Are Brands Fighting Back?

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.”