The packaged food industry in the U.S. is experiencing a solid boom, mainly because of the lack of time people have due to a busy lifestyle and rising commodity prices. The companies belonging to this industry are making use of this opportunity to increase their market share. But in a market with stiff competition, how a firm differentiates itself from its peers is all that counts.
Different firms use different strategies to fuel their growth. J&J Snack Foods (JJSF, Financial) has been growing its market share through acquisitions. It bolstered its churros business by acquiring California Churros in 2010. And this proved to be a good great deal for the firm because, since then it experienced solid increase in its Churros sales. In addition, J&J acquired Kim & Scott's Gourmet Pretzels, which has made its mark in the pretzels market as it is made of natural ingredients. This was a strategic move by J&J as these pretzels attracted new generation of consumers who are health conscious and enticed by natural-ingredients eatables.
Expansion moves
To further expand its Pretzels market, it also acquired New York Pretzel in October. This strengthened its first quarter results as its soft pretzels sales increase by an additional 2% to clock 21% year-over-year growth. And the management expects that this would be one of the key growth drivers in the days ahead.
Backed by these acquisitions J&J continued its strong momentum from last year. In fact, it topped the analyst’s expectations on revenue and earnings and achieved 6% year-over-year growth in revenue and 22% year-over-year record growth in net earnings. In the last five years J&J has outperformed the market and its peers. And going forward the company would look for more acquisitions, which is its key factor of growth.
Competition's moves
ConAgra Foods (CAG, Financial) is another giant in this industry, whose strength lies in innovating and adding new products. ConAgra’s main strategy is to innovate its own product line, which made it a leader of its pack in terms of five-year revenue growth. Apart from innovation, ConAgra’s top line has also been fueled by acquisitions. The company acquired Ralcorp Holdings making it the largest private label food manufacturer in the U.S.
With the acquisition of Ralcorp ConAgra is confident of its future prospects. The management expects this deal to add $300 million in synergy in fiscal 2017. Moreover this acquisition would add $0.25 per share to earnings in fiscal 2014.
Private brands in this industry have performed quite well so far. Nielsen data indicates around 46% of consumers shop more for private label brands when food prices rise. This is mainly because retailers push these brands more as they offer 10% to 15% higher margin than national brands such as Kellogg.
Kellogg is struggling
As a result, Kellogg has been struggling due to declining sales of its cereals. But management is determined to bring the company back on track by innovating its existing product line. The company is trying to woo new generation health conscious consumers with its new line of products. In this direction Kellogg has various new products under its sleeve such as the new Special K Chocolate Almond, the Krave cereal, Touch of Fruit Mini-Wheats, Bear Naked granola and many more. Kellogg’s revenue for the quarter declined 1.7% from a year ago period. And going forward it expects 1% organic growth in 2014.
Conclusion
J&J Snack Foods is seeing solid growth in its revenue and earnings on account of its strategic acquisitions. Two of its acquisitions were mainly focused on churros and pretzels, which fueled its growth considerably. Similarly, ConAgra also has also kept its growth momentum with the acquisition of Ralcorp, which proved to be a good deal for the company. However, Kellogg is struggling with its declining sales and hopes for a turnaround. Therefore, investors should think of buying J&J Snack Foods and ConAgra.
