The Food Institute Report - Industry News - Jan. 19, 2004 |
Food-At-Home And Away-From-Home Inflation At 2.1% For The Year
On the heels of a scant 1.3% increase in 2002, retail food-at-home prices rose 2.1% last year, slightly exceeding projections of a 1.5% to 2.0% increase (see FOOD INSTITUTE REPORT, Jan. 5, 2004). By far, the major driving force behind that gain was the run-up in beef prices, which ended the year averaging 9.0% more than a year earlier. During December, prices were up an astounding 23.5% from a year earlier, according to Consumer Price Index data from the Bureau of Labor Statistics. For 2004, beef prices are projected to rise another 3.0% to 4.0% for the year, although the finding of a case of mad cow disease in the U.S. is expected to result in somewhat lower prices through the first quarter and possibly half of this year.
Prices for food-away-from home, meanwhile, were also up 2.1% from a year earlier according to the Bureau of Labor Statistics.
Ironically, egg prices actually rose more than beef during the year, by 13.8%, with December prices up nearly one-third from the same month of 2002. That annualized increase is ten times greater than the 1.3% advance seen a year earlier. The higher prices were attributable to both demand and supply factors: strong seasonal demand and higher prices for substitute animal proteins on the demand side; and, slightly lower production from disease problems and compliance with animal welfare restrictions on the supply side. Production is expected to increase about 1% next year, but strong consumer demand will keep the average wholesale price for the year more than 3% above 2003, according to USDA.
Food Industry Merger Activity In 2003 On Par With Prior Year
Amid an economy still grappling with war and recession, the pace of food industry consolidation in 2003 remained fairly conservative compared to the late 1990s. Just slightly reversing four years of declining deals, The Food Institute tracked 416 mergers and acquisitions in the food sector, only three more deals than were recorded in 2002.
Supermarkets, among the most acquisitive segments, registered 35 transactions, 16 more than in 2002 and the most deals made since 1998. The anticipated sale of Kings Super Markets was shelved in August when Marks & Spencer pulled it abruptly off the block, and most of the activity consisted of various national chains trying to bolster their share in certain markets via minor acquisitions. The Kroger Co. was the greatest example of this, purchasing some 37 stores from five different operators, ranging from Spartan Stores Inc. to troubled retailer Penn Traffic Co., which was busy selling off operations. Meanwhile, Fleming Cos. sold a number of retail units to Albertsons and Sav Mart Supermarkets, as well.
The restaurant and foodservice sector sealed 61 deals – about a third more than recorded the prior year, but still considerably less than the level of activity in the mid- to late 1990s. One newsmaker in this category: Starbucks Corp.’s purchase of rival Seattle Coffee Co.
Meat processor activity was notable, with The Food Institute recording 11 deals in that sector, up from just four in 2002 and five in 2001. A group of investors led by U.S. Premium Beef Ltd. purchased Farmland National Beef from Farmland Industries, its partner in the beef entity, while Smithfield Foods, Inc. acquired Farmland Foods, the pork business of Farmland Industries. Smithfield also acquired Global Culinary Solutions, Inc. and a 90% interest in Cumberland Gap Provision Co.
Confectioners, which have made relatively few deals in the past decade, made a sizeable 11 transactions, more than double the amount from 2002. The last time confectioners made nearly as many deals was in 1992 when nine deals were sealed. No one company dominated the buying activity. Honorable mentions in this sector: Farley & Sathers Candy Co.’s purchase of a group of gum brands from Hershey Foods Corp. and Just Born Inc.’s acquisition of Goldenberg Candy Co.
On the flip side, investment firms and banks, which went on a buying spree in 2002, purchasing 42 various food-related entities, made just 29 deals. Eager to capitalize on the “better for you” trend sweeping in the food industry, investment firms scooped up everything from retailer and marketer Vitamin Shoppe Industries, Inc.; a controlling interest in ChampionLyte Products, Inc., a maker of isotonic sports drinks; and Rudi’s Organic Bakery. Parthenon Capital and Goldman Sachs Capital Partners made an unspecified investment in Atkins Nutritional Inc., a Ronkonkoma, NY-based food group with more than $100 million in annual sales that has spurred seemingly endless copy-cats who are now peddling everything from low-carbohydrate vodka to chocolate. Also worth a mention: Bear Stearns Merchant Banking acquired a 75% interest in Sutton Place Gourmet Inc., with Mark Ordan, a Washington, DC café owner, holding the balance, while Gryphon Investors purchased the Eight ‘O Clock coffee unit of the Great Atlantic Pacific & Tea Co.
E-commerce industry observers take note: in the third year the Food Institute tracked this category, a mere three deals were made last year, down from seven in 2002 and 24 in 2001.
After four years of declining numbers, diversified food processing firms transactions were unchanged from last year – with 37 deals recorded. Worthwhile mentions in this sector: Dean Foods Co. purchased the 87% of Horizon Organic Holding Corp. it did not already own; Ralcorp Holdings, Inc. acquired Bakery Chef, Inc., a manufacturer of frozen griddle products and frozen pre-baked biscuits; Schwan Food Co. bought the frozen dessert business of Mrs. Smith’s Bakeries from Flowers Foods.
Wholesale Food Price Inflation At 13-Year High In 2003
Wholesale consumer food prices advanced 4.2% during 2003 over the prior year, marking the largest increase since 1990, according to data from the Bureau of Labor Statistics. The increase was driven by sharply higher prices for beef (up 20.5% from a year earlier), eggs (up 28.6%) and rice (up 27.4%).
During December, wholesale beef prices declined 5.6% as the discovery of a case of mad cow disease in Washington State was reported. Even so, prices were still 28% above year earlier levels for the month. Beef prices peaked during October when they averaged 52.6% above the same month of 2002. USDA projects beef prices will continue to decline during the first six months of 2004.
Kash n’ Karry Trimming Stores, Boosting Spending
Tampa-based Kash n’ Karry will be closing 34 Florida stores by the end of February to improve profit in its core market—Tampa and the Gulf Coast. Seven of the eight Polk County locations are among the stores to be closed, reported The Lakeland Ledger (Jan. 16). Also, 1,500 jobs will be eliminated statewide, revealed spokeswoman Camille Branch-Turley, commenting that intensified competition in the grocery business has had an effect on Kash n’ Karry.
The company, a unit of Delhaize America, the U.S. division of the Belgian retailer Delhaize Group, plans to boost its capital expenditures by 50% this year to make changes at existing stores. Plans call for remodeling or opening 20 new stores on the Gulf Coast in 2004. The reorganization may also eventually include a name change, according to the Kash n’ Karry spokeswoman.
Kash n’ Karry, the third largest chain in Florida behind Publix and Albertsons, and second to Publix in the Tampa Bay area, will be left with 103 stores.
Supermarket Sales Up 3.4% In 2003
After posting a slight 2.0% increase in sales during November, the nation’s grocery stores, consisting mainly of supermarkets, saw sales rise 4.0% over a year earlier during December, to $40.6 billion. Overall, food and beverage stores rang up $46.8 billion in sales during the month, bringing overall 2003 sales to $508.6 billion – up 3.6%.
The nation’s grocery stores rang up $457.9 billion for the year, up 3.4% from 2002 and accounting for 87% of the food and beverage store total.
During November, the latest month for which data is available, sales at warehouse clubs and superstores, rose 12.2% from 2002 to $20.6 billion.
Eating & Drinking Place Sales Rose 7.2% Last Year
Sales at the nation’s eating and drinking places continued to post substantial gains over year earlier levels, with December sales rising 8.9% to $31.2 billion. This brought cumulative 2003 sales 7.2% over 2002, to $358.8 billion. Full service restaurant sales accounted for 44.2% of that amount, while limited service (fast-food) made up another 43.1%. Sales at both those sectors were considerably higher than a year earlier, rising 8.8% and 7.2%, respectively.
• Burger King Corp. is joining the low-carbohydrates parade by offering bunless Whopper hamburgers and, soon, salads featuring steak, chicken and shrimp. Bunless sandwiches, which will be available nationwide beginning Jan. 13, will come in plastic salad bowls, with a knife and fork. Dieters will also be able to order Whopper meals that substitute salads for French fries and bottled water for soft drinks.
• Chili’s Grill & Bar is introducing a new menu supplement called “It’s Your Choice,” listing 14 selections created or modified for guests on one of the popular low-carb diets. The menu also includes the current selections of Chili’s popular “Guiltless Grill,” which has provided Chili’s guests with lower-fat alternatives since 1993. The concept of healthier choices is also extending to the Chili’s Kids menu, which has added a grilled chicken platter served with a side of fresh steamed vegetables.
Meanwhile, Chili’s parent company, Brinker International, formed a Nutrition Advisory Council consisting of recognized authorities in health and wellness, culinary arts and food science. The council will consist of several third-party experts, who will join a cross-functional Brinker working group to track evolving trends in nutrition and lend guidance to ongoing culinary development at all Brinker concepts.
• In the U.S., Unilever launched Carb Options - a line of 18 products compatible with low-carbohydrate diets,launched under existing brand names such as Ragu, Wish-Bone, Skippy, Lipton and Lawry’s.
• Pasco Beverage Company introduced a Less-Cal/Less-Carb orange juice cocktail with 45% less calories and carbohydrates than regular orange juice. This introduction will soon be followed by Less-Cal/Less-Carb Apple Juice, Fruit Punch and Lemonade.
• Miller Brewing Company is teaming up with Skyy Spirits L.L.C. for a March launching of Skyy Sport, a low-carbohydrate, citrus flavored malt beverage with 160 calories and 15 grams of carbohydrates per serving.
• As part of Schlotzsky’s High Food IQ initiative, Schlotzsky’s is wrapping and toasting its meats, cheesesand otherdelicious fillings in a new 7g net carb tortilla. Any of Schlotzsky’s dozen-plus sandwiches can be tortilla-wrapped or served on a bed of lettuce as part of customers’ low carb plans.
• Donatos Pizzeria will roll out its “NoDough” low-carb pizza chain-wide on Jan. 20. Donatos developed a pizza base from high-protein, low-carb soy crumbles...pizzamarketplace.com
• Frito-Lay will launch a new line extension of Doritos and Tostitos this spring that has less than half the carbohydratesof its top-selling tortilla chip brands.
• A reduced-carbohydrate product for diet-conscious consumers created by Western Bagel Baking Corporation utilizing FACT Corporation’s Healthy Lifestyle ingredients, calledThe Alternative Bagel, will soon be availableat more than 750 Publix supermarkets.
What Lies Ahead For The Foodservice Industry In 2004?
Ron Paul, president of Chicago, IL-based marketing and management consulting firm Technomic, Inc., outlined five expectations for the foodservice industry in 2004 in a recent issue of Technomic’s Foodservice Digest:
The Impact Of The Obesity Issue Will Continue – A significant portion of sales gains in the steak category can be attributed to the Atkins diet “craze.” For the third quarter, Del Frisco, Lone Star, Capital Grille and Smith & Wollensky all saw increases in same-store sales. Overall, the issue has forced nearly all operators to rethink their menus. Technomic expects these efforts will provide additional incentives for consumers to use foodservice as the solution to their eating needs.
Demand For Quality Will Accelerate – Consumers demand fresh and authentic ingredients and the ability to customize to their liking. In addition, perceptions of quality now extend beyond food to include service, décor and the entire experience.
Concept Proliferations Will Occur – Growth in ethnic concepts beyond Italian, Mexican and Asian is expected. Consumers have already embraced these cuisines and as they look for new foods and flavors, expect regional variations of these favorites, as well as greater visability of foods from other cultures. There is also a renewed movement toward combining ethnic influences, such as Asian and Latin, as a new take on fusion. Multi-ethnic concepts, both Quick Casual and Full Service, will be launched and find acceptance.
Selected Segments Will Struggle – Some segments, such as cafeterias and some traditional midscale players, will continue to be challenged. Meanwhile, some segments in the traditional fast-food categories will need to re-image or upgrade if they are to remain viable.
Consolidation Will Continue At All Levels – An increase in acquisition activity, particularly at the operator and distributor levels, is expected. More public offerings are expected, following the success of IPOs from Red Robin and Buffalo Wild Wings. Economies of scale and a portfolio approach will help drive many of the expected acquisitions.
• Safeway Inc.’s Dominick’s unit plans to close 12 unprofitable stores in the Chicago area. The Midwest chain currently has 113 stores.
• It is “highly likely” that PepsiCo will introduce new dairy-based drinks this year, Beverage Digest reported. Pepsi applied for three trademarks for dairy-based beverages: Smooth Moos, Milkquakes and Milk Chillers. All three trademark applications were filed Dec. 2, 2003…The Atlanta Journal-Constitution (Jan. 11)
• PepsiCo will raise its concentrate prices by 0.5% as of Feb. 1. Coca-Cola is reportedly increasing its concentrate prices by approximately 2% in North America…The Atlanta Journal-Constitution (Jan. 11)
• Harris Teeter, Matthews, NC,signed a lease to open its first store in the Washington, DC market. Market sources say Harris Teeter, a unit of Ruddick Corp., plans at least six, and perhaps as many as 30, stores in the region…MSNBC.com (Jan. 12)
• United Natural Foods, Inc. signed a five-year primary distribution agreement with Wild Oats Markets, Inc. A three-month transition period from Wild Oats’ current primary distributor is expected, with the company assuming primary distribution to Wild Oats’ 102 natural foods stores by Apr. 1, 2004.
Meanwhile, Wild Oats signed a multiyear contract to install the Catalina Marketing Network...DMnews
• Wal-Mart Stores Inc. chief executive Lee Scott said that India and Russia were ripe for retail expansion, but China had the potential to rival the U.S. in growth opportunities. Wal-Mart owns only a few dozen stores in China, and Scott said it was "difficult" to open stores there. Meanwhile, the company's biggest international failure - its money-losing German operation - is slowly but surely getting better…Forbes.com (Jan. 11)
Meanwhile, Wal-Mart will open nearly 160 new convenience stores in its Supercenter parking lots in 2004 under a program at Murphy USA, its El Dorado, AR-based fuel partner...Arkansas News Bureau
• Farmer Jack isbringing Food Basics to theDetroit region. Ten of the 13 Farmer Jack Food Markets, slated to close in mid-February, in southeast Michigan will be transformed into deep discount Food Basics stores by early April.
• After the board of Ocean Spray Cranberries Inc. held meetings with its 900-plus growers, the outright sale of theOcean Spray brand was off the table, said George Morse, a grower and former board member, according to The Deal.com, reported Vending Market Watch. Morse, the owner of Morse Brothers Cranberries Inc., said the board is instead considering a merger or resale of a minority stake to an investor. A merger could involve a licensing arrangement, which would give the growers licensing fees and allow them to still control Ocean Spray, he added.
• Two of the nation’s leading coupon providers, Valpak and SmartSource Interactive Group, announced apartnership to increase distribution of online grocery coupons. Valpak’s website, Valpak.com, will increase its grocery content tenfold by teaming with SmartSource, a provider of online grocery content and a division of News America Marketing Inc…DMnews.com (Jan. 14)
• The first Bistro Gourmet McDonald's opened in the Mid-Atlantic in Marlton, PA. Similar stores are planned in Berwyn, PA, Cape May Court House, NJ and Glasgow, DE. McDonald's has 10 Bistro Gourmet outlets in Florida, one in New Orleans and another in San Diego...The Philadelphia Inquirer
• Keva Juice franchises now total 26 in seven states and there are plans to open another 30 stores in 2004. Several corporate stores are located in Albuquerque, with franchises operating in Santa Fe and Las Cruces, NM. Locations have been staked in Reno, NV; Phoenix; Tucson, AZ; and El Paso, TX… New Mexico Business Weekly (Jan. 9)
• Eggplant contains high levels of an antioxidant compound that may protect the body’s cellsagainst oxidative damage, according to studies by two Agricultural Research Service scientists. They found that chlorogenic acid, one of the most powerful antioxidants produced in plant tissues, was the predominant phenolic compound in nearly all the samples analyzed.
• Eating cereal fortified with vitamin E may be a better way of boosting intake of the vitamin than through supplementing the diet with capsules, suggests a new study by researchers from Oregon State University. The study is published in this month’s American Journal of Clinical Nutrition, reported NUTRAindgredients.com.
• Golden Peanut Company plans to build an $8 million plant to supply the food industry with peanut flour, aromatic peanut oil and peanut extract. The 70,000-sq. ft. plant is expected to open in the fall, in the southwest Georgia town of Blakely, reported The Atlanta-Journal Constitution.
• SureBeam Corporation will file for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code. SureBeam has been unable to reach a restructuring agreement with its senior secured lender. SureBeam will cease to operate its business by the end of day, Jan. 16.
• Bake-Line Group, LLC and certain of its affiliates including Atlantic Baking Group filed voluntary petitions under Chapter 7 of the U.S. Bankruptcy Code in the United States Bankruptcy Court in Wilmington, DE. The company is ceasing operations at all of its manufacturing plants and corporate headquarters.
• Irish-based food and dairy company Glanbia started on the construction of a new $190 million cheese and wheyproducts facility in Clovis, NM, which is being built through a joint venture. Glanbia recently formed Southwest Cheese Company, a joint venture between Glanbia, Dairy Farmers of America (DFA), Select Milk Producers and the other dairy cooperative members of the Greater Southwest Agency. The venture is 50% owned by Glanbia with the balance primarily owned by DFA and Select…Just-food.com (Jan. 13)
Alpine Confections Inc., Alpine, UT,reached a preliminary agreement to buy specific assets associated with the Fannie May and Fanny Farmer candy brands from Archibald Candy Corp. Archibald spokesman Ron Bottrell said that Alpine will not acquire its plant in Chicago, IL. He said all of Archibald Candy’s retail stores will close before the sale to Alpine is completed, but that Alpine may at some point open stores under the Fannie May or Fanny Farmer name…The Salt Lake Tribune (Jan. 15)
France’s Groupe Danone SA lifted its stake in dairy company Stonyfield Farm, Londonderry, NH,to 80% after having snapped up 40% of the U.S. organic yogurt market leader two years ago. The remaining 20% is held by a combination of founding shareholders in the 21-year-old firm and employees, with Stonyfield chairman Gary Hirshberg owning the biggest chunk.
Mexican Restaurants, Inc., Houston, TX, completed its purchase of 13 restaurants and related assets from its Beaumont, TX-based frachisee, Thomas Harken, and Mr. Harken’s operating partner, Victor Gonzalez, for about $13.75 million (see FOOD INSTITUTE REPORT, Oct. 6, page 8)
Fort Worth, TX-based investment firm Texas Pacific Group plans to sell 12 million shares of Del Monte Foods Co., cutting its stake in the San Francisco, CA-based firm to 5.9% from 11.6%. Del Monte said that it will not receive any proceeds from the share sale, which is expected to close on or about Jan. 20, and that it will not affect the number of its shares outstanding
Denver, CO-based Vistar Corp., a distributor of food products and related supplies to the Italian and pizza market segments, acquired the assets of Original Brand Foods of Atlanta, Inc., Atlanta, GA, a distributor in food products primarily to pizzerias, deli and Italian restaurants in the Atlanta region.