NSRGY Nestle SA (PK)

By Saabira Chaudhuri 

Comfort foods from big brands are seeing a resurgence, executives say, as consumers seek familiarity and convenience amid the coronavirus pandemic.

Many shoppers have favored fresh and specialty brands over Big Food's processed products in recent years, while others have opted for cheaper store brands. Now, the world's largest makers of packaged foods say frozen pizza, pasta sauce, and mac and cheese are rising in favor as consumers in lockdown eat at home.

Nestlé SA became the latest to detail the trend Friday when it reported stronger organic sales growth for the first quarter driven by Americans stockpiling its DiGiorno pizza, Stouffer's frozen meals and Hot Pockets sandwiches. Baking brands like Toll House and Carnation also performed well, it said.

Demand for those products -- as well as Purina pet food, Nescafé coffee and Gerber baby products -- drove a 7.4% rise in organic sales in the Americas in the first three months of the year and helped outweigh weakness in China.

Overall, the world's biggest packaged foods maker said organic sales growth -- a key measure that strips out currency changes, acquisitions and divestments -- rose 4.3% in the first three months of the year, beating analyst estimates of 3%.

Nestlé Chief Executive Mark Schneider said the company's food and drink brands "provide comfort" to consumers, echoing recent comments made by executives across the industry.

As consumers eat three meals a day at home, rather than at office cafeterias, schools and restaurants, demand for easy-to-make foods has risen, company and independent data show. Executives have said they expect restaurants to operate at lower capacity for months to come because of social distancing protocols, meaning the shift to cooking at home could last even as lockdowns lift.

Overall, U.S. store sales of soup rose 37%, canned meat climbed 60% and frozen pizza jumped 51% for the week to April 11, according to research firm Nielsen.

Earlier this month, Kraft Heinz Co.'s Chief Executive Miguel Patricio said almost all of the company's brands were in high demand, including Mac & Cheese, Classico pasta sauce and Oscar Mayer bacon and hot dogs. That resurgence comes after the company last year wrote down the value of some of its big brands and said in February it would boost advertising spending to win back consumers.

Unilever PLC on Thursday said some of its older brands, like Hellmann's mayonnaise, have performed well in the first quarter amid the pandemic.

"We've seen time and time again that big brands tend to do well when people are feeling anxious and under threat," Chief Executive Alan Jope said. He added that he expects the shift to larger brands to last a couple of years.

Campbell Soup Co. last month said retailers were buying more of its canned soup as well as products like SpaghettiOs and Swanson canned chicken.

Big food makers have been squeezed at the higher end from niche, local food brands as well as at the lower end by more affordable store brands. Companies including Nestlé, Kraft and Unilever have been snapping up the makers of organic tea, plant-based products and high-end ketchup, and selling legacy businesses like cold meats and spreads in an attempt to compete better. Frozen food has been a particular focus for Nestlé, who has worked to cut salt, sugar and other less healthful ingredients from its ready-made meals.

Barclays analyst Warren Ackerman this week said the pandemic is also attracting new shoppers to brands, helping brands from Nestlé and Unilever increase their penetration in the U.S. "Whether these brands can retain new consumers over the long-term remains a question, but mature categories acquiring new consumers is a rare phenomenon," he said.

For Nestlé, the strong performance of its food brands in developed markets in the first quarter offset weaker sales in China, where organic sales fell for ice cream, peanut milk and confectionery. Nestlé's business that sells ingredients to restaurants also suffered as the country battled coronavirus.

Nestlé confirmed that it would explore a sale of its Yinlu business, which sells peanut milk and rice porridge in China after years of efforts to jump-start growth have floundered. The arm generated sales of 700 million Swiss francs last year.

Like Unilever, some of Nestlé's businesses were hurt by lockdowns that have forced consumers to stay indoors, including its ice cream arm and confectionery business.

Overall, sales fell 6.2% to 20.81 billion Swiss francs ($21.29 billion) because of currency changes and mergers and acquisitions. Despite uncertainty over the pandemic, Nestlé maintained its full-year guidance, saying it expects organic sales growth to improve.

Analysts welcomed the forecast -- in contrast to rivals that have scrapped guidance amid the pandemic -- and said that while the first quarter numbers benefited from stockpiling, which will tail off, Nestlé's performance was strong.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

April 24, 2020 09:55 ET (13:55 GMT)

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