Like ConAgra, Nurture Your Winners
OMAHA, Neb. (
) -- It's a cornerstone of business: To stay profitable, you have to increase sales. Unfortunately, that has been a big hurdle for companies this year.
Americans are sticking to budgets, refusing to buy what they don't need. The pain of penny-pinching has been felt by all companies, from small manufacturers to multinational conglomerates.
But two major food companies seem to be bucking that trend. Last week,
General Mills
(GIS) - Get Report
said U.S. retail sales grew 6% in the quarter that ended in August, with operating profit up an impressive 21%.
ConAgra Foods
(CAG) - Get Report
, which specializes in packaged food, said sales to consumers fell 1% compared with a year earlier, but its profit shot up 34%. Sales from the companies' commercial divisions also declined as fewer people dined at the restaurants they supply.
How are these companies boosting their profits if their sales are dropping? In part, they can thank falling commodity prices. Last year, record wheat prices meant food manufacturers were paying more for raw materials. Lower prices this year have boosted profit margins significantly.
The companies are also benefitting from vigilant brand management. They've been putting money behind their strongest products, and ditching their weakest brands, in some cases.
Regardless of the size of your company, it's easy to spread yourself thin while searching for the next big thing. New product ideas might take up more attention than the old reliable standbys you've been selling for years. A high-maintenance new employee can require more of your time than a loyal worker who delivers consistently and without complaint. Are you giving your winners the attention they deserve?
At a company like ConAgra, sorting the winners from the losers is a big job. The consumer division, which makes up about two-thirds of the company's sales, includes hundreds of products, such as Orville Redenbacher popcorn and Reddi-wip whipped cream. To some extent, the slowing economy has helped companies like ConAgra because more families are cooking at home rather than eating out.
Still, consumers are choosing low-cost store brands over well-known labels. Brands such as PAM cooking spray, Blue Bonnet margarine and Peter Pan peanut butter, which have been around for decades, have a vaguely musty, vintage air about them. Perhaps not coincidentally, sales for all three have fallen this year.
ConAgra's chief marketing officer Joan Chow, who was recently named a Marketer of the Year by
Brandweek
magazine, uses the motto "fewer, bigger, better" as a guiding principle. The company puts its extra resources into products that are already doing well.
Take Healthy Choice. The frozen entrees were already poised to benefit from the slowing economy because they're a relatively affordable lunch option. But several initiatives helped the brand post strong sales. ConAgra redesigned the packages with contemporary lettering to make them more appealing. A patented new technology keeps the food fresher, increasing customer satisfaction. And to give the brand some green credibility, the company switched to trays made of up to 40% recycled plastic last year.
General Mills has also relies on what the company refers to as "holistic margin management." This approach considers all possible alternatives so that products can be made more cheaply. For example, the company might consider using less packaging, substituting cheaper ingredients or shrinking a box by a few ounces while selling it for the same price.
Dumping the losers is just as important as rewarding the winners. ConAgra eliminated its weakest products and scaled back promotional efforts in regions where sales are sluggish. While that brought down overall sales, it boosted profit.
While survival-of-the-fittest tactics can be wrenching for small business owners, who have deep personal connections to the products or services they're selling, it's critical to evaluate how every aspect of your business contributes to the bottom line. Your profits can grow without sales gains, but without profits, you're in trouble.
-- Reported by Elizabeth Blackwell in Chicago
.
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Elizabeth Blackwell is a freelance writer based in Chicago. She is the author of Frommer's Chicago guidebook, and writes for the Wall Street Journal, Chicago, and other national magazines.
