LONDON: Clear "winners and losers" are starting to emerge in the European packaged food sector, with successful companies having taken advantage of the opportunities presented by the financial crisis, a study has argued.
Fitch Ratings suggested that packaged food is often seen as being "resilient" in times of economic stress, but rising commodity costs and retailer power, coupled with currency fluctuations, are currently taking their toll.
Malcolm O'Connell, of Fitch's European leveraged finance team, said: "Well invested brands and geographically diverse packaged food producers are better placed to deal with the present challenging consumer environment."
Among the companies fitting this description are Nestlé, given an AA+ and "stable" rating, and Unilever, ranked as A+ and "stable". The strong presence of these firms in emerging markets was a key reason for this.
Fitch also found that the brands which maintained a "steady pace" of advertising and innovation in the downturn were generally the ones enjoying organic growth now, especially among the big players.
By contrast, the firms that had slashed marketing and R&D expenditure, and/or ramped up their outlay on promotions instead, were finding conditions more difficult, as is the case for Premier Foods.
Indeed, Premier Food, rated B+ and "negative", also suffered from primarily being exposed to just one, challenging market, in the form of the UK.
By contrast, Birds Eye Iglo, which is of a similar size, was seen as "B+" and "stable", largely due to its exposure to markets where retailers are less powerful, like Italy, or where price wars are not as pronounced, like Germany.
Another observation made by the company was that leading brands in each sector were generally the only offerings able to maintain volume sales and a "degree of pricing power", even if they were only number one in a niche part of a category.
This was largely because of the rise of private label alternatives, which have gained traction among retailers and hold out the promise of increased revenues for retailers.
"In the current environment, the condition of 'must-stock' food brands for many producers is being increasingly challenged by retailers," Pablo Mazzini, of Fitch's European corporates team, said. "All brands must justify their shelf space to retailers."
Fitch also stated that leading brands were the most likely to be able to main "adequate" investment, as shown by the fact 30% of Unilever's sales in 2011 came from goods launched in the last two years.
Data sourced from Reuters; additional content by Warc staff