One could be forgiven for thinking that brands are surviving the recession with the Premier Foods announcement of their latest six months’ results. Their overall sales were up by 3.5%, but within this sales of Branston Pickle were up by 41%; Loyd Grossman Sauces by 35%; Hovis Bread by 17%; and Hartley’s Jams by 12%. These results prompted Premier to claim that shoppers are turning away from supermarket private label products towards branded products.
At a cost.
Premier reported a loss of £30 million compared to £2 million profit previously. Admittedly some of this loss is made up of one-off costs – pension charges, currency movements and the acquisition of RHM and Campbell’s UK business – but buried within this are the increased costs needed to drive brand growth. Promotions expenses, for example, have increased by 10% – a high price to pay to make the brands competitive.
Other company reporting suggests that Premier’s brand growth is the exception rather than the rule. Procter & Gamble reported a net sales decline of 11% with a profit decline of 18% for its fourth quarter, with premium brands such as Olay and Braun being particularly badly hit as consumers turned to cheaper alternatives. Unilever managed to achieve a 2% volume increase for what was their second quarter but at a huge cost – profits down by 31% – prompting one analyst to comment: “Volume performance has been bought at a high cost to margins.” The Unilever CEO said that “The consumer is making more value choices and I don’t think that’s going to change that easily.”
Despite its sales growth, even the CEO of Premier Foods had to admit: “We are not seeing anything that says we are coming out of recession.”