Dive Brief:
- Operating profits for the U.S. packaged foods sector are expected to rise by 4% to 5% in 2016, and sales will also increase 1% to 2%, mimicking population growth, according to Moody’s Investors Service's 2016 Outlook report.
- While short-term cost reduction is predicted to lead to higher profit gains at first for many manufacturers, Moody's expects that growth to level off and remain moderate thereafter.
- The economy may be improving, but stronger consumer financial health does not necessarily mean packaged food spending will increase, according to the report.
Dive Insight:
One finding in the report is that mergers and acquisitions will likely decrease in 2016, which would be a significant change from the M&A frenzy that was 2015: Kraft and Heinz, Snyder's-Lance and Diamond Foods, Hormel and Applegate, Post and MOM Brands, Coca-Cola and Monster (minority stake), and the list goes on. This has been especially true for larger companies purchasing smaller companies in the natural and organic space as smaller companies begin to snag a larger market share.
This prediction aside, the report points to Pinnacle Foods, Post Holdings, and Kellogg Co. as being potentially acquisitive companies in the coming year. The report also expects Mondelez to possibly want to sell off its non-snack European operations.
The report identified another trend for 2016: renovation vs. innovation. This has been seen across many major manufacturers this past year as more brands retool their product recipes to remove artificial ingredients, such as Hershey's revamped Kisses and milk chocolate bars, and trans fats and to simplify their ingredients lists overall. R&D for new product releases will always be a part of manufacturers' strategies, but those launches may slow next year in favor of tweaking existing products, according to the report.
The report also highlighted three companies as being well-positioned for a strong performance in 2016: General Mills for its diverse product portfolio and practiced restraint to adopt only proven industry trends; Campbell Soup for its cost-cutting efforts and renewed focus on ingredients to support a waning canned soup category; and Mondelez for its large global scale and heightened focus on its snack business, a fast-growing category in food today.
Four companies named as going through major transformations in 2016 include ConAgra, which recently sold off its private label brands business; TreeHouse Foods, which bought ConAgra's private label brands to become the largest private brands company in the U.S.; Kraft Heinz for its heavy cost-cutting and zero-based budgeting initiatives post-merger; and B&G Foods following its aquisition of Green Giant from General Mills.