|
|
|
|
 |
BusinessWeek: January 11, 1993 |
|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads |
|
Industry Outlook: MANUFACTURING
TIGHTER BELTS, WIDER HORIZONS Purina Co. and Borden Inc. had particularly poor showings. Partly as a result, profits rose a measly 6% in 1992 for the 10 food giants tracked by Lawrence Adelman, a senior vice-president at Dean Witter Reynolds Inc. That's a sharp drop from gains in the low 20s just a few years ago--and it may have been an aberration. "It would be foolish to assume we'll return to the go-go '80s" this year, says Richard P. Mayer, CEO of Kraft General Foods. Still, Adelman expects the industry's earnings to jump 14% in 1993. To post such gains, food processors will rely on cost-cutting and international expansions. Fast-growing markets abroad, especially for branded foods, are the most tantalizing prize. By yearend, overseas operations will kick in an average 29.5% of the total profits of 12 major foodmakers, up six percentage points from 1988, says Prudential Securities Inc. analyst John M. McMillin. Europe is one of the fattest targets. Sara Lee Corp. recently announced that it is negotiating to buy British Petroleum Co.'s European packaged-meat business. And as a follow-up to its 1990 buyout of Swiss candymaker Jacobs Suchard for $3.4 billion, Philip Morris Cos. outbid Hershey Foods Corp. in September to buy Freia Marabou, an Oslo confectionery maker, for $1.5 billion. Hershey is still looking for buys in Europe, says Chairman Richard A. Zimmerman, who adds: "85% of our sales are in the U.S. That's far too much." SECOND HOME. While Europe attracts the most attention, U.S. foodmakers also are venturing into the Far East and Latin America. Cereal Partners Worldwide, the joint venture between Nestl and General Mills Inc., entered Mexico, its first non-European market, in August. Campbell Soup Co., which owns one-third of Arnotts Ltd., has made a hostile offer of $590 million for the rest of that Australian biscuit company. And last October, H.J. Heinz Co. snapped up New Zea-land's Wattie Ltd., which makes canned fruit and cat food. Raw materials are abundant in New Zealand and cost 15% less than in the U.S. So, the purchase of Wattie "gives us the opportunity to expand from a low-cost base in Asia," says Heinz Senior Vice-President David W. Sculley. Other foodmakers are aggressively setting up their own operations abroad. Kellogg Co. is putting up new plants in Latvia and India and is near agreement to build a foodmaking facility in China. With per-capita cereal consumption much lower, on average, outside the U.S., these are fertile markets. Kellogg's overseas volume grows 6% to 8% a year--twice the rate at home. "When we weigh it against acquisitions and other things, international expansion has to be our focus," asserts Chairman Arnold G. Langbo. In the U.S., food processors are focusing primarily on a sweeping overhaul of package-labeling rules. Nearly 6,000 pages of them--governing what, where, and how nutritional and health information must appear on food products--were issued by the Food & Drug Administration in December. The new labels will give definitions for such terms as "light" and "high fiber" and spell out how a product's ingredients, such as fat and sugar percentage, compare with the ideal average in a 2,000-calorie daily diet. Foodmakers have until May, 1994, to make the switch, but many plan to introduce new packaging this spring. Changing the industry's 257,000 labels will cost about $2 billion, according to Health & Human Services Secretary Dr. Louis Sullivan. Still, food processors are relieved that the rules have been hashed out at last. Says Kraft's Mayer: "It's going to take a lot of the confusion out of the marketplace." Kraft already offers a shopping cart full of low-fat and low-calorie brands, and "with our strength in product development, we're going to have an advantage over the competition," Mayer believes. That could be important, because U.S. food sales creep up only 2% or so a year, the same as population growth. The battle for market share among packaged-food giants makes it hard to raise prices even in a strong economy--especially since grocers tend to rebel quickly. They do so because of growing competition from other distribution channels--primarily price clubs and discounters. So cost-cutting will continue. Last October, Nabisco put a one-year freeze on hiring and salaries. With little to show after three years of restructuring, Borden took a third-quarter pretax charge of $642 million to cover 10 plant closings, 3,000 layoffs, and a retreat in snacks. Such measures highlight a startling change for food processors. Unlike in the 1980s, when savvy marketing was considered key, efficient manufacturing and distribution are now just as vital, says John C. Bierbusse, an analyst at A.G. Edwards Inc. To stay competitive, food processors will have to refine their recipes for all three. | |
|
|
|
|
|
Copyright 1991-2009 by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
