Food Industry

McDonald’s has been named the “most hated brand in Britain,” but that’s not necessarily a bad thing, according to Marketing Magazine, the British title that published a survey of brand-hatred (free, relatively painless registration is required to see it.)

“While most brands would rather be loved than hated, consumer affection does not necessarily result in a clear commercial advantage,” writes the magazine’s Nicola Clark. “Regardless of whether a brand has inspired great love or vehement hatred, it has at least elicited a definite response from consumers, meaning that not only are they aware of its existence but have strong feelings toward it, neither of which is necessarily a bad thing.”

Jill McDonald (yes, that’s her real name), McDonald’s marketing chief for Northern Europe, “admits that McDonald’s is a polarizing brand,” Clark writes. “Despite this, according to the chain, 70 percent of the UK population say they will eat at one of its restaurants at least once over a 12-month period.”

Rory Sutherland, an executive at the advertising firm Ogilvy, says “veiled snobbery” is at the heart of negative views of McDonald’s.

But he “finds a bright spot for it in its particular unpopularity among the over-55s,” Clark writes. Sutherland says good riddance to the dottering old fools. If they’re not there, they’re not “holding up the queue” for the more youthful, and so apparently more worthy, customers.

“One of the great things about McDonald’s,” he added, “is that the Guardian-reading, hand-wringing liberals who hate it so much don’t go there. It’s like the National Rifle Association - you either belong there or you don’t.”

I checked, and from what I can tell, Mr. Sutherland has never worked for any talk-radio outlets or for the Club for Growth, though he apparently is a fan of that group’s advertisements.

He was, however, named the worst-dressed person in British advertising last year.

As an argument for the “as long as they spell your name right” theory of brand awareness, Tesco, the No. 2 most-hated brand, led the list of most-hated supermarkets, but it also led the list of the most loved.

Big changes are afoot at Del Monte. But in response to media reports, Del Monte on Friday confirmed that it is studying “strategic alternatives” for StarKist, though no sale is imminent.

StarKist is a big part of Del Monte’s consumer-foods unit. But skyrocketing tuna costs, as well as ever-rising transportation expenses, are slicing value from the unit. In recent years, Del Monte has increasingly concentrated on its pet-food businesses. In 2006, it bought Milk-Bone and other pet-food brands from Kraft for $580 million.

In a conference call with analysts last January, Chairman and CEO Rick Wolford declined to talk about the possibility of selling StarKist, but he did note that it was “a business model distinct from the rest of our portfolio.”

What makes it distinct is mainly its supply chain. Farming and packing fish is a wholly different – and currently, much more problematic – enterprise than farming and packing fruits and vegetables or making soup.

Still, selling cat food is even more distinct, and Del Monte isn’t thinking about letting that business go, what with its much higher margins and much more stable demand curve.

Meanwhile, Del Monte announced this week that it has hired William Pearce as chief marketing officer, a newly created position. He previously held the same job at Taco Bell. The company said it would centralize all of its marketing functions at its San Francisco headquarters, relocating about 100 positions from its Pittsburgh office.

Everybody needs groceries, but not everybody needs Whole Foods. So when the economy falters, some of that pricey grocery chain’s customers are going to opt for less expensive fare.

That sobering (to Whole Foods) fact was made glaringly clear in the company’s quarterly results, issued late on Tuesday. Marketwatch called it a “reality check” and “an extension of the Starbucks syndrome.”

“Everyone who has ever indulged their inner foodie at Whole Foods knows that when it comes to putting bread on the table, they can do it for far less at Safeway or Kroger stores,” wrote that site’s Jim Jelter.

For CEO John Mackey, this is just another example of the media’s poisoning consumers’ minds by informing them that his stores are expensive. During a conference call with analysts on Wednesday, he grew a bit reflective:

In my 30 years in this business I have never seen an economy quite as weird as this one. So there could be economic factors going on. We definitely know competitors are definitely tougher. There’s a lot of competition and it’s gotten more intense in the last year. That’s a factor. There are possibly media impacts from the media continuing to report … stories about people switching over from Whole Foods and maybe that influences people, I don’t really know.

Despite the media’s best efforts, sales rose from $1.5 billion to $1.9 billion a year ago. And even same-store sales – which don’t count the stores from Whole Foods’ acquisition of the Wild Oats chain and all others not open at least a year — rose by 6.7 percent. But last year, that figure was 12 percent, and in the first four weeks of the quarter, it was 8.9 percent, according to Mackey.

That indicates a swift slowdown in business. Much of the quarter’s loss came from costs associated with the Wild Oats acquisition. Another big chunk came from higher purchasing costs – an affliction shared by all grocers. But unlike Whole Foods, the Safeways and Krogers of the world can rely at least somewhat on the fact that everybody needs to buy food to make up for some of their higher expenses.

Not so Whole Foods. When your nickname is “Whole Paycheck,” it’s hard to convince cash-strapped customers — even many of those of the upper middle class variety – that they need premium organic French cheese. And they know this without needing to see a news account. All they have to do is go shopping.

In January, Chris Dannen predicted on Fast Company magazine’s blog that McDonald’s would me “maimed” by its attempt to take on Starbucks by offering a new line of specialty coffees. The new drinks will have “little more than the potential to alienate customers, confuse its menu and open up a black hole for capital,” he warned.

Now, Crain’s Chicago Business has obtained internal company documents showing that Mr. Dannen may have been right. According to Crain’s, sales “remain tepid” in the two test markets – Michigan and Kansas City — where McDonald’s has been gauging consumer interest before going ahead with plans to introduce the drinks in all of its 14,000 U.S. locations this year.

At an average of 300 sales per store, “the unit sales appear to be well below the number needed to reach McDonald’s goal of adding $125,000 in annual revenue per restaurant, or about $1.5 billion companywide,” Crain’s reported. At a hypothetical $3 per sale, the results indicate that each store would see less than $50,000 per year.

Other specialty drinks such as teas and smoothies are part of the plan, but the coffee drinks being test marketed, which include lattes and cappuccinos, are the heart of McDonald’s strategy.

It may be too early to bag the idea based on the results so far, but it also may be that Mr. Dannen was right when he noted the odd disparity between McDonald’s core identity as a purveyor of fat, sugar and grease and its wish to take on the somewhat effete image of Starbucks. “With hamburgers and fries, you drink cold soda,” he wrote. “So it is written, and so it will stay.”

What explains the success of Buffalo Wild Wings, the 500-unit restaurant chain that recently reported an 18 percent gain in first-quarter profits?

Maybe it’s the fact that the Minneapolis-based company “stays true to wings, beer and sports,” as Kathy Benning, Buffalo Wild Wings’ senior vice president of marketing and brand development, put it in February to Fast Casual, a foodservice magazine.

Benning used the phrase “wings, beer and sports” twice in the short interview, where she also extolled the benefits of “Boneless Thursdays” – when the restaurants serve chicken wings sans bones, which leads me to wonder: How many people simply order a bowl and eat them with a spoon, like cereal? Don’t chicken wings have bones for a reason?

In any case, the secret to BWW’s success seems to be its unapologetic effort to appeal to America’s regular guys (and gals, but mostly guys.) The first restaurant was opened 25 years ago near Ohio State University’s campus. Serving campuses has remained a key strategy ever since, especially when the chain enters a new area.

“College campuses provide the opportunity to establish your brand and restaurant name among a distinctive target audience of young adults that can be seen as influential driving forces,” Benning said.

The company ties itself into local sports scenes with fervor. In a recent conference call with analysts, CEO Sally Smith ticked off a slew of such programs, including sponsorships of fantasy football leagues and local sports teams. It also buys its way onto music festivals and other events that are aimed squarely at middle Americans.

“Trust successes and remain true to your brand through consistent messaging,” Benning told Fast Casual. In other words, keep saying “wings, beer and sports,” and the baseball-capped legions will come.

The tax rebate checks being mailed out by the federal government won’t do much for the restaurant industry, according to a survey by Technomic. The foodservice research outfit found that about 10 percent of consumers plan to use their checks to indulge in a night out at a nice restaurant, but just 3 percent plan to make a habit of dining out. Mostly, consumers plan to put the money in the bank, use it to buy groceries, or pay off credit card debt.

Another researcher, NPD Group, is more hopeful, but it is basing that hope on an earlier rebate during an economic downturn, according to Nation’s Restaurant News. In 2001, NPD says, restaurant traffic increased “markedly,” as Nation’s Restaurant News vaguely put it. Of course, in 2001, food costs weren’t soaring through the roof as they are now, along with most other household expenses.

Just below that article, which topped the Nation’s Restaurant News homepage, was another one reporting that Landry’s Restaurants saw its profits plummet by 93 percent in the first quarter on flat sales.

Also, California Pizza Kitchen reported a 30 percent drop in its first-quarter earnings, thanks to higher food costs. Still, same-store sales eked out a slight gain of 0.4 percent, and total revenues were up by more than 10 percent.

After plowing through news reports after a company reports earnings, it’s often refreshing to take a look at the Motley Fool. While wire services, newspapers and most stock-oriented blogs tend to focus on whether or not a company has “met Wall Street expectations” for the latest quarter, the Fool — a Web site for investors — looks at business fundamentals, management, and all the other factors that should be considered by anyone who is not simply trying to make a quick buck from the attention-deficited whims of Wall Street or the often irrelevant “expectations” of stock analysts.

That the Fool is for “investors” is an important distinction. Traders aren’t investors, and neither are stock analysts. So, for example, while most news accounts of beverage-maker Hansen Natural’s latest earnings report focused on the fact that it didn’t please analysts and sent the stock into a nosedive, the Fool’s latest article on Hansen noted that the company has solid management and sound fundamentals. “Hansen has turned around negative margin and growth trends,” the site noted, “thanks to highly cost-efficient distribution agreements with Anheuser-Busch in the U.S., Cadbury in Latin America, and Pepsi in the Canadian market.”

It’s worth noting that this Fool post came before Hansen released its earnings, which were, by any rational assessment, stellar. Profits soared 43 percent. Hansen’s market share for its Monster energy drinks continued to grow. It was a great quarter.

But you wouldn’t know it was a great quarter if you relied on most mainstream news accounts, which all highlighted the fact that profits fell short of analysts’ expectations by a few pennies per share, and you wouldn’t know it by paying attention to Wall Street traders, who knocked about 20 percent off the value of Hansen’s stock in the two days since it released its results.

Like all food producers, Sara Lee is dealing with soaring costs of basic commodities. Unlike many, however, it has been able to pass those costs on to consumers.

The trouble is, most of its other costs are rising, too. Forbes.com lists them in the first paragraph of its article about the company’s third-quarter earnings report: “labor, distribution, warehousing and advertising.”

In other words, pretty much everything is costing the company more, and that doesn’t bode well. Even though it doubled its profits in the third quarter, the company still failed to beat expectations, and executives said it likely would continue to do so. And much of the profit gain came thanks to the falling dollar.

Sales rose by more than 10 percent at Sara Lee, which makes frozen foods, breads and such products as Jimmy Dean sausages and Ball Park Franks.

An interesting little nugget from the company’s conference call with analysts: As Brenda Barnes, Sara Lee’s CEO, put it, the company is “operating in a virtually unprecedented time” in terms of not only the rising costs if commodity inputs, but also in their volatility.

Wheat, in particular, has seen tremendous ups and downs – mostly ups – in recent months.

There has been a lot of speculation that this will ease in the near future, as speculators withdraw from the commodities market, demand stabilizes, and supplies firm up. Sara Lee apparently disagrees. “The fluctuations we have seen we have never seen before going up as much and down again a couple of days later,” said CFO Theo de Kool. “So we don’t base our price policy on the flavor today but more of a long-term view, and the long-term view is that wheat cost is not going to be materially cheaper than it is today.”

More than two years ago, Barington Capital Group started pressuring Lancaster Colony, an Ohio company that makes an odd amalgam of products including specialty foods, glassware, candles, and automotive accessories, to change its ways. And it has promised to do so — but it has been taking its time.

Meanwhile, Lancaster’s profits continue to shrink. Last week, it reported second-quarter earnings of $16 million, down from $17.8 million a year earlier. Sales were up, though, by 5 percent — and by 12 percent in its foods business. CEO John Gerlach said the cost of sales will likely continue to grow into the next quarter.

Nonfood sales were off by 9 percent. That’s where Barington comes in. The activist hedge fund, which owns about 6 percent of Lancaster, started asking the company in April 2006 to cast off the nonfood businesses, focus on specialty foods, and improve operations. Lancaster’s response, or lack thereof, apparently wasn’t good enough for Barington. By June 2007, it was sending letters to Lancaster complaining that, because Gerlach and his family members owned a controlling share, it was being run not as a public company, but “as a family-owned business,” to the detriment of stockholders. Barington also reiterated its call for Lancaster to get rid of glassware and the rest.

OK, OK, said Lancaster. But a month later, Barington said it was investigating possible “mismanagement” at Lancaster, and demanded access to records. By October, the companies reached an agreement — Lancaster would buy back some stock and appoint an independent, Barington-approved director, and Barington would back off, including on its earlier threat of a proxy fight to gain board seats for itself. And Barington would essentially stay quiet until the company’s 2008 annual shareholders meeting, which will occur in the fall.

That could be an interesting meeting, depending on what happens between now and then. Lancaster said last week that it will complete a strategic review by September. The company has already shed nearly all of its automotive-accessories business, and in a conference call with analysts last week, Gerlach noted that the company is entirely out of manufacturing glassware products, though it is still distributing some. The shareholders meeting will probably be relatively peaceful if the company can get out of the candlemaking business by then.

Just over a week ago, Jones Soda announced in a filing with Securities and Exchange Commission that three of its directors would not be standing for re-election. The departures of Scott Bedbury, John Gallagher Jr and Alfred Rossow Jr were “not because of a disagreement with the company, nor did [they] have anything to do with company operations,” according to the filing.

Maybe so, but company operations are looking feeble. The Seattle maker of “alternative beverages” (sodas, water drinks, tea blends, juice beverages) on Thursday reported a first-quarter loss of $3.85 million, compared with a razor-thin profit of $58,000 in the same period last year. The loss of 15 cents per share is well beyond the 4 cents that analysts had been expected, but the company’s revenues of $9.4 million were just about precisely on target.

As those numbers indicate, the company is having trouble controlling costs, something it promised to do at the close of the previous quarter. Marketing costs are through the roof. In previous quarters slotting fees, in particular, have soared. Those are the fees paid to retailers for shelf space. Jones is on an expansion tear, focusing particularly on getting its products into stores in the Southwest and Northeast.

In December, Peter van Stolk, tthe company’s founder and chief executive, suddenly quit.

In a conference call with analysts on Thursday, executives said they expect losses to continue through the year as the company continues its push to blanket the nation with its products. That push does not correlate with cutting costs.

From the Seattle Post-Intelligencer:

“I don’t see how they’re going to get this back to being a profitable company with the current strategy,” said Suzanne Price, a research analyst at ThinkPanmure LLC in San Francisco.

The company made a misstep when it abandoned its niche to become a national beverage company, said Price, a former fan of the company who now has a “sell” rating on the stock.

Such a strategy might work in the long run, but with costs soaring and consumers fleeing to less-expensive drinks as the economy weakens, the timing seems way off. Hunkering down might be a better tack until things even out.