The title of this year’s Grocery Manufacturers Association Executive Conference, taking place this week in Colorado Springs, captures the essence of the challenges and opportunities facing consumer packaged goods companies in today’s environment: “Connecting With Consumers, Providing Responsible Solutions.”
The first half of that title is reflected in the efforts these companies are making to provide solutions for shoppers distressed by the economy, while the second half can be seen to reflect the moves food manufacturers are taking to respond to growing concerns about healthy diets in America.
“Our industry is one that succeeds because it keeps its focus on the consumers,” said Pamela G. Bailey, president and chief executive officer of Washington-based GMA. “Just as we as an industry led the way in understanding the new value consumer and innovating to meet that consumer’s needs, we anticipate that that focus on defining the new consumer will continue to be important.”
Citing a recent PricewaterhouseCoopers report that detailed the 2009 financial performance and strategies of consumer goods makers, Bailey noted that CPG companies are looking for growth in emerging markets globally, as well as domestically through innovation.
“Innovation and understanding how to think in new ways about promotion, targeting new demographic groups and reaching customers in different ways are going to continue to be important,” she said.
“We as an industry can benefit — as every industry will — when consumers can increase their spending in a more stable economy,” she added. “But in the meantime, we tend to do better than other industries during a recession, but we have made the adjustments and put the processes in place to take advantage of full recovery when it’s here.”
The PricewaterhouseCoopers study found that while top-line revenues declined in 2009, companies tackled cost-cutting in ways that helped prop up their bottom lines. Median sales growth declined by about 10 percentage points among CPG companies in the study, but earnings before interest and taxes (EBIT) and other measures of returns saw gains in 2009.
“In the current recession’s early days, initial cost-cutting measures plucked off the most obvious targets,” the report stated. “[Chief financial officers] mandated spending freezes, cut capital budgets and pressured their suppliers to reduce rates. Now companies are probing deeper to find what other costs they can take out.”
One of the industry segments that has benefited from all this cost-cutting has been the sales agencies that have picked up outsourced service business from suppliers.
With the economic slowdown also came unprecedented growth in private label on the retail shelf — unit penetration reached a record high of 22.8% in 2009 before growth leveled off this year. While many GMA member companies themselves produce private-label products, the expansion of store brands has presented challenges for some branded manufacturers.
Leading companies, however, have been able to weather the increase in private-label penetration.
“I think our companies’ results speak for themselves,” said Bailey. “A year ago, a lot of people thought private label was going to continue to grow, and now I think we’ve seen a moderation of that, and the earlier forecasts of continued acceleration are not going to develop. There are still a number of categories that we know are really pretty much immune to private label.”
Self-Regulation
The “providing responsible solutions” part of the GMA conference tag line is a reference to another challenge CPG companies have faced — the growing public concern over obesity in America and over food ingredients viewed as unhealthy. GMA and its member companies are seeking to be proactive on such issues by committing to voluntary self-regulation.
“When we look at the first eight months of this year, it has been an incredibly busy and productive year,” Bailey explained. “Obesity is a good example of how we’ve been able to work with our companies across the board on not only supporting them in their work in developing innovative products, but working with Congress and the administration in developing good public policy solutions, and at the same time demonstrate that this is an industry that is responsible and committed to self-regulation and to continually improving.”
The CPG industry has committed to reformulate thousands of products to reduce sugar, calories and sodium, she noted. In addition, through the GMA’s Healthy Weight Commitment Foundation, the industry has pledged to take 1.5 trillion calories out of the food supply each year between now and 2015.
“The foundation of the Healthy Weight Commitment is the very same as the foundation of First Lady Obama’s initiative, and that is healthy balance — the importance of energy balance by building a healthy diet and being physically active,” Bailey explained. “At the end of the day, parents make the decisions for their children, and we need to give them the products and the information to do that.”
In addition, Bailey pointed out that the industry’s front-of-pack nutrition labeling initiative — also designed to address health and nutrition concerns — is now being tested and could roll out next year, along with a campaign to promote consumer awareness. GMA is working closely with the Food and Drug Administration and Food Marketing Institute on the development of the labeling.
“Again, I think this illustrates the commitment this industry has to responsible solutions,” she said. “With this system we can provide the information we know consumers want in a quick, easy-to-access way. That’s an example of how we not only continually improve our products to meet the dietary needs of Americans, we are committed to giving the information to consumers that they need to build a healthy diet.”
GMA also is working voluntarily on initiatives to reduce sodium, through discussion with its member companies and with FDA about a potential national strategy to help reduce Americans’ consumption of sodium to government recommendations.
“We anticipate that will follow the path of our front-of-pack initiative, which involves continued commitments on the part of companies, information for consumers, and a good, strong, collaborative partnership with FDA.”
Food Safety
GMA also has been supportive of the FDA Food Safety Modernization Act, which Bailey described as “the most important set of reforms in food safety in over 50 years.”
“It is one of the rare pieces of bipartisan legislation that passed the House and has similar bipartisan support in the Senate,” she noted.
Last week, GMA issued a plea for Congress to approve the bill, S. 510, which would seek to strengthen the FDA’s ability to prevent and contain foodborne illness.
“Unfortunately we have run into election-year politics, with competition for floor time for debate in the Senate,” Bailey explained. “We are very hopeful — and we continue to work with the Senate leadership on this — that if they can’t pass it in September before they leave for the elections that they will enact it in the lame duck session.”
GMA has a session scheduled on the bill at the Executive Conference this week, with speakers from both Congress and the FDA. Both GMA and FDA are already looking at how the changes in the bill would be implemented, Bailey noted.
“We are confident our companies are leading the way in food safety and are keeping pace with science, and we need to ensure that all of the industry is similarly up to date on food safety practices,” she said. “We need to give FDA the resources they need to be the tough cop on the beat, so consumers know that both industry and government are doing their part to keep food safe.”
Other legislative issues GMA has been on top of include a bill expanding school breakfast and lunch programs and setting new nutritional guidelines, dubbed the Healthy Hunger Free Kids Act of 2010 (S. 3307).
“We have been active in both the House and the Senate working on expanding school breakfast and lunch,” Bailey said. “So many children get the majority of their nutrition needs every day from school, so we support the new standards that would be part of that bill.
“The lunch line is the front line in the battle against obesity, and in making sure our kids have a nutritious balanced diet, so that legislation needs to be finalized.”
GMA also has been working with other consumer products groups and with the Environmental Protection Agency on legislation addressing chemical ingredients used in products, although Bailey said such legislation will likely be held back until next year.
GMA remains opposed to the various efforts that have cropped up in states around the country to tax sodas and snack foods.
“We think food and beverage taxes are absolutely the wrong way to approach our obesity problem; they certainly would be discriminatory and would disproportionately hit those Americans who are least able to afford the increased cost,” Bailey said. “Time and time again, studies have proven what common sense shows, which is that taxes don’t change buying behavior, they just reduce buying power.”
