The demands for Cookie, cracker &snacks products have generally been growing but driven by lowering price. The growth rates vary depending on product categories and sales channels.

Sector’s current, trend, causes behind trend, and future

Current and Trend

• Demands for Cookie, cracker &snacks products in US market have grown slowly but the growth rates vary among categories heavily depending on promotions.
• Demand’s elasticity to price seems to be different among categories. Only demands for meat snacks seem to keep stronger in the past several years but demand in other categories including cookie, cracker, pretzels, and chips have grown very slowly. Demands for dough items keep about the same growth rate as baked snacks products.
• Demands for frozen fruits dropped down significantly in the past several years as indicated in the declining sales volume and prices.
• Baked snacks demands from food services have kept stronger than from retailers.

 

Causes behind the trend

• There are no fundamental changes (except retail traffic) in factors that influence the consumption of snacks of US market. However, healthy life concept seems getting more popular, which may be the reason behind the trend of consumers’ preference for more natural and simpler snacks. This is probably why the regular snacks’ sales and frozen fruits’ sales slowed down. Economy factors may be the reason behind increasing demands for meat snacks such as beef jerky and demographic factors may be behind increasing demands for snacks from food services.

 

Industry Future

• The trend toward to healthier and more natural food will be expected to continue. We will see the manufacturers of cracker, pretzels, and chips will turn their focuses more on better for you snacks products to take advantages of faster growth in that category of snacks. The whole industry does not yet go back to the level in terms of profitability before economy’s huge shrinking in 2007. We are not sure if the economy’s full recovery will help bring back to those companies the high margins that they used to have. However, it will definitely be helpful in some of products categories such as baked snacks and meat snacks. 

General Financial Performance of Companies In the Sector

Generally the demand for snack of products in this sector has been not strong especially retail channels. Demands from food services have kept increasing probably driven by recovering food service industry. Companies have been using promotion or lowering price to deal with competition and weak demand and it seems that demand’s elasticity to price varies among categories.

Demands for baked snacks such as cookie, cracker, pretzels, and chips have grown but very slowly (about 1-2% annually depending heavily on promotions) in the past several years, slower than that for the food manufacture industry. Demands for bakery dough items are doing the same as manufactured snacks. Demands for frozen fruits seem to be shrinking (5-8% decrease annually). However, demands for dry meat products provided the best performance in the general snacks market (average 7-10% growth in the past several years annually).

Increasing pressure on slowing down demands led companies frequently to look for promotion/lowering selling price to deal with competition and boost the their own sales numbers. We are not sure of what role the promotion plays in building of brands in a long run, in a short term promotions harm those companies’ margins and profitability when, since those companies’ margin are already at low level, the lost earnings resulted from lowering price cannot be offset by the gained earnings resulted from increased revenues stimulated by lowered price. This is certainly because of depressed demands but, more importantly, it is probably because of margins that are already at very low level due to competition.

Gross margins are about 30%-36% and operating margins are about 7% -10% for regular baked snacks companies depending on their distribution channels (retailers or food service). According our analysis, the ratios of enterprise price/adjusted EBI for those companies depending on retail channels reach 50 with debt/asset ratio of 15%.

Gross margins for meat made snacks keep 33-36% with 5-6% operating margin. And the ratios of enterprise price/adjusted EBI for those companies reach 29 without any debt.

Gross margins for companies with frozen fruits as core products range 18% -19% with a 6% operating margin. And the ratios of enterprise price/adjusted EBI for those companies reach 23 with 30% debt/asset ratio.

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