Tough Economy Boosts Packaged Food Sales

A look at how packaged-foods manufacturers are faring in this faltering economy:

Campbell Soup’s sales rose 13% in the most recent quarter, a phenomenon CEO Douglas Conant said was aided partly by strapped consumers embracing condensed soup as an inexpensive meal alternative, the Web site reported.

Kellogg Co.’s second-quarter sales climbed 11% to $3.3 billion, a rise CEO David Mackay told analysts was due to "a reduction [by consumers] in out-of-home consumption," the Web site said.

And General Mills, too, saw U.S. sales increase 14% in its most recent quarter, while Kraft Foods reported a second-quarter sales jump of 21% to $11.2 billion.

"The fact that people are eating at home more is certainly a positive," said CEO Irene Rosenfeld.

The average grocery bill has risen 5% from a year ago, according to the Food Marketing Institute, as consumers are increasingly trading eating out for eating in. Cheesecake Factory reported same-store sales were down 4% for the second quarter, and Ruby Tuesday reported same-store sales down 10% at company-run locations, reported.

But there’s a catch: Packaged-foods companies’ sales increases can also be credited to their hiking prices to offset swinging ingredient costs. And that’s taking a toll on profits. Despite its sales gains, General Mills’ first-quarter net income declined 4% due to commodity hedging. Some ingredient prices fell sharply during the quarter.

Tim Hammonds, FMI president, said consumers are eating at home more but are not showing a renewed interest in cooking, which is why a lot of products seeing the biggest bump are the easiest to prepare: cereal, sandwiches, ramen, and macaroni and cheese.

Sales of Maruchan Ramen noodles are up across the board, reported. "It’s because of the economy," said VP-Marketing Rick Kester. "The same thing happened in the [recessions of] the ’70s and ’80s," despite the company’s spending only "a couple of million dollars" on marketing each year.


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