- Credit Suisse is predicting that U.S. packaged food companies' retail sales will grow by an average of 15% to 30% from March to May 2020, according to a report sent to Food Dive.
- The forecast is based on the "massive shift in eating patterns" to more at-home consumption because of quarantine measures put in place during the coronavirus pandemic, Credit Suisse said. The firm said an industry contact told them food at home likely represents 80% of spending on food today compared to 50% typically.
- Credit Suisse said Campbell Soup, Conagra Brands and J.M. Smucker could benefit the most from the shift.
As the pandemic quickly spreads across the U.S. and consumers stockpile items for a prolonged quarantine, food companies are boosting output and adding workers to keep shelves stocked.
Throughout March, Nielsen found huge sales growth for pantry staples and other food products. Food companies such as Smucker, Hormel Foods, Tyson Foods and Kraft Heinz have ramped up production by as much as 40% to try to keep up with the increased demand. Many companies also are adding extra hours and adjusting their manufacturing processes to keep up. This report indicates the changes will likely pay off.
Campbell's Soup, Conagra and Smucker are all expected to see sales increases. The research firm revised its earnings per share estimates to increase by 11%, 7% and 5%, respectively, because of the mix of portfolios and geographic reach of these companies.
Although Credit Suisse expressed uncertainty on whether these gains would translate into 2021, it is still expected to provide a nice boost in the near term. Credit Suisse said Conagra is ideally positioned for the future because it has a strong management team. The research firm also foresees a "long tail of demand" for its frozen vegetable brand Birds Eye. It said that Hershey is positioned to continue experiencing sales growth through the pandemic, even though it closed its Chocolate World Stores.
Some food companies with at-home food consumption are expected to face challenges in the coming months though. Mondelez International and Kellogg might experience as much as a 6% decrease in their earnings-per-share because of currency headwinds and higher pension expenses, according to Credit Suisse. The firm also said Kraft Heinz may benefit from the consumer shift, but faces challenges in other areas such as private label competition — leading Credit Suisse to be less optimistic about its growth compared to other CPG companies.
This isn't the first analyst report to predict growth for these brands. In early March, Berstein analysts were already saying that consumption of shelf-stable and frozen packaged foods will temporarily increase as consumers prepare for quarantines.
Bernstein said this boost would benefit many of the same companies, including Campbell Soup, Conagra in frozen, General Mills and Kellogg in cereal, Mondelez and Kellogg in crackers, Smucker in peanut butter, jams and jellies, and Kraft Heinz in macaroni and cheese. But at the time, the analysts did not expect "any material impact on U.S. food companies' sales on a full-year basis."
Credit Suisse, meanwhile, is now predicting a longer sales boost lasting until at least May. That much growth could help boost sales for the year, but Credit Suisse said it still is unclear if this projected bump will translate into long-term benefits for big food companies. As uncertainty looms over how long the pandemic will last and if consumer preferences for store-bought foods will continue after the pandemic, Credit Suisse said the firm and the market are "struggling to figure out whether big food companies will capture a longer-term benefit from this environment or not."
Even food companies themselves are uncertain about the long-term impacts. Nestlé, the world's biggest food company, has seen strong demand so far during the coronavirus outbreak for its coffee and creamers, frozen items, baking ingredients and its home delivery business, including its Nespresso coffee platform and ReadyRefresh water and beverage service.
"In total, we've seen an increase, but I think we need to wait and see how much of this is pantry running, how much of this will continue in the short term," Steve Presley, the CEO of Nestlé USA, told Food Dive. "We don't really know until you get more time under your belt with this crisis."
There is potential for Big Food to use this growth to leverage their scale, reverse their market share losses to start-up brands and re-engage consumers with their brands, Credit Suisse said. If CPG companies are able to capitalize on this sales growth to help boost their legacy brands in the long term, then its sales could continue on a positive track for the foreseeable future.