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CPG Brands Miss Another Opportunity

09102019_CPG

CPG Brands Miss Another Opportunity

Consumer packaged goods brands have been working to keep up with new world trends for some time now. The introduction of more affordable private label products and the general shift to be fresher and healthier have left the major brands behind. The latest trend to catch companies like Kellogg and General Mills behind has been the resurgence of snack bars.

Research group Mintel reported that snack bar sales in the US grew 3.9 per cent last year, an acceleration on previous years’ growth; however, the underlying division of sales is more telling. According to Nielsen, classic cereal and granola bars have been in decline for years, down 3.7 per cent in the latest year through August. Meanwhile, health and nutrition bars are growing strongly, holding up the group as consumers reach for ‘healthier’ high protein low sugar alternatives.

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CPG brands, late to the table, are beginning to shift their offering to account for the new meaning of healthy. General Mills reported that US retail sales of snack bars dropped 4 per cent in its latest quarter. The company said they are making progress in improving their products, such as a crispy-wafer Nature Valley bar and a low sugar Fiber One bar. Meanwhile, Kellogg CEO Steve Callihane admitted the group needs to “do a better job at innovating and making our foods relevant for today’s beliefs.”

Large companies are also using their size to invest in smaller, more popular brands. However, investments in the current market come at a high cost. Hershey recently purchased One for US$397 million and Simply Good Food bought Quest Nutrition for US$1 billion. Mondelez took a majority stake in Perfect Bar and Kellogg in 2017 bought Rxbar, at the peak of its popularity.

Unfortunately, it is tough to jump into such a competitive market with little room for innovative growth. Rxbar was popularised years ago as the first natural protein bar, made from dates and egg whites. Since Kellogg has taken ownership, the product now “has all kinds of copycats,” according to Rxbar’s chief marketing officer.

Consumer preferences, along with their definition of healthy, are constantly changing. Tragically for these already struggling CPG companies, the latest trend is yet another strategic shift that they were late to act on, leaving them to decide between spending up on hopeful acquisitions or missing the boat entirely.

The Montaka Funds are short shares in Kellogg. This article was prepared 10 October with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Kellogg you should seek financial advice.

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Lachlan is a Research Analyst at MGIM. Lachlan joined MGIM in July 2018 after studying at the University of California, Berkeley where he holds a Bachelor of Arts (Applied Mathematics and Computer Science).

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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