The real crunch munch: crisps and snacks are benefiting from the recession as consumers swap big nights out for big nights in and trade up to sharing packs and premium options.

[ILLUSTRATION OMITTED]

Could crisps and snacks be the definitive crunch munch?

Consumers are certainly not scaling back on treats in the recession--in fact rather the reverse. Total sales of crisps, nuts and other bagged snacks have risen 1.7% in volume in the past year, according to TNS Worldpanel [52w/e 22 April].

This might seem modest given the level of promotional activity that's been going on (see page 62) and there is evidence growth is slowing, but against a backdrop of recession and a price rise-driven 10.1% hike in value sales, it is not too shabby.

Better still, two of the main reasons volume sales are holding up are the growing popularity of value-for-money multipacks and sharing formats and the injection of real value into the category by premium NPD. The question is: how much longer can this volume growth be sustained in the current climate?

The crisps, nuts and snacks (CNS) category is facing crunch time in more ways than one. On the plus side, it is benefiting as consumers switch from eating out to eating in and seek out affordable treats. On the minus side, the category has had to combat huge commodity price rises that are now being passed on to consumers at the worst possible time.

The average price of potatoes has risen 21.5% to 131 [pounds sterling] per tonne year-on-year [The Grocer 33 52w/e 16 May 2009] as a result of last year's wet summer. Meanwhile, sunflower oil prices have leapt 38% year-on-year to 598 [pounds sterling] per tonne [The Grocer 33 52w/e 9 May 2009].

Manufacturers have absorbed what they can of the commodity price rises, but they have had no choice in passing some on. This has been reflected in sharp price rises on shelf. Number one CNS brand Walkers crisps has shot up 18.1% in price to 1.25 [pounds sterling] for a six-pack of ready salted in Asda, Morrisons, Sainsbury's and Tesco [The Grocer 33, 52w/e 19 May 2009].

The third bestselling brand, Doritos Cool, increased 9.2% to 1.49 [pounds sterling] for a 245g bag. And, in the premium camp, Kettle Chips were up 5.4% year-on-year to 1.56 [pounds sterling] for a 150g lightly salted bag.

"Rising raw material costs have affected retail prices across the category," says Andrew Slamin, marketing director at Kettle Chips. "As a result, the retail price of Kettle Chips did increase last year, although our volume sales continue to grow."

It isn't just crisp makers that have been hit by commodity price hikes. The price of nuts rose more than 20% last year and some dried fruits, including prunes and cranberries, shot up more than 30%, one major manufacturer told The Grocer. British buyers are also being hit by the low value of the pound. Peanuts, which are sold in dollars, have risen 25% in price, for instance.

The fact volume sales have increased at all is also testament to the strength of NPD in the category, particularly at the premium end of the spectrum.

Sharing

Although consumers are treating themselves to a better class of snack, the recession has obviously made them extremely price sensitive, however. They will buy premium products, but only those that really deliver on taste. They're also on the lookout for products that offer added value, which, alongside the trend to eat and entertain in, is driving sales of sharing packs.

Sharing now accounts for 23% of value sales and is the fastest-growing category in the crisps, nuts and snacks category, up 5.8% in volume and 7.4% in value [TNS].

"On top of consumer need, manufacturers have pushed to give sharing more space, mainly because it's got higher margins," says TNS analyst Simon Quirk.

Premium brand Tyrrells claims sales of its eight-strong range of 150g sharing bags have climbed at "double the rate of the premium crisp market--around 25%", as a result of increased distribution and the sharing trend.

"Lots more people are staying in and home entertaining and they are still wanting to treat themselves," says sales director Paul Brown. "We are lucky as a premium and indulgent brand, given that we work in a category benefiting from staying in being the new going out. We have just introduced a 300g bag in two varieties to capitalise on this trend."

While distribution has improved in independents and wholesalers and the brand is now in three of the big four, it is still no closer to being listed in Tesco, however.

"We are looking at all our options and will never say never," says Brown of the brand, which was pulled out of the retailer in 2006 when then owner Will Chase discovered it was being sourced from the grey market. "However, we have no immediate plans for new distribution."

Leading the premium end of the CNS market is Kettle Chips, which is now the eighth biggest-selling brand in the category [TNS]--it was ninth last year and 10th the year before that.

It's no surprise, then, that premium sharing snacks have been the focus of new launch activity from the major players, with Walkers adding its 'super premium' Red Sky brand this spring and United Biscuits relaunching Phileas Fogg, which, though never officially delisted, had not been actively pushed for several years. This followed the launch of Pringles' premium Select range in September last year.

Doritos, Walkers' tortilla chips brand, which has a heavy presence in the sharing market, has also done well. It has moved up to become the sixth best-selling brand, from seventh last year [TNS].

The sharing sub-category should prove robust in the recession because, despite a premium positioning at about 1.50 [pounds sterling], bags are often no more expensive on a cost-per-100g basis than a multipack, says Mark Sugden, customer marketing director at United Biscuits, which makes Phileas Fogg as well as KP, Hula Hoops, Skips and McCoy's. "We talk about premium, but this is not Thorntons chocolates or something that may cost 7 [pounds sterling] or 8 [pounds sterling] for an evening treat," he reasons.

As the recession rolls on, customers will continue to treat themselves at home rather than in a restaurant, adds Quirk. "That suggests not only that the whole category will continue to do well but that sharing is still an area of focus," he says.

With the rate of NPD showing no sign of abating, it is set to become the largest snack category in the UK in the next few years, as it has done in the US, he believes.

With the recession adding fresh impetus to the whole retro trend, the CNS category has also received a welcome boost from the re-invention of old favourites such as Monster Munch, which was relaunched in its original 1970s packaging in September.

Sales of multipacks are also thriving as thrifty consumers make more packed lunches in a bid to economise. The category has increased 17.3% in value terms and 2.6% in volume, while sales of multipacks of snacks have risen 12.3% in value and 0.9% in volume [TNS].

Walkers has been a particularly strong performer in multipacks in the past year, partly because of a strong promotional presence and various headline-grabbing ad campaigns--not least Do Us A Flavour, in which consumers were invited to come up with new ideas for a Walkers crisp variety.

The campaign, which Walkers estimates added 2.7m [pounds sterling] in incremental sales to the category, generated huge public interest and culminated in Walkers declaring Builder's Breakfast the winner. Total year-on-year value sales increased 11.5% to 487m [pounds sterling] [Nielsen 52w/e 18 April 2009].

However, while sharing packs and multipacks are thriving in the downturn, sales of regular single bagged snacks have not performed so well.

The 6.5% uplift in value in the multiple grocers [TNS] has been driven entirely by price rises and volume sales are static.

Supermarkets and manufacturers have not helped the sub-category's cause by devoting less space to single packs and pushing higher-margin multipacks and sharing formats instead.

Even impulse sales, which account for the majority of single-pack sales, are struggling. Volume sales have fallen 4.9% in the past year, while value sales have risen just 1.36% according to TNS [52w/e 22 February 2008], which classifies impulse as products bought for immediate consumption.

In a bid to revitalise the channel, Walkers has spent 2m [pounds sterling] on display equipment, a "dramatic increase", it claims, on previous years. It has also supported its campaigns for Monster Munch and Walkers with strong displays in store and targeted the independent channel more aggressively.

The number of shoppers using local stores is on the rise, explains Kirk Tanner, vice president of impulse sales at Walkers. "We are investing in that channel, ensuring retailers have the right fixtures and kit for display, backed up by a professional sales force to help the owner understand how to merchandise products."

Emma Keen, product manager at Spar wholesale supplier Capper & Co, believes Walkers' strategy is a good one. "In general, there is an increase in sales when the Walkers Perspex units are installed in store. These units are easily replenished and they look great in store."

Health

Another area in which Walkers is making huge strides following significant investment is improving its health credentials. Before the credit crunch, consumers were turning towards healthier snacks and crisps such as Walkers' Baked and SunBites, Ryvita's Limbos and Go Ahead! Baked Snaps.

Sales remain strong--value sales of SunBites rose 34.8% to 16m [pounds sterling] [Nielsen 52w/e 18 April 2009]--but these healthier products have been joined on shelf by reformulated snacks, the development of which has reduced the need to switch to healthier options.

The gap between the 'healthy' crisp options and core crisp brands in terms of fat and salt content has diminished as manufacturers have reduced the calorie count on major brands by introducing different cooking oils and recipe changes. This is shown by a 2.3% year-on-year drop to 37m [pounds sterling] for Walkers' Baked [Nielsen 52w/e 18 April 2009], sales of which have been cannibalised by the core brand in the wake of the latter's switch to healthier Sunseed oil in 2006.

"What most people are doing is looking at their core product and how they can continuously invest in health and nutrition and make them better," says United Biscuits' Sugden.

UB has reduced the amount of saturated fat in its McCoy's crisps by 30%, for example, and revamped Hula Hoops so they no longer contain artificial flavours, colours or MSG. "The big expectation from shoppers is that the products they are buying are as healthy as they can be," says Sugden.

Tanner agrees that consumers expect brands to continue to develop healthier snacks and that the trend is a long-term one that will not be derailed by economic conditions. "Right now the value message is so big it's critical, but as an organisation we are still very focused on health and wellness because we know, long term, the sustainability of health is important to customers."

Procter & Gamble's Pringles--which just this month was the subject of a high-profile court ruling that determined the product should be classed as a crisp rather than a food snack in the eyes of the taxman--has also recently boosted its health credentials. It launched its lower-fat Pringles Rice Infusions in September and introduced Pop & Go portion-controlled packs.

"There is definitely a role for healthy-eating snacks within the category," says a spokeswoman. "Within our portfolio, Pringles Rice Infusions is a perfect balance, being a product that tastes great but has less fat than regular Pringles. Providing single-serving packs of Pringles Pop & Go has helped people who can't limit themselves to only eating a few at a time."

Given the continued demand for healthy snacks, it is somewhat surprising the nuts sub-category has not fared better, slumping 0.5% in value to 282m [pounds sterling] and 3.2% in volume [TNS]. But although last year the category was hit by dramatic rises in nut prices, prompting shoppers to switch to less expensive alternatives, some brands have bucked the trend. The number one brand, KP Nuts, grew its value sales 7.1% to 36m [pounds sterling] year-on-year, for instance [Nielsen 52w/e 18 April 2009].

"Nuts, seeds and dried fruit continue to be well regarded as a healthier alternative to crisps and other savoury snacks and continue to do well. There is a growing trend towards flavoured nut products among adults," says Sugden.

The sub-category's prospects are looking up in other ways, too. The market had "come off the boil in adult snacks in 2008 because of a lack of innovation or big launches with the attendant promotional activity to drive sales," says Maggie Dagostino, interim marketing director at Whitworths. However, that could all be about to change, with Whitworths' launch of its Nibl brand (see box p61).

Walkers, too, is attempting to re-energise the market--it is trialling two sweet nuts lines under the premium Red Sky brand. The sweet nut lines are available in Waitrose and Sainsbury's in two flavours--peanut clusters and almond, pecan and peanut (rsp 2.49 [pounds sterling]).

Retro appeal

Retro is another trend poised to go from strength to strength as cash-strapped shoppers seek out the comfort of old brands they know and love.

Brands have been quick to respond to consumer demand. United Biscuits' December relaunch of Phileas Fogg will be followed by a return to TV advertising for Hula Hoops from July. No doubt both campaigns were inspired by Walkers' relaunch of 1980s favourite Monster Munch, which went off like a rocket last year on the back of a September relaunch (see page 64).

Tanner at Walkers says the retro trend is "on fire" at the moment and will be something Britain's biggest snack company will continue to explore. "There are certain products in the portfolio that have some of that retro magic," he says. "We have to ensure we can put the right investment behind it, but Monster Munch has definitely provided a framework for what really works for us and we are looking into that opportunity."

Reviving old brands appeals to manufacturers because it costs less than full-scale NPD and usually has a ready and waiting target audience.

It also provides a perfect opportunity for brand owners to engage with their consumers and involve them in the whole NPD process as Walkers so successfully did with Do us a Flavour.

As brand owners steer clear of new brand development and either reinvent existing brands or revive old classics, retro will continue to grow, believes Kate Waddell, MD of brand consultancy Dragon Rouge.

There is also likely to be a heightened use of "experiential" or extreme flavours such as wasabi and chilli as well as more experimental and wacky flavours, she adds, citing the popularity of Monster Munch's flamin' hot flavour. "The trick will be not to become too gimmicky," she says.

Looking ahead

Consumer appetite for adventurous flavours and more premium offerings has been matched by investor appetite for CNS brands. The category has seen exceptional M&A activity in recent years, although this has tailed off since the economy took a real turn for the worse last autumn.

Indeed, the most high-profile deal of the past year or so came last March when independent crisp brand Tyrrells sold a majority stake to private equity firm Langholm Capital, owner of Dorset Cereals, in a deal that valued the company at about 40m [pounds sterling].

M&A activity this year is likely to focus more heavily on distress sales as owners will only sell if absolutely necessary during the recession, says Phil Jackson, head of food mergers and acquisitions at advisory firm Grant Thornton.

Last year, Northern-Irish crisp maker Tayto Group bought Staffordshire-based Jonathan Crisp, which was close to calling in the administrators, and Mr Porky scratchings maker Red Mill. Tayto chief executive Paul Allen said it was still "alert to opportunistic bolt-on acquisitions".

One potential rival consolidator to Tayto is Germany's Intersnack, which bought a 15% stake in Largo Foods, the owner of the Tayto brand in the Repubic of Ireland, for 15m [euro] (13.2m [pounds sterling]) in 2007 and is thought to be considering raising that stake. In January 2007, Intersnack also bought County Durham-based Union Snack and is believed to be continuing to eye the UK market.

[ILLUSTRATION OMITTED]

Industry watchers add that Trigon Snacks, owner of retro peanut brands Big D and Planters, is ripe for a takeover. Recession or no, deals will be done--after all, there are bargains to be had.

Several other factors continue to make the category attractive, namely its comfort appeal, its innovation, its success in addressing the healthy eating agenda and its retro credentials. For consumers, it also remains relatively affordable--for now.

The only thing that could stop the CNS category becoming a recession success story is further price rises. Since February, year-on-year volume growth has slowed, while value growth has increased--consumers are already paying more for less and the heavy promotions that characterise the category are no longer driving volume--the category is running to stand still.

Retailers and manufacturers will need to keep their wits about them in coming months if they are to maintain the category's crunch appeal.

TNS SNAPSHOT

Despite the downturn, consumer appetite for snacks shows no sign of abating. Overall value growth has been driven by price rises, but a shift towards more premium products is also contributing.

Shoppers have increased the frequency of their purchases, but are buying in smaller volumes per shopping trip. To some extent, this has been driven by promotional activity, with price-reduction offers becoming more prevalent in the past six to 12 months and bogofs taking a back seat.

Multipacks have been the major area of value growth for the category.

As they feel the pinch of recession, consumers have been making more of an effort to make pocked lunches to take to work with them. This has helped push the growth of multipacks as shoppers stock up on snacks to go alongside their sandwiches.

Within multipacks, Walkers has been one of the strongest performers thanks to its high levels of promotional activity and headline-grabbing advertising campaigns.

Sales of sharing products continue to grow ahead of the market in volume terms. Although other premium markets within grocery have suffered, the premium end of the market is proving more than robust due to a high level of innovation.

The sharing sector has been a target for numerous new product launches in recent months, all looking to reproduce the success of Kettle.

The sharing format has been boosted by consumers eating at home more during the recession--and it also has the advantage of offering manufacturers higher margins than multipacks.

Singles, the most profitable sector, has not performed well, with out-of-home occasions steadily dropping on a long-term basis as consumers buy into multi-packs.

Simon Quirk, analyst, TNS Worldpanel

tns Produced for The Grocer by TNS Worldpanel. TNS Worldpanel monitors the grocery retailer take-home purchasing habits of 25,000 demographically representative British households. Call 0208 967 0007 for further details

MARKET SHARE

             %

SINGLES      4
MPC         33
MPS         23
SHARING     23
NUTS        17

Note: Table made from pie chart.

VALUE SALES

                          VALUE      CHANGE
                        M [pounds    Y-O-Y
                        sterling]     (%)

Multipack crisps           551        17.3
Multipack snacks           380        12.3
Sharing                    373         7.0
Nuts                       282        -0.5
Singles                     71         6.5
Total category value      1,657       10.1

Multipack crisps           103         2.6
Multipack snacks            64         0.9
Sharing                     61         5.8
Nuts                        55        -3.2
Singles                     6          0.0
Total category volume      289         1.7

Source: TNS Worldpanel--52 w/e 22 April 2009

RETAILER SHARES

RETAILER       CNS       TOTAL
              SHARES    GROCERY
               (%)     SHARES (%)   OVERTRADE *

Discounters    5.9        5.0          118.0
Asda           16.0       14.4         111.0
Co-op          3.9        3.7          105.0
Tesco          28.6       27.3         104.0
Morrisons      11.2       10.9         102.0
Iceland        1.8        1.8          100.0
Somerfield     3.1        3.2           96.0
Sainsbury's    13.0       14.7          88.0
M & S          2.7        3.2           84.0
Waitrose       3.0        3.6           83.0

Source: TNS Worldpanel - 52w/e 22 February 2009
Info: * 100+ represents sales overtrade vs undertrade