Major food manufacturers, including JM Smucker, Mondelez International, Hershey, and PepsiCo, have faced declines in stock performance over the past year, raising concerns about the long-term viability of their business models.
Inflation remains a key challenge, with rising prices straining consumer budgets and leading to a sharp drop in consumer confidence, according to data from the Conference Board.
Meanwhile, Wall Street analysts are increasingly wary of trade wars and their potential impact on global supply chains.
One of the biggest concerns for packaged food makers is the rise of weight-loss drugs such as GLP-1 agonists, according to a report by Barron’s.
As more consumers turn to these medications, the traditional “snackification” of eating habits may be under threat.
Yet, companies such as McCormick have managed to buck the trend, with the spice maker’s stock up 20% over the past year.
“We do not compete for calories; we flavour them,” McCormick’s CEO noted in a recent earnings report, highlighting the strength of seasonings, condiments, and hot sauces.
Trends and buzzwords: what analysts took away from CAGNY
Analysts at JPM observed that the snack sector has been in a “deep slump for over a year.”
General Mills, for example, barely mentioned its snack brands, while Conagra was more vocal about the category at this year’s Consumer Analysts Group of New York (CAGNY) held in Florida.
The company noted that snacking occasions are increasing, particularly among children and teenagers, but that consumer preferences are shifting toward meat snacks and nuts rather than traditional chips and cookies.
Innovation in an era of changing consumer needs
According to the report, innovation remains a crucial growth driver, though it took a backseat during the pandemic due to supply chain disruptions.
Now, companies are reintroducing new products, some of which stretch conventional food categories.
JM Smucker, for instance, unveiled Milk-Bone Peanut Buttery Bites, a dog treat made with real Jif peanut butter, describing it as the “first dog treat featuring a human food brand.”
Meanwhile, Conagra is adapting to the rise of weight-loss drugs by labeling certain Healthy Choice meals as “GLP-1 friendly,” catering to consumers seeking portion-controlled options.
However, not all innovations inspire confidence—its new frozen Vlasic Big Crunch! Crispy Fried Pickles have been met with skepticism.
The debate over “peak protein” and food branding
Analysts at Bank of America have raised concerns about “peak protein,” referring not just to market saturation but also the increasingly bold marketing of protein content on food packaging.
General Mills, for example, has emphasized high protein content on its Progresso soup cans and Strawberry Cheerios Protein boxes, often overshadowing the actual brand names.
WK Kellogg, following its 2023 split from Kellanova, is also seeking to diversify beyond cereal, discussing potential acquisitions to fuel growth.
However, this raises questions about whether the company is staying true to its core identity, as its 2023 investor presentation emphasized that “everything we do will be in service of cereal.”
Can Big Food regain its footing? Analysts weigh in
The challenges facing packaged food companies have led to increased scrutiny of their financial performance.
Wall Street has traditionally viewed consumer staples as a stable investment, offering consistent revenue growth and dividends.
However, analysts warn that companies such as General Mills and Kraft Heinz may struggle to meet growth expectations in the near term.
Bank of America has warned that General Mills could underperform its “algorithmic” growth targets through 2025, while Kraft Heinz may not see meaningful earnings growth until 2027.
Hershey, grappling with soaring cocoa prices, may only return to “on-algorithm” growth by next year.
Oppenheimer has summed up the industry’s outlook by citing inflation, pricing constraints, obesity drugs, tariff risks, and competition from private-label brands as significant hurdles.
“A difficult backdrop is likely to continue,” it says.
Investors should take note as speculation grows about a US market shift toward value stocks, including consumer staples.
The challenge is that the cheaper options lack growth potential, while those with growth prospects come at a premium.
General Mills, trading at 14 times earnings, is expected to see a slight earnings decline for its fiscal year ending in May, while McCormick, with mid-single-digit growth, commands a steep 25 times earnings.
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