During the quarter ending Oct. 31, the company marked a 151% surge in profits to $22.7m from $9.1m in the same quarter last year, driving a “significant turnaround” in the US business’ net profit for the first half of the year from a loss of $5.2m in the first half of fiscal 2021 to a $27.5m gain in this year’s first half.
The surge helped pad the US business’ gross margins to 24.9% in the quarter from 22.8% last year, and reflects strong sales which reached $477.5m in the quarter.
While some of this growth came from having strong supply and the ability to support customers when other brands were struggling, it also comes from Del Monte Foods’ strategic decision to pull back on private label production in favor of branded innovation.
This shift helped fuel a 7% increase in overall sales with new products contributing 5% to the company’s total sales, CEO Greg Longstreet told analysts earlier this week.
He explained that the company’s decision to scale down its non-branded business, which has been margin dilutive, is nearly complete with the last contracts ending in the recently completed second quarter.
“We will be moving forward with a very small percentage of private label sales … less than 5% for the company” compared to the 28% it represented four or five years ago, he said.
New products exceed expectations
The move freed up resources for the company to invest in and move forward with branded innovation, including a slew of products launched in May that have done “really well” with “sales exceeding expectations,” he said.
“We are very pleased with our innovation efforts,” and will continue to expand distribution and production of these products, including Joyba Bubble Tea, frozen Veggieful Pocket Pies, frozen Veggieful Riced Vegetables, refrigerated Fruit Infusions Snack Cups that include in-demand functional ingredients such as caffeine, and Del Monte Delux Gold Pineapple, Longstreet said.
The success of these products is grounded in meeting consumer demand for convenient, better-for-you options as well as busting the myth that fruit and vegetables are innately more expensive and difficult to prepare than other ready-to-eat or heat-and-eat options.
In addition, Longstreet said, Del Monte Foods supported the launch creative marketing, including a feature in Parents magazine that promoted Del Monte Veggiful Broccoli Potato Cheddar Pocket Pies as the best pocket pie.
More recent innovations include the repositioning and expansion of a line of vacuum packed crisp corn, which actually outsold the company’s forecast, causing it to scramble to produce more.
Of the new products, Longstreet’s excitement for one – the Joyba Bubble Tea line – outshined that for the others.
“This is a very innovative product that really no one else carries. So we’re highly differentiated and we are reaching college campuses, blitzing retailers like Target, getting into Costco and really have tremendous success with this product,” he said.
Tried and true products gain share
As excited as Del Monte Foods is about the new product launches, it has not sacrificed the advancement of its core canned vegetable and fruit business or its fruit cup snack business – all of which saw market gains in the quarter.
Market share for the companies canned vegetables increased 2.9 points to 20.2% in the quarter, while that of canned fruit increased 1.8 points to 20.5% and 0.7 points to 25.2% for fruit cup snacks, according to Longstreet.
“We have been laser focused on growing [our vegetable business] and beating the competition,” as indicated by a 2% gain in annual contract value over the past year and 6% through a two-year lens compared to the overall category’s flat or 1% drop respectively, Longstreet noted.
“This is unusually high growth. Normally to get a half point to a point of share is exceptional. We’re picking up five and six share points at a time with these increments,” Longstreet said.
For comparison, he added, “our nearest brand competitor Green Giant has lost in each of those time periods as has private label.”
Price hikes offset costs without sacrificing volume
He further noted that Del Monte’s gains underscore the trust consumers place in the brand and their positive experience with the brand to the point that they are willing to pay the higher price point and buy product off promotion.
The company raised prices about 10% in the past year to offset higher costs due to inflation. It also pulled back on promotions, Longstreet said, noting that the company expects anther round of increases in the back half of the fiscal year.