Dean Getting Rid Of Peripheral Lines

Dean Foods Co. is the latest food industry operator to wash away the sour taste of pickles. In a move that will permit laser-like focus on its dairy business, Dean plans to spin off its specialty foods group, which gets nearly half of its sales from private-label pickles and also includes a grab bag of coffee creamers, egg substitutes, dressings, and other products, much of which are sold to foodservice customers. Pickles, a low-margin, easy-entry, crop-oriented business, have been a tough proposition for several food companies generally faced with the strategic choice of bulking up or getting out. Campbell Soup Co. spun off its Vlasic business along with a few other laggard lines only to have the company later go into bankruptcy. Dean acted after having a tough year in pickles in 2004 with unseasonably cool weather cutting into both consumer demand and cucumber harvests. Dean says it is spinning the business off rather than selling it because of projected high taxes on the sale price. In an unusual wrinkle for a spin-off, former Keebler Foods CEO Sam Reed was recruited to head the new firm, and he and his team paid $10 million for a 1.67% stake in it. After a long string of acquisitions in which it consolidated fluid milk and other dairy lines and then moved upscale to higher-margin, faster-growing organic products (Horizon) and soy milk (White Wave, producer of Silk), Dean has been pruning peripheral units. It shed its nutritional drinks business last year. Gus Valen, head of food industry consultancy Valen Group, says that the trouble with pickles is just one manifestation of a broader and more complex problem involving sluggish sales of canned, bottled, and packaged foods stocked in the center aisles of supermarkets. Shoppers, he says, are making more trips, buying fewer items per visit, and concentrating on “perimeter shopping” of produce, meats, dairy products, and items placed at the end of the long shelving. “The middle of the store is a big problem for all of these companies,” Valen says. As a result, major food producers don’t want to mess with smaller niche brands, preferring items with sales of $1 billion or more that can pay retailers for slotting fees to gain the best positioning. That will mean more restructuring in the food industry and more low-volume brands going on the block. “The billion-dollar brands are what’s in,” Valen notes. “The food companies cannot continue to be so diverse and so wide. They have a lot of problems with so many small brands.” Copyright 2005 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.majournal.com