Retail transformation continues

by Keith Nunes
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The retail market for food and beverages is undergoing dramatic changes.
 
KANSAS CITY — During the first nine months of 2017 three separate events cast a bright spotlight on the dramatic transformation taking place in retail — Amazon embraced brick and mortar and acquired Whole Foods Market, the German hard-discount chain Lidl opened its first US locations, and the Kroger Co. announced plans to open a restaurant.

Many of the headlines during 2017 have been about the tepid growth the leading food and beverage companies have experienced the past few years, but even more compelling is how competitive and fragmented the retail market has become. As competition has increased, retailers are adopting strategies to compete, whether it is focusing on price, offering distinct private brands, introducing more fresh choices or enhancing e-commerce capabilities.

 

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“…There is no denying that the retailer landscape is changing dramatically with the emergence of new players, new store formats and evolving business models,” said Denise Morrison, president and CEO of the Campbell Soup Co., Camden, New Jersey, during an Aug. 31 conference call to discuss the company’s fiscal 2017 financial results. “Several variables are at play, including value players expanding their presence in the US, the growth of store brands and the explosion of e-commerce and meal delivery services disrupting the market. We expect conditions to remain hypercompetitive for the foreseeable future.”

 

The hypercompetitiveness referenced by Morrison is forcing retailers to become more demanding on margins. In the Aug. 31 conference call, Morrison modified Campbell Soup’s fiscal 2018 financial outlook for its soup business because it failed to come to an agreement for a promotional program with a large retail customer.

“We expect this will negatively impact our US soup sales with this customer, particularly in the first half,” she said. “Accordingly, we now expect our soup sales to decline in fiscal 2018.”

 
During a Sept. 6 presentation at the Barclays Global Consumer Staples Conference in Boston, John Bryant, then the chairman and CEO of the Kellogg Co., Battle Creek, Michigan, relayed a story similar to Morrison’s.

 

“…As hard discount has impacted certain markets around the world, and as e-commerce impacts markets around the world, we do see some traditional retail put more pressure on margin,” he said. “And a result of that is we work together with our retail partners so we can both win in the marketplace. And at times, you take a (bus stop), at times you take a customer dispute.

“We had one earlier in the year in Europe around Pringles. Pringles declined pretty significantly in the first half of the year. It’s back to growth in the back half of the year. The right long-term solution is to work with your retail partners. But if you have to take the dispute, you take the dispute and you move forward.”

 
Richard Vitaro, managing director of the Berkeley Research Group, Emeryville, California, said consolidation among the top 10 retailers in the United States will continue to pressure food manufacturers.

 

“This puts two different kinds of pressure on food and beverage companies — dealing with greater purchasing leverage from dominant retailers and managing greater complexity from channel fragmentation,” he said.

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