Nutritional snacking will survive during and after a crisis, predicts Simply Good Foods

08-Apr-2020 - Last updated on 08-Apr-2020 at 15:36 GMT

Simply Good Foods – parent company to Quest Nutrition and Atkins Nutritionals – entered FY2020 feeling confident about its performance of its core brands exceeding sales expectations through the first half of the year.

However, the company is dialing back its 2020 guidance and shifting its marketing dollars to position itself for long-term growth in light of the unpredictable nature of COVID-19, said Simply Good Foods president and CEO Joseph E. Scalzo during the company's Q2 earnings call earlier this week.

Company net sales increased 83.4% to $227.1m for the Q2 2020 vs Q2 2019. The company reported net income of $10.7m, a decline of $2.1m vs the comparable period of 2019, primarily due to costs related to the Quest acquisition, which the company purchased for $1bn in August 2019.

By brand, sales of Atkins products increased 12.1% in Q2 2020 compared to the same period last year and Quest posted double-digit growth, according to the company.

“We began the second half of the year confident in our ability to achieve our previously communicated fiscal year 2020 outlook,” said Scalzo.

In January 2020, the company anticipated full-year net sales of $850-$870m.

However, Scalzo noted that since March, retail foot traffic has been volatile with spikes in sales at the beginning of the month followed by a significant slowdown in the second half of the month.

“The severity and duration of the COVID-19 pandemic is uncertain and will likely continue during the second half of our fiscal year… retailers are reevaluating the timing of shelf resets and promotion plans that may result in a delay or cancellation of some of our previously agreed to programs.

"Given the rapidly evolving situation and the uncertainty related to the potential effects of the COVID-19 outbreak, we believe it is prudent to withdraw all previously communicated fiscal 2020 outlook.”

However, Scalzo did not specify what its updated full-year outlook would be for 2020.

E-commerce and marketing strategies

Due to the quickly evolving and unpredictable nature of COVID-19, Simply Good Foods’ online business has accelerated as consumers avoid going to stores and are turning to online channels to fill their grocery needs.

“As you think about consumers sheltering in home and the influence of marketing pressure, you really start challenging how much marketing dollars you should be spending and how truly effective they are... That has led us to shift marketing spend already to promote our brands in those channels in order to keep some marketing pressure on the business,” Scalzo said.

"I totally expect us to see a fall-off in return on investment, and I would expect us to pull back on marketing, actually keeping some powder dry for when people are out and about again," he added.

Quest brand integration off to a strong start

A bright spot for the nutrition and snacking company is that the Quest integration is on track and proceeding as expected, according to Scalzo.

“Quest is a uniquely positioned brand. The management team has done a great job transitioning its positioning from a high protein bar brand to a broader healthy lifestyle snack brand focused on providing craveable foods backed by metabolic science. About two-thirds of the business is the core protein snack bar, with the remaining one-third consisting of fast-growing products such as protein chips, cookies, and pizza,” he said.

Quest generates about half of its US sales in traditional food, drug, and mass channels while the other half of sales come from convenience and unmeasured e-commerce and specialty channels.

"The Quest team continues to do a great job of driving awareness, consideration and trial via their sophisticated digital and social marketing... Their unique Quest crowd influencer network is effective in attracting and retaining core consumers. Their presence across various social media platforms, such as Instagram where Quest has nearly 900,000 followers, has driven solid growth," added Scalzo.

Continued health and wellness priority

According to Scalzo, Simply Good Foods' portfolio of products offers consumers convenient nutrition in times when eating well can become more of a challenge.

“We continue to believe that health and wellness is important to consumers and the nutritional profiles of our products satisfy many of their snacking and meal replacement needs. There are many long-term growth opportunities that exist within our business and the high-growth under-penetrated nutritional snacking category,” he said.

Scalzo also noted that the company is conscious of prioritizes healthy snacking over weight management – the main selling point of its Atkins suite of products – as consumers prioritize general nutrition during weeks of home confinement.

“I think healthy snacking will continue to be relevant to folks as they’re in their homes, but I think the weight management benefit and active nutrition… those are less relevant to us [right now].”