• by Karlene Lukovitz  @KLmarketdaily, September 30, 2008

Campbell Soup's distinction as the only company in the entire S&P 500 to show gains on the worst single day in Wall Street history isn't particularly surprising--nor is the fact that many CPGs have intensified their focus on marketing food staple brands as value propositions, according to industry analysts.

Rather, now that the economy is at the going-to-the-mattresses stage, trends underway for some time are being accentuated, and food manufacturers that have the flexibility to do so are kicking economy-driven opportunities into high gear.

The trend toward consumers shifting dollars away from out-of-home eating and toward what retailers term "center store," or food staples, began last year--and even before the current crisis level, the worsening economy was accelerating the trend, points out Herb Walter, Partner, PricewaterhouseCoopers (PwC) Retail and Consumer Advisory Services.

Last year, despite dramatic jumps in raw materials/input costs, the food sector--along with the other core CPGs, beverages and household products--outperformed both the S&P 500 and the Dow Jones Industrial Average, according to "The Food, Beverage and Consumer Products Industry" analysis released by PwC and the Grocery Manufacturers Association in June. Furthermore, this year, these CPGs are performing even better against those indices.

While the food sector saw shareholder returns decline slightly (2.2%), sales grew 8.2% (versus 5.1% in '06), and profitability jumped 30.2% (versus 28.1% in '06). Large companies ($4 billion plus) performed best of all, with net sales growth rising from 6.4% to 10.1% and EBIT profitability jumping to 15.1%, versus 4.1% in '06. But medium- and small-size food companies also saw net sales increases (9.9% and 13.1%, respectively), and small gains in gross margins.

"Food is always a safe [financial] haven in a bad economy," sums up Christopher Shanahan, research analyst, chemicals, materials and food for marketing research firm Frost & Sullivan. "People are buying more middle-store groceries as they shift away from restaurant meals."

While the food sector's growth has been driven primarily by price increases implemented to offset higher input costs--and private-label brands are posing increasing challenges--branded food manufacturers with the "agility" to adjust their product offering, merchandising and marketing strategies "are doing very well," confirms PwC's Walter.

Companies with a full range of price offerings within their core categories, the ability to shift resources and strategic focus, and the management leadership necessary are capitalizing on several opportunities, he says.

These include changing product mix to focus on products that are not as heavily impacted by input/commodities price increases and therefore less affected by consumer spending shifts, as well as emphasizing canned and other easier-to-prepare products addressing consumers' need to cook more at home.

But there are also opportunities in offering the full "suite" of a company's brands--those at premium, mid-level and lower price points--and more clearly differentiating these through merchandising and marketing, Walter stresses.

"It's not so much that consumers' total food expenditures are changing, as that the mix is changing," he says. For example, "People might be willing to spend on a premium level in certain categories, or buy premium items for certain family or guest occasions on weekends--but might trade down in other categories, or for meals eaten by the family on the run during the week."

Indeed, while Campbell's is launching aggressive campaigns promoting the low-cost nutrition of its condensed soups (one campaign in conjunction with Kraft Singles cheese), it is not likely to shirk brands that have been driving its growth, such as its Select soups, notes Shanahan. (Campbell's condensed soups were flat in fiscal '08.)

While sales of specialty foods such as organics have slowed as a result of the economy, according to Shanahan, Walter says there continue to be significant opportunities in organics, sustainable and health/wellness brands as part of the "suite" mix, merchandising and marketing strategy.

"It complicates manufacturers' business models, but it's this ability to shift in response to consumers' needs during this economy that represents real opportunities for them," Walter says.