Eat fresh, natural and minimally processed food imbued with nature’s best ingredients. That is the mantra right now. Consumers seem to have turned their backs on frozen ready-made fare, demanding in its place food rich in protein, gluten-free choices and simpler ingredients.
And the food and restaurant sector is more than willing to comply. They’re dishing out health and wellness and “good-for-you” products in response to changing consumer preferences and increasing public and governmental concerns regarding obesity and other co-morbidities.
Companies in the North American food and restaurant sector have realized the importance of growth opportunities attached to this sub-sector. Ready to cash in on this health wave, these companies are putting in their best and growing their profits too.
What Are the Food Companies Doing?
Food companies are devising ways to meet the evolving demand for products with improved nutrition or simpler ingredients. They’re eliminating/reducing unwanted sugar, cholesterol, trans and saturated fat and sodium content of existing food products.
Companies like General Mills, Inc. (GIS - Free Report) and Kellogg Company K have committed to remove artificial flavors and colors from their cereals, while others like The Hershey Company (HSY - Free Report) plans to use simpler ingredients like locally produced milk, roasted California almonds, cocoa beans and sugar in its chocolates. Campbell Soup Company (CPB - Free Report) is also focussing on making its soups without preservatives, artificial colors and flavours.
Restaurants Serving a Healthy Menu
U.S. eateries are also rustling up healthy menus. Starbucks Corporation (SBUX - Free Report) , Yum! Brands Inc. (YUM - Free Report) and Panera Bread Company are working to replace all artificial flavors and colors used in their food items with natural alternatives.
Some restaurants like McDonald's Corp. (MCD - Free Report) have pledged to discontinue the use of chicken raised on antibiotics meant for humans within the next two years. Many meat suppliers to U.S. restaurants like Tyson Foods Inc. (TSN - Free Report) are also sharply reducing the usage of antibiotics in their meat.
Soda Giants Not Lagging Behind
Beverage giants – The Coca-Cola Company (KO - Free Report) , PepsiCo, Inc. (PEP - Free Report) and Dr Pepper Snapple Group, Inc. – are witnessing declining sales of their carbonated beverages, especially the colas, due to this emerging health and wellness fad. So, all these companies are loading their product portfolio with healthier options like juices, energy and sports drinks.
The diet drinks -- Diet Pepsi and the diet version of Dr Pepper -- haven’t escaped the critical eye either, due to obsessive concerns regarding the use of artificial sweeteners.
They’re making drinks with evolutionary natural sweeteners and flavorings to cut calories. Coca-Cola has launched Coca-Cola Life, a naturally sweetened mid-calorie cola, across the U.S. and certain markets in Europe. Pepsi also has plans to launch lower calorie, naturally sweetened non-cola products in the U.S. this year. Additionally, an aspartame-free Diet Pepsi product was launched in August.
Last year, the trio pledged to reduce American calorie consumption in by 20% by 2025. The means would be simple. They would promote bottled water, no- or- lower- calorie beverages and smaller portions.
Healthy Stock Preferences
With every food/beverage/restaurant company doing something or the other to capitalize on the growing health and wellness wave, we highlight a few food/restaurant stocks for a healthy portfolio.
Chipotle Mexican Grill, Inc. (CMG - Free Report)
Chipotle — one of the most recognized fast casual Mexican restaurant chains in the U.S. —is known for its excellent food, prepared from fresh ingredients and sustainably grown and naturally raised products such as pork, chicken and beef. In 2013, Chipotle became the first restaurant to use genetically modified organism (GMO)-free ingredients in its food items. At present, all the food that Chipotle serves is made from non-GMO ingredients.
This Zacks Rank #3 (Hold) company has been posting positive comps over the past few quarters. The momentum is not expected to dissipate in the near future while you savor their innovative launches, antibiotic-free meats and organic menu items. Increased media exposure will also be a catalyst.
The stock’s price has gone up 6% year to date and 31% in 2014. The company has delivered positive earnings surprises in the trailing five quarters.
The WhiteWave Foods Company’s WWAV
The WhiteWave Foods Company’s plant-based foods & beverage products enjoy strong demand backed by the natural/organic food revolution.
WhiteWave Foods has made a couple of acquisitions lately fortifying its presence in the in-demand high-growth food/beverage categories. This June, it acquired a plant-based nutrition products company, Vega, operating out of Vancouver, British Columbia. Last year, it had acquired So Delicious Dairy Free, a Eugene, OR-based manufacturer of dairy free products and beverages and Earthbound Farm, a leading organic greens and produce brand. These companies, ever since the purchase, have been a significant driver of WhiteWave Foods’ sales and profits.
A Zacks Rank #3 (Hold) stock, WhiteWave Foods recorded earnings per share growth of 36% last year thanks to acquisitions, innovation, increased scale, supply chain initiatives and pricing actions. Shares also surged 55% in 2014 and has gained 31% year to date. In fact, this company has delivered positive earnings surprises in six of the past seven quarters.
Campbell Soup Company
Campbell Soup is making aggressive efforts to enhance its brand portfolio and accelerate future growth through acquisitions and joint ventures. The worldwide manufacturer of branded convenience food products highlighted at a recent investor meet its plans to increase focus on health and wellness. This Zacks Rank #2 (Buy) company plans to alter recipes of many of its soups, remove artificial colors and flavors from its products and offer more organic food items.
The stock’s price has gone up almost 13% year to date and 31% in 2014. The company has delivered positive earnings surprises in the past four quarters.
Others to Watch Out For
Apart from the above choices, we also have General Mills and Kellogg working hard to turn around their struggling sales by bringing in more natural and organic products to their portfolio.
For General Mills, the addition of Annie's last year put the company’s overall natural and organic portfolio at over $600 million in net sales. Management is trying to turn around its struggling U.S. Retail business through increased investments in cereal to foster growth, accelerate the performance of better-for-you snacking — both yogurt and snacks businesses — and drive double-digit growth in the natural and organic portfolio.
Kellogg has completely redesigned Special K in the domestic market as a healthy lifestyle brand in line with the change in consumer attitude from dieting to health and wellness.
Both these companies are expected to see a better 2015 than the last two years on the back of these efforts.
Consumer spending on health and wellness products should increase manifold down the line. Better economic conditions and purchasing power will also foster the desire to live and eat well Consumers are unlikely to flinch from spending the extra buck if it helps them to attain their health and wellness goals. This can only mean higher profits for the food and restaurant sector.