FOOD INDUSTRY FEELING SQUEEZE : COMPETITION TAKING BITE OUT OF PROFITS.

Byline: Glenn Collins The New York Times

It may be every grocery shopper's fundamental right to complain, but in these days of low inflation and competing super stores on every strip, there is less than usual to complain about.

Good times for consumers, though, have meant hard times for the packaged-food companies putting all those soups, cereals and cookies on the shelves. Unable to raise prices, and with margins squeezed by competition among retailers, the industry is looking inward for ways to please Wall Street, and its employees are paying. Consider these examples:

Shoppers pay $3.29 for a 20-ounce box of Kellogg's Raisin Bran, 26 percent less than a year ago. The price for Kellogg Co. workers: 1,400 fewer employees by the end of 1996, analysts estimate, on top of 6,000 lost over the last 15 years.

A can of Campbell's chicken noodle soup has 33 percent more chicken than a year ago. But the Campbell Soup Co. is eliminating 650 employees this year, more than 100 of them in its poultry processing operations. The company is cutting costs by buying from outside contractors and has announced yet another internal reorganization of its food operations.

Store shelves are crowded with new low-fat offerings from Snackwell's, like Iced Fudge Toaster Pastries for $2.19. Yet Snackwell's, the sales phenomenon of 1995, is struggling as other companies weigh in with similar products. Its owner, the RJR Nabisco Holdings Corp., is undergoing a $428 million reorganization.

All told, at least 100,000 jobs have been lost in the food industry, in a relatively invisible reorganization that is nevertheless reminiscent of more high-profile contractions in the banking and aerospace industries. This time, the impetus is nothing so dramatic as deregulation or the end of the Cold War, but rather the food companies' inability to raise prices in the era of shareholder value, when profit growth is an imperative.

``These days, supermarket aisles are the most violent places in the world,'' said Bob Messenger, editor and publisher of Food Trends Newsletter in Palatine, Ill. The big food companies are trying to adapt to a marketplace ``that is more fickle and competitive, dangerous and risky than ever before,'' he said.

``People may want lower prices,'' he said, ``but some of them end up as victims of downsizing.''

John McMillin, a securities analyst for Prudential Securities Research, said that at least 100,000 jobs have been lost. ``My guess is that about 10 percent to 15 percent of the employees in the entire packaged-food industry have been terminated in the last 18 months,'' he said.

Most food companies had already reorganized, even while inflation allowed them to pursue a favorite strategy for raising profits: routine price increases.

But now, consumers resist ``pricing,'' as sticker increases are called, shopping for bargains among less expensive private-label and store brands, buying in bulk from warehouse clubs, and benefiting from price wars among a profusion of grocery chains, discounters and convenience stores.

``The routine across-the-board, 4 percent price hike twice a year is a thing of the past,'' said Paul Walsh, chief executive of the Pillsbury Co. in Minneapolis, a subsidiary of London-based Grand Metropolitan PLC. ``You may be able to eke out a 2 percent rise if your costs spike up, or go up 1 percent here or there. But that's it.''

At the same time, retailers are charging more for shelf space for new products, and those higher slotting fees now come directly out of earnings, instead of price increases. But flat earnings are fiscally incorrect. And so the industry is resorting to new rounds of reorganization, cost cutting and downsizing. The only other option is to expand overseas, where European giants like Unilever N.V. are adopting the American lean-and-mean strategy, to defend their turf.

``Most of the larger companies are looking at fairly modest growth in a mature United States market,'' said Terry Bivens, an analyst at Donald & Co. ``So if you're going to have growth, you have to find it overseas or cut your costs.''

The poster company for this new environment is the once-stodgy Campbell, whose chief executive, David Johnson, woke up a roomful of sleepy securities analysts in September by announcing that his new plan for the company was more reorganization - expected to cost $160 million and 650 jobs.

Campbell had already undergone six years of reorganization under Johnson, which helped to lift its share price 240 percent, while cutting 9,000 jobs.

The world's largest soup maker is hardly alone in the roster of the incredible shrinking food companies. The H.J. Heinz Co., Unilever, Conagra Inc., Nabisco, the Quaker Oats Co. and Kellogg have all recently announced cost cutting or major reorganizations.

Consumer resistance to high prices has caused tumult in the $8 billion cereal category, where shoppers have turned to private-label products or abandoned cereal for ``breakfast substitutes'' such as bagels and muffins.

``Those high prices were so out of line, I boycotted cereal,'' said Barbara McGee, a mother of two from Greensboro, N.C. ``We realized we could do very well without it.''

Last April, Post, a unit of Kraft Foods Inc., announced a 20 percent reduction in the retail prices of its Post and Nabisco cereals; Kellogg and General Mills Inc. followed suit.

Consumers are still willing to pay more for high-margin premium products such as coffees, salsas and snack foods. But even the growing variety available to consumers has a downside for the food companies.

``It costs $20 million to $80 million to introduce a new product, but it's sort of like throwing mud at the wall,'' Messenger said. ``Whatever sticks, sticks. And whatever falls, falls. But there's not as much sticking as falling.''

All of these factors have fueled a wave of mergers and acquisitions as companies seek to shed mediocre performers and acquire new category leaders. Companies are swapping divisions ``like kids with trading cards,'' McMillin said, transforming the food business.

At the same time that Campbell announced its $160 million reorganization, for example, it also said it was paying $210 million to acquire the German soup maker, Erasco Group, from Grand Metropolitan to speed its expansion in Europe.

McCormick & Co. sold its Gilroy Foods unit to Conagra. CPC International bought Entenmann's to combine with its Thomas' bakery business. And Heinz bought the Quaker Oats Co.'s $725-million pet food business, while announcing in September that it would sell other units in the United States and abroad to concentrate on its core businesses.

The reorganization wave in the American food industry has begun to reverberate beyond the United States. The new co-chairman of the Anglo-Dutch Unilever PLC, Naill Fitzgerald, recently traveled to New York and Boston to tell analysts and investors that the company plans to sell underperforming units, reorganize management and tie executive compensation to earnings growth.

``We are talking about rationalizing companies' total portfolios,'' said Nomi Ghez, an analyst for Goldman, Sachs & Co. ``In the past, companies would hang on to small businesses even if they were No. 2 or No. 3 in the market. Now they can no long afford to.''

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The New York Times