Nestle SA, the world's largest food company, and Hormel Foods Corp., the maker of pork-in-a-can icon Spam, said Thursday they plan to keep pushing low-cost products as consumers trim their budgets amid the deepening recession.
Since May, Spam sales have been growing by double-digit percentages as consumers flock to the value they see in the brand, said Chief Executive Jeffrey Ettinger. Hormel's plants have boosted production and even run on weekends, he said.
"I think they've always been a good value to consumers," Ettinger said of brands like Spam, Dinty Moore stews and Hormel Chili, which all grew in the quarter ending in January. "Our company really prides itself on being a leader in value-added meals that feature meat."
Nestle, which makes Perrier water and Jenny Craig products in addition to its namesake chocolate, said Thursday it aimed to increase sales with low-cost products like bouillon cubes and instant coffee during the global downturn. It also plans to offer smaller packages so consumers can conserve their cash.
Foodmakers have been benefiting as shoppers spurn restaurants and instead buy more food at grocery stores. They're pitching their products as being cost-effective to lure consumers as well as emphasizing the quality of their brands to keep shoppers from trading down to private label products, which typically cost less than their name-brand counterparts.
Austin, Minn.-based Hormel has been boosting its advertising with big marketing campaigns for its brands like Spam and Hormel, and even doing its first campaign for Dinty Moore. The company is also coming up with extensions of its most popular products, like Spam singles and microwavable Hormel Chili trays, to build on the growth of these brands.
The cost-effective pitch could be central to Nestle's performance in 2009. Chief Executive Paul Bulcke said the company, known for brands like Nescafe and Haagen Dazs, aims for growth without acquisitions of "at least approaching" 5 percent in 2009. He said the company will focus during the global downturn on selling more of its low-cost branded products, including Maggi bouillon cubes, Munch chocolate and Nescafe Classico instant coffee.
Consumers are so focused on price right now that they're starting to forgo convenience to save on costs, said Edward Jones consumer analyst Matt Arnold.
He pointed to the drop in sales of Hormel Compleats microwavable meals the company said it felt in the most recent quarter, while sales of less-expensive Spam rose. Consumers may not want to pay a premium for those types of frozen meals now.
"They're going to sacrifice convenience if they can whittle down their budgets a bit," he said.
Foodmaker H.J. Heinz Co. also mentioned weakness in its frozen dinner business this week at an investor conference. When asked about price competition, CEO Bill Johnson said the company — which makes sauces and brands like Weight Watchers Smart Ones products and Ore-Ida potatoes — wasn't likely to take significant action just yet to counteract the soft sales.
"Chasing volume in this category right now is chasing the consumer walking out the door for a period of time," he said at the Consumer Analyst Group of New York conference. "They will come back. They have in the past three recessions. We expect to see that again."
Heinz plans to focus on core products and categories, avoiding too much experimentation with new products as it continues to woo shoppers, the company told analysts.
Some food companies at the conference, including Kellogg Co. and Campbell Soup Co., are positive — yet cautious — about the year because of consumer uncertainty and the stronger dollar, which hurts results for U.S. companies with big overseas sales, Citigroup analyst David Driscoll wrote in a research note.
There is plenty of uncertainty, including in the meat industry, where Hormel has a large part of its business.
The company said Thursday that its first-quarter profit fell 8 percent in part because of higher-than-expected hog costs. Hormel, also known for Jennie-O Turkey products, earned $81.4 million, or 60 cents per share, down from $88.2 million, or 64 cents per share, a year ago.
Revenue rose 4 percent to $1.69 billion, while volume slipped 1 percent.
Meat makers have been hurting as they recover from volatile energy and commodity costs that reached record highs over the summer and slumping demand. Arnold, the Edward Jones analyst, said Hormel was well diversified between its packaged food and meat businesses, so gains in packaged food help offset weakness in Hormel's meat segments.
Shares rose $2.39, or 7.9 percent, to close at $32.81 on Thursday.
Nestle reported a 69 percent increase in full-year net profit to 18 billion Swiss francs ($16.61 billion), due largely to a gain of 9.2 billion francs from the sale of a stake in eyecare company Alcon. Excluding that deal, net profit would have dropped about 17 percent.
Full-year sales rose 2.2 percent to 109.9 billion francs — slightly below analyst estimates. Nestle said the stronger Swiss franc had weighed on sales by 7.8 percent.
The company's shares rose 5.2 percent to 38.94 francs ($33.22) on the Swiss exchange.