Locked-down consumers turn back to processed foods

Coronavirus lockdowns have given a boost to the global sales of processed food brands that consumers had previously been avoiding in favour of fresher and healthier alternatives, according to figures on Thursday from two leading consumer goods groups.

Kraft Heinz disclosed its biggest rise in quarterly sales since the mega-deal that created it, while Kellogg said demand for its cereals leapt 40 per cent in the US in March as shoppers turned to old cupboard staples.

Panic buying of long-life products from cornflakes and snack bars to packaged meats and pasta sauce helped sales rise 8 per cent on an organic basis in the first quarter at Kellogg and 6.2 per cent at Kraft Heinz.

But executives said stockpiling was only partly responsible for the pick-up and that there was evidence that shoppers were eating what they had bought.

Steve Cahillane, chief executive of Kellogg, said customers were “rediscovering” the Michigan-based company’s cereals, which include Special K, Rice Krispies and All-Bran.

Kellogg, which also makes Cheez-It biscuits, said consumption of its crackers — as well as its cereals — had jumped about 40 per cent in the US in March. Demand had remained at “elevated levels” in April.

Both companies said sales had risen in all their major regions, with
sharp increases in several countries from the UK to Australia. Kellogg
added that cereal demand had risen across age groups and income
levels, and among households both with and without children.

The packaged food industry, conscious the surge is unlikely to last much longer, is trying to use the crisis as an opportunity to win back customers who have defected to retailers’ in-house brands as well as to smaller upstarts.

“In times of uncertainty, consumers turn to brands that they trust,” said Miguel Patricio, Kraft Heinz’s chief executive. “They want to experiment less with new brands, and that’s what we’re seeing right now.”

Kraft Heinz, whose products include the eponymous ketchup and macaroni cheese, has epitomised the challenges facing legacy food companies. Its deteriorating finances were highlighted this year when Standard & Poor’s and Fitch downgraded its credit rating to junk status.

The quarterly sales increase the group reported on Thursday was the biggest since it was formed in 2015 by the combination of Kraft and Heinz, a deal engineered by Warren Buffett and the investment firm 3G.

Carlos Abrams-Rivera, who runs the company’s US business, cautioned that growth was unlikely to be so strong in the second half of the year. “It is reasonable to expect initial pantry loading to run off,” he said.

Kraft Heinz generates about 15 per cent of sales from restaurants and other out-of-the-home locations, which have been hard hit in the pandemic. The company said the impact of the outbreak on its full-year results was uncertain.

Kellogg similarly said there had been a “sharp and sudden” decline in sales to catering and vending businesses and convenience stores.

Overall, Kellogg — whose brands also include Pop-Tarts, Froot Loops and Apple Jacks — produced quarterly net income of $347m, up from $282m last year, on sales of $3.4bn. Shares were up 3 per cent by midday in New York.

Kraft Heinz generated sales of $6.2bn in the quarter, although its net income fell from $405m in the year-ago period to $381m in part because the figures last time were supported by a disposal.
Shares in the Chicago-based group, which have rallied more than 50 per cent since lows hit in March, dipped 0.7 per cent.

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