Food, Beverage Makers Mothball Weak Brands

COVID-19 has caused suppliers to streamline their portfolios. 

October 29, 2020

ALEXANDRIA, Va.—For years, food and beverage companies have acquired or created novel products to attract consumers and retailers, but now, many manufacturers want to can the items that aren’t performing well, according to Business Insider.

One of the first to announce such a decision, was Coca-Cola, which will cut about 200 brands, or about half of its portfolio. Cuts include labels such as Tab, a diet soda that hasn't been a big seller in decades. And the soda giant isn't alone. Other manufacturers, including Nestlé and General Mills, plan to eliminate underperforming brands. While some companies say that they were looking at pruning their portfolios before COVID-19 hit, all concede that the pandemic is leading them to reconsider which brands and products are worth producing.

While restaurant sales have taken a dive, currently consumer spending at grocery stores and other retailers is higher than it was pre-pandemic. As companies have shifted production to meet today’s needs, many are removing brands and focusing on products that they think are better-suited to the COVID-19 world, said Nick Johnson, an analyst at Morningstar.

Here are four companies that are reducing their product offerings or exiting entire categories:

Nestlé

In June, Nestlé announced it was considering offloading its water business in North America, but it won’t make a move until 2021. Bottled water is a key category for the Swiss company, but CEO Mark Schneider told analysts that Nestlé is mostly interested in high-end mineral water brands, such as San Pellegrino, and brands that give consumers some benefit other than hydration. By contrast, its North American water business relies heavily on plain water labels such as Deer Park and Arrowhead.

Danone

Earlier this month, the French dairy giant announced a review of its business, a process that CEO Emmanuel Faber indicated would evaluate both brands and individual products. Many of Danone's retail customers are reducing the number of products that they carry, Faber said, adding that niche brands have lost their luster during the pandemic.

Insiders believe Danone could do away with Horizon & Wallaby, which sells organic milk and yogurt, as well as its medical nutrition business, which sells infant formula and packaged foods for recovering hospital patients. Recently, the company announced plans to sell its remaining stake in the Japanese yogurt brand Yakult.

Mondelēz

In July, Mondelēz CEO Dirk Van de Put said that the company will cut 25% of its snack products, a group of brands that collectively represent about 2% of sales. The reductions began as a temporary measure to keep the company's fastest-selling products, such as Oreo cookies, in-stock at retailers, but Van de Put told analysts that many of those products won’t return. Mondelēz hasn’t announced which items will disappear, but reductions will focus on individual products, not entire brands.

General Mills

Right after General Mills announced that it would acquire a majority stake in Yoplait for €810 million in 2011, then-CFO Donal Leo Mulligan told an analyst: "We think the yogurt category has great growth opportunities outside the U.S.”

But those opportunities haven't been as great as General Mills hoped. French financial news source L'Agefi reported last month that General Mills was working with Morgan Stanley to find a buyer for its stake in Yoplait yogurt because sales in the U.S. and France have not met expectations.

Consumers have snapped up more of General Mills' packaged products during the pandemic, but they haven't been as enthusiastic about yogurt. Net sales of products such as Hamburger Helper and Betty Crocker cake mixes rose 31% in the U.S. during the quarter ended Aug. 30, while U.S. yogurt sales increased just 5%.

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