Snacks: A Growing Opportunity

Food makers aim to bring big profits in small packages

Published in CSP Daily News

NEW YORK -- Food companies are reaching for the snack bowl. Facing stagnant growth in their base grocery business, packaged-food companies are increasingly turning to snacks as an avenue for growth, according to a Dow Jones report.

The companies hope to capitalize on American consumers who continue to snack more throughout the day, and on trends in developing markets, such as more women entering the workplace and the spread of modern retail formats.

Snacking "is a long-term trend and the future of eating," said Gary Stibel, chief executive of the New England Consulting Group, which has advised such clients as PepsiCo's Frito-Lay, the largest salty-snack player in the world by sales. "You and I will continue to snack more and sit down to a meal less."

Analysts and companies project that there's enough growth to go around in the $560-billion global snacks market, as measured by Euromonitor Inc., for most food companies to take a bite. So even as such smaller snack players as ConAgra Foods Inc. or General Mills Inc. try to get bigger in snacking, such larger players as PepsiCo Inc. and Kraft Foods Inc. need not worry about losing any market share, according to the report.

Another incentive is the fact that snack prices can be raised more easily than those of some grocery staples, according to analysts. Snacks generally start at lower prices and offer the added value of convenience, for which shoppers are willing to pay more. They're also generally bought on a whim, such as when drivers fill up their tank at gas stations or shoppers pick up a prescription at a drug store, making them an afterthought that satisfies an urge.

The companies are attacking snacks in different ways. Frito-Lay is focusing this year on adding more premium- and lower-priced chips to its portfolio to capitalize on more growth in those price ranges. ConAgra, meanwhile, is introducing already-popped Orville Reddenbacher's popcorn in ready-to-eat bags. ConAgra is also unveiling a frozen Greek yogurt product in June that it will market as a snack rather than a dessert.

Kellogg Co. is taking the acquisition route with its pending $2.7-billion deal for Pringles. General Mills also made a small deal, recently buying Food Should Taste Good Inc., which makes tortilla chips in such flavors as sweet potato and chocolate, to take advantage of the growth in snacks and natural products.

Kraft, perhaps, is embracing the divergent performances of snack and grocery foods most wholeheartedly with plans to separate its North American grocery business from its snacks division, which will include Oreo cookies and Cadbury candy.