FFOR YEARS, nutritionists have advised Americans to avoid the central aisles of grocery stores and instead fill their carts from the outer shelves. Fresh meat, dairy products, fresh fruits and vegetables often line the walls of supermarkets; cans, boxes and other packaging of less healthy processed foods are stacked in the middle. Some customers have heeded that advice: Sales of canned soup have been lackluster lately, just as those of fresher refrigerated soups have grown. Now the makers of the packaged stuff are making a comeback. This says as much about shifting economic conditions as it does about products on the shelves.
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This month, Conagra, which owns brands such as Orville Redenbacher’s popcorn, Bird’s Eye frozen vegetables and Duncan Hines cake mixes, reported excellent results for its last quarter. Sales and margins increased year on year. The company expects higher profits than previously forecast in the fiscal year through May. A few weeks earlier, General Mills, which sells canned soups, frozen vegetables and breakfast cereals, revealed similar juicy quarterly earnings. McCormick & Company, which sells condiments and sauces, and the JM Smucker Company, best known for jams and peanut butter, are also having a good time. Investors are licking their lips: Conagra’s share price is up 8% over the past 12 months, compared to a 7% decline for the S&P 500 index of major US companies. General Mills’ is up 23%.
For America’s packaged food companies, the past decade has been a cycle of famine and feasting. Lean years before the pandemic ended, as restaurants closed amid covid-19 and people filled their pantries. Government incentive checks ensured that shoppers were good and that the food companies were not nagged by their retail partners to offer discounts. People started eating out again in 2022, putting pressure on volumes even as commodity price shocks from the Russian invasion of Ukraine drove up costs.
As Big Food’s results show, the industry is managing to weather the latest turmoil. First, the pandemic may have changed consumer habits, leading to a sustained increase in the consumption of frozen and packaged meals. Americans are still eating more meals at home than before the first covid-19 lockdowns. According to consultancy EY, almost three out of four consumers do not carefully distinguish between frozen vegetables and fresh vegetables and treat them as the same category. And while inflation is driving shoppers to move away from branded products to retailers’ lower-cost private label offerings when buying things like cosmetics or housewares, they’re still happy to pay a little extra for premium food; In particular, people in their 20s and 30s seem willing to spend a higher proportion of their income on food and are less likely to trade in than their elders.
The food giants also benefit from a diverse range of products and brands, adapting them to changing consumer tastes. Conagra has introduced (Italian readers avert your eyes) “crustless pizzas”—microwaveable boxes of sauce, cheese, and meat—to appeal to the carb phobia. The vegan Power Bowls seem tailor-made for the avocado-loving yoga crowd. General Mills markets cereal as an after-school snack and an alternative to dessert in the evening, rather than just something to eat for breakfast. And while they managed to maintain or even expand their margins by raising prices in line with their costs or more quickly, they could be only too content to take advantage of cheaper inputs without any associated price reductions.
Can the good times last? The biggest question mark hinges on sales volumes, which could be squeezed by those higher prices and a looming economic slowdown that could prompt shoppers to start pinching pennies. If wage growth slows or unemployment rises, people are likely to even cut back on smaller luxuries at some point. If a food company decides to lower prices in an effort to increase volumes at the expense of its competitors, an old-fashioned price war could break out. For now, however, the foodmakers will continue to reap the peace dividend. ■
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