A year ago I wrote in a PotatoPro Newsletter on
the impact of a recession on the potato processing industry.
I presented three cases that might be
predictive how challenging times would affect the fast food sector, the frozen food
industry and snack sector.
At that time there we were still hopeful that the
hypothetical case of a recession would not be tested, but
now we know we are not that lucky. A year ago, I predicted
that the potato industry would be reasonably recession
resilient. Much has happened since, so it is time to see if
that position still holds.
When I started to write on this topic, it soon became
clear there is more to share than what I want to
squeeze in one newsletter. Therefore, we will address this
topic in a PotatoPro newsletter first: a sequel!
Today, we will address (1) the fast food industry, while
over the coming weeks we will cover (2) frozen retail
products (including food prices in general), (3) potato
prices and (4) snack foods.
The fast food sector
 McDonald's,
world's largest QSR chain, reported over 2008 an
increase in global comparable sales of 6.9%, with in the
fourth quarter a global comparable sales increase of 7.2%.
A good indicator of how well McDonald's did in 2008 is
the fact that McDonald's was one of only two companies in
the Dow Jones Index posting gains on the New York
Stock exchange over 2008 (4.5%).
 The other company was Walmart.
And McDonald's is still going strong: For January 2009
McDonalds reported a 7.1% same store sales increase.
Yum! Brands reports a worldwide system-sales growth of 7%
for 2008 and 6% for the fourth Quarter. Same store sales
were up 3%, both for the year and Q4. However, according to
Chairman and CEO David Novak,
KFC was underperforming, with extremely poor sales in
January 2009.
 And
Burger
King just added its 20th consecutive quarter of positive
global comparable sales, up 2.9% (Quarter ending December
31).
Growing revenues in the restaurant chains not necessarily
mean more consumption of potato products. Just think of
trends like replacing the french fries in value meals with
healthier - but for restaurants more expensive - options. Or the focus of some chains on
- high end - coffee, causing havoc for Starbucks.
So what is happening to the sales of potato products to the QSR chains?
Tracking data of the sales of frozen potato products to
foodservice by the major US potato processors indicates a
low single digit drop in pounds sold in the last quarter of
2008 and a high single digit dollar value increase. For
entire 2008, the volume sold is flat. Export of frozen
potato products is up, both in volume and dollar value, but
export is relatively small (about 15%) compared to total
sales. There is no clear sign in these tracking data that foodservice is
moving away from higher priced specialties.
A drop in (volume) sales is consistent with
remarks by
Mark Hayden of Conagra/Lamb Weston at
the
Potato Expo early January that foodservice sales
of frozen potato products in the fall were weak. His remark
that sales in December 2008 "were awful across all channels"
adds further insight in the market development.
Also in the Netherlands, John Wiskerke of Lamb Weston
Meijer
referred to the consumer saving on expenses at foodservice
restaurants during a presentation for farmers.
 Looking at published
volumes of potato products produced
in the Netherlands, the December production is just
slightly below the range of production volumes in previous 4
years. Production volume from the harvest up to December still ranks 3rd out of the last 5 years.
The situation looks even better when based on the use of
potatoes.
So what is the attitude of consumers towards
restaurant visits?
Research Group
Morpace asked 1010 consumers in the US for
their attitude towards restaurant visits early this
year. Fourty-eight percent of the consumers indicate they are
eating out less often now than six months ago. This is up
from September 2008, when about a third of the respondents indicated they
had reduced restaurant dining. QSR chains benefit
from consumers trading down, but the Morpace research
indicate that still 33% of the consumers are eating less
often at Fast Food chains.
How are the QSR Chains dealing with this situation?
In Japan during the nineties, McDonald's
added new restaurants and lowered prices. And although in
Japan in the nineties the turnover per restaurant
declined, overall turnover increased.
McDonald's may use a similar approach during the current
global downturn: McDonald's recently announced
the opening of another
1000 restaurants. And as far as lowering prices:
McDonald's
cut prices in China up to 33%.
KFC is looking at lower prices too: the chain that never
had a value meal in the US,
introduced a value meal last week.
KFC has expansion plans as well. E.g. next to their
continued impressive expansion in China, they plan to add
200-300 new restaurants in the UK in the next 3-5 years.
If consumers eat more at home, will they buy more frozen
potato products for consumption at home? We will look at
that next week!
Enjoy reading,
Paul van Eijck
Already for the 5th time Anuga FoodTec, the world's
most important trade fair for food and drink technology,
opens it's doors from March 10-13, 2009 in Koeln,
Germany.
From production to packaging to distribution - the cross
sector, process-oriented concept combines innovators and
investors from more than 100 countries.
Watch for our special Anuga FoodTec PotatoPro
Newsletter that will be sent to you separately!
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