretzel Crisps.

“In this quarter, we experienced unprecedented broad-based demand across our brands asconsumers sought food that delivered comfort, quality, and value,” says Clouse.“Campbell’s products were purchased by millions of new households, with total household

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penetration increasing over 6 percentage points in the quarter compared to the thirdquarter of fiscal 2019.”

Back to basics

Frozen foods are also making inroads with consumers during the COVID-19 crisis, thanksto their long shelf life and ease of preparation. The Frozen Food Sales Amid COVID-19survey from the American Frozen Food Institute found that 86% of consumers havebought frozen food items, such as pizza, vegetables, and entrees, since early March. Nestléhas benefitted from the frozen food boom with double-digit growth from its DiGiorno, HotPockets, Stouffer’s, Jack’s, and Tombstone brands. The J. M. Smucker Company had astrong fourth quarter, aided by strong sales of its Uncrustables products. The sales of thefrozen, hand-held sandwiches surged to $365 million in fiscal 2020, ended April 30, from$289 million in fiscal 2019. And Kellogg’s North American frozen foods business saw salesfor its Eggo frozen waffles increase 45% in the first quarter and 26% in the second quarterof fiscal 2020. Sales for its MorningStar veggie line rose 66% in the first quarter and 31% inthe second quarter. To continue to meet demand for these and other mainstay products,Kellogg chose to delay the launch of Incogmeato, a plant-based meat alternative for itsMorningStar brand.

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With more people cooking at home to save money and avoid exposure to the coronavirus,many processors are ramping up production of products that facilitate those culinaryendeavors. For example, as General Mills trimmed its SKUs to make its supply chain moreagile, it focused on key high-volume products that let consumers bake at home. In its

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fourth quarter, General Mills’ U.S. meals and baking operating unit generated a 68%growth in sales, driven by strong gains from brands including Pillsbury refrigerated bakedgoods, Betty Crocker desserts, and Gold Medal flour.

McCormick & Company is also capitalizing on the shift to home cooking. The seasoningsand spices company posted an 8% sales increase it the second quarter of fiscal 2020compared with the same quarter a year ago. Sales to consumers rose 26%, with highvolumes in the Americas, Europe, Middle East, and Africa. But it also saw sales drop withits foodservice clients by 18%. To promote its products with consumers, McCormick plansto launch a marketing campaign that educates consumers on how to use its products in thekitchen.

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“Our results for the second quarter were significantly impacted by a shift in consumerdemand resulting from the COVID-19 pandemic,” says Lawrence E. Kurzius, chairman,president, and CEO of McCormick. “Our exceptional consumer segment growth was drivenby the substantial increase in demand as consumers were cooking more at home. In ourflavor solutions segment, our results were significantly impacted by sharp declines indemand from restaurant and other foodservice customers as away-from-home dining wassignificantly curtailed. Taken together, these impacts demonstrate the strength anddiversity of our offering.”

Consumers in Latin America are mirroring the eating and buying behaviors of Americansand other consumers around the world as Latin American countries become hotspots forthe pandemic. As they quarantine themselves in their homes and limit grocery store visits,Latin American consumers are also stockpiling food staples. For example, while GrupoBimbo saw net sales rise in the second quarter to 19.9% primarily due to strong growth inNorth America, the multinational bakery company also increased sales in Latin Americancountries by 13.3%. The company credits volume growth to both retail and e-commercechannels, helping it to gain market share across bread, buns and rolled breakfast, sweetbaked goods, and snacks categories. These gains helped to offset some of the weak volumesGrupo Bimbo experienced with its foodservice and convenience store channels due to theCOVID-19 outbreak.

Foodservice vs. retail

Europe-based food processors are also depending on retail sales to help make up for lossesin foodservice sales. For example, Unilever’s second-quarter sales dipped only slightly by0.3%, thanks in part to consumers buying the company’s ice creams and soups during thepandemic, offsetting its massive plunge in foodservice sales. Foodservice sales dropped

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40%, and out-of-home ice cream sales decreased nearly 30% in the first half of the year asrestaurants, hotels, cafes, theaters, and bars closed or operated in limited capacity.However, the consumer goods giant says it attained double-digit growth in its Foods &Refreshment division with an uptick in sales at retail channels. Its Knorr soups andHellman’s mayonnaise lines proved to be strong performers with consumers in quarantine.In addition, sales of Breyers, Magnum, Klondike, and Ben & Jerry’s ice creams rose duringthe period to boost Unilever’s at-home ice cream sales by 15% in the first quarter and 26%in the second quarter.

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Despite weathering the first half of the year relatively unscathed, Unilever still faceschallenges ahead. Some analysts say that the ongoing pandemic could put the company atrisk. Unilever experienced a 2.4% growth in the first half of the year led by developedmarkets in North America and Europe. But the company relies on about 60% of its annualsales in emerging markets. As the coronavirus expands in Africa, Latin America, and otherparts of Asia, Unilever’s overall revenue could take a hit.

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Like Unilever, Danone has been dinged by a decline in foodservice sales in the first half ofthe year. After posting a 3.7% increase in sales in the first quarter thanks to pantry loadingand panic buying, Danone was unable to maintain the momentum. In the second-quarter,the French company was hit with a 5.7% drop in sales. The weaker second-quarter salesreflected less pantry loading by consumers and a 28% decrease in net sales in Danone’sbottled water division, which depends on foodservice and on-the-go consumption.

But Danone’s second-quarter financials did have some bright spots. The company’sSpecialized Nutrition business, which includes infant and adult nutrition products, sawsales rise 2.7% in the first half of the year. Danone’s Dairy & Plant-based division posted anet sales increase of 3.1% in the first half of the year, with solid growth in North Americaand Europe. To ensure it can keep shelves stocked with its dairy and plant-based brands inEurope and North America, Danone is focusing on producing only top-selling SKUs andpackaging them in larger formats. Building on the success of its dairy, plant-based, andnutrition products, Emanuel Faber, chairman and CEO of Danone, says the company willdevelop affordable, healthier versions of comfort foods, predicting that consumers willwant to rebalance their diets as the pandemic continues.

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Cheers to beer

COVID-19 has taken its toll on the alcohol segment as well. Although more people arebuying booze for at-home consumption compared to last year, those retail sales won’t beenough to prevent a downturn in the industry, according to research from IWSR DrinksMarket Analysis. The study says that global alcohol sales will drop 12% this year because of

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the worldwide shutdown of bars, restaurants, travel, and live events, and predicts that theindustry won’t return to pre-pandemic levels at least until 2024.

To prevent sales from collapsing further, Big Alcohol is focusing on lower-cost products tohelp cut its production costs and meet consumer demands for less expensive alcoholproducts in this tightening economy. For example, Anheuser-Busch InBev, the world’slargest brewer, saw revenue from its top three brands—Budweiser, Stella Artois, andCorona—drop 11%. But some of its inexpensive beers, like Lion Lager, were performingwell in certain markets, like South Africa, and growing at a double-digit rate in the firstquarter. Meanwhile, Asahi, Kirin, Suntory, and Sapporo Breweries—Japan’s four biggestbrewers—saw their beer revenue in Japan fall in the first half of 2020 compared to a yearearlier. However, sales from their low-malt happoshu beers and so-called third-segmentquasi-beers made from cheap malt alternatives grew in the same period as people drank athome while reducing their spending on alcohol.

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Although the beer category has taken a hit in 2020, IWSR predicts beer will recover betterthan the wines and spirits sector, led particularly by growth in low- or non-alcoholic beers,forecasting an 8.1% compound annual growth rate from 2019-2024. Both Heineken andCarlsberg will continue to invest in its alcohol-free beers, fueled by consumers’ heightenedfocus on health and well-being during the coronavirus pandemic. While Heineken saw netrevenue decrease 16.4% and beer volumes fall 11.5% in the first half of 2020, the Dutchbeer maker posted double-digit growth for its Heineken 0.0 alcohol-free beer brand acrossall regions, with strong performance in the U.S., Mexico, and South Africa. Its Danish rival,Carlsberg, has long focused on low- and no-alcohol beer as a key growth driver, citingdemand from younger people focused on healthy lifestyles. Prior to the pandemic,Carlsberg was experiencing a 16% volume growth in its alcohol-free beers compared to 1%growth from its core beer products. The company launched its latest no-alcohol beer,Tuborg Zero, on May 1 in Denmark. After just one month, Tuborg Zero became the best-selling alcohol-free beer, according to Carlsberg.

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Charting the course forward

The COVID-19 crisis has certainly been both a boon and challenge for processors. Whilethis unprecedented public health crisis has put strain on their supply chains, hurtfoodservice sales, and set new product development on the back burner, the pandemic hasalso helped Big Food stage a comeback and fuel sales growth as consumers take a second

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look at their iconic legacy brands. As these processors look ahead, the challenge is tomaintain this momentum in a post-pandemic world—whenever that will be.

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