Business

Nestle, Tyson and other food giants bet on air fryer boom to grow sales

Published

2 weeks ago

March 5, 2023

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107203061-1677866696874-gettyimages-1229771095-KROGER_BLACK_FRIDAY.jpeg

An Air Fryer for sale at Kroger Marketplace in Versailles, Kentucky, U.S., on Tuesday, Nov. 24, 2020.

Scotty Perry | Bloomberg | Getty Images

Kettle Foods, known for its kettle-cooked potato chips, recently unveiled what it called “the future of the potato chip category”: air-fried chips.

The Campbell Soup brand’s snack launch, made with patent-pending technology, is the latest example of Big Food betting on consumers’ love of all things cooked in air fryers.

In 2022, U.S. consumers spent nearly $1 billion buying air fryers, up 51% from 2019, according to market research firm The NPD Group. Sales of the cooking appliance have been soaring since 2017, and they received an extra boost during the early days of the pandemic as people cooked more at home.

And now with more workers returning to the office and spending less time in the kitchen, consumers are increasingly turning to the portable convection ovens. Joe Derochowski, home industry advisor at the NPD Group, said the main draw is the ease and speed of using the appliance, plus achieving a crispy texture without deep-frying. And food manufacturers want to capitalize on the trend.

“They say necessity is the mother of invention. And in this case, the necessity is to continue to grow the top line,” said Ken Harris, managing partner at Cadent Consulting Group. “The best way to grow the top line is to take behavior that already exists and find a new use for that behavior.”

Big food companies like Kraft Heinz and Nestle saw a surge of sales early in the pandemic. When consumers started eating out at restaurants again and cooking less, food manufacturers’ sales still kept growing thanks to double-digit price hikes. But as shoppers’ grocery bills climbed in 2022, they started buying cheaper options instead, leading to shrinking volume.

As inflation cools and retailers put pressure on suppliers to stop raising prices, food companies have had to look for growth elsewhere.

Adam Graves, president of Nestle U.S.’s pizza and snacking division, said the company is leaning into the air fryer boom through its frozen food brands, specifically to offer customers more value.

“It’s the biggest trend that we’re seeing right now in modern cooking,” said Graves, who owns two air fryers himself.

Last year, Nestle launched pizza bites under its DiGiorno and Stouffer’s brands. Both lines’ packaging tells consumers “Try It in Your Air Fryer.” Other Nestle products, like Hot Pockets, now include air fryer cooking instructions alongside directions for heating up in the microwave and oven.

Tyson Foods jumped on the trend relatively early, launching its air-fried line in 2019. The products, ranging from chicken strips to its newest addition, parmesan-seasoned chicken bites, contain 75% less fat. Colleen Hall, senior marketing director of the Tyson brand, said the line has reached roughly $100 million in annual retail sales.

Tyson is also a third of the way through adding air fryer directions to its packaging for its frozen prepared foods.

“If you look at how often it gets used as a preparation method, it’s around 5%,” Hall said. “I think consumers want to use it more, they want more options to use it. So it’s good timing for us to be putting it on our packaging.”

The air fryer directions are boosting Tyson’s brand favorability, according to Hall, who cited recent brand health data. She chalked it up to the convenience of the appliance and the perceived health benefits of the cooking process.

For fishstick maker Gorton’s Seafood, getting more into air frying is a means of holding on to the customers it gained during pandemic lockdowns.

“[The pandemic] was a pretty dramatic shift that brought a lot of new households into our category and into the brand,” Jake Holbrook, Gorton’s vice president of marketing, told CNBC. “And we’ve worked hard through our messaging and our products to keep those consumers in the category and keep Americans eating more seafood.”

The bandwagon is filling up

Air frying is the second-most popular way to heat up frozen prepared foods, according to Holbrook.

The company, which is owned by Nissui, got into the trend by putting air fryer cooking instructions on its website. Then it added the directions to packaging. In January, it unveiled Air Fried Butterfly Shrimp and Air Fried Fish Fillets.

Gorton’s launched Air Fried Fish Fillets and Air Fried Butterfly Shrimp nationwide in January.

Source: Gorton’s Seafood

Gorton’s new butterfly shrimp and fish fillets were cooked by air frying before being packaged, but consumers can heat the seafood up by air frying it again. The products’ packaging touts that it contains 50% less fat.

“Everyone will jump on this bandwagon for the next two years while it’s trendy,” Harris said.

Other food makers following the trend include Kellogg, which started including air fryer instructions for its plant-based Morningstar Farms products in early 2021 in response to customer inquiries. Likewise, Hormel Foods has been responding to consumers’ air fryer demand by updating its packaging and adding recipes on its website and cooking videos on YouTube to create Spam fries and Mary Kitchen corned beef hash.

Nestle has gone even further, targeting consumers who haven’t yet bought an air fryer. In December, it partnered with Insta Brands, the maker of the Insta Pot and its own version of the air fryer, to give away the appliance. It ran a similar giveaway internally at Nestle U.S. for its employees.

Graves estimates that roughly 60% of U.S. households have an air fryer at this point. But it’s not ubiquitous yet.

“If you benchmark it to a microwave — there’s a microwave in practically everyone’s home — the air fryer’s got a long way to go,” Harris said.

Still, it’s well on its way to joining the microwave as a staple in U.S. kitchens. In 2022, the air fryer leapfrogged over grills and multicookers to become the No. 4 cooking appliance, according to the NPD Group.

“I think people originally thought [the air fryer] was something that might be a fad,” Tyson’s Hall said. “It’s similar to the 1970s — people thought the same thing about the microwave.”

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Business

Virgin Orbit scrambles to avoid bankruptcy as deal talks continue

Published

2 hours ago

March 20, 2023

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Virgin Orbit’s LauncherOne rocket on display in Times Square, New York.

CNBC | Michael Sheetz

Virgin Orbit is scrambling to secure a funding lifeline and avoid bankruptcy, which could come as early as this week without a deal, CNBC has learned.

The rocket builder paused operations last week and furloughed most of the company, as CNBC first reported, while it sought new investment or a potential buyout.

Virgin Orbit CEO Dan Hart and other senior leadership held daily talks with interested parties through the weekend, according to people familiar with the matter, who asked to remain anonymous in order to discuss internal matters.

During an all-hands meeting last week, Hart told employees that the company hoped to give an update on the situation as soon as Wednesday.

Meanwhile top talent is already hitting the job market: Many of Virgin Orbit’s approximately 750 employees are looking elsewhere for openings. That talent ranges from executives to senior and lead engineers to program managers who are actively searching for and finding new jobs, according to a CNBC analysis.

While a door remains open to avoiding bankruptcy, people close to the situation describe a sense of panic as the company struggles to get a deal done. One possible buyer balked at a proposed sale price of near $200 million, one person told CNBC — a price just below the company’s market value as of Friday’s close.

At the same time, Virgin Orbit is bracing for a potential bankruptcy filing as soon as this week, one person said. Virgin Orbit hired a pair of firms — Alvarez & Marsal and Ducera Partners — to draw up restructuring plans in the event of insolvency, CNBC has learned. Sky News first reported the firms had been hired.

A Virgin Orbit spokesperson declined to comment.

Shares of Virgin Orbit have continued to fall since its pause in operations, with its stock slipping to near 50 cents a share in Monday trading.

The company developed a system for sending satellites into space that uses a modified 747 jet, which drops a rocket from under the aircraft’s wing midflight. Its last mission suffered a midflight failure, and its rocket failed to reach orbit.

Richard Branson’s Virgin Orbit, with a rocket under the wing of a modified Boeing 747 jetliner, takes off for a key drop test of its high-altitude launch system for satellites from Mojave, California, July 10, 2019.

Mike Blake | Reuters

The company was spun out of Richard Branson‘s Virgin Galactic in 2017 and counts the billionaire as its largest stakeholder, with 75% ownership. Mubadala, the Emirati sovereign wealth fund, holds the second-largest stake in Virgin Orbit, at 18%.

But the company has struggled to sustain its cash coffers. It went public in December 2021 near the tail end of the SPAC craze and was unable to tap the markets for fundraising in the same way as its sister company Virgin Galactic, which built its cash reserves to more than $1 billion through stock and debt sales.

Virgin Orbit aimed to raise $483 million through its SPAC process, but significant redemptions meant it raised less than half of that, bringing in $228 million in gross proceeds. The funds it did manage to raise came from Boeing and AE Industrial Partners, among others.

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Virgin Orbit has been looking for a financial lifeline for several months. Branson was not willing to fund the company further, people familiar said, and instead shifted strategy to salvaging value.

Since the fourth quarter, Virgin Orbit has raised $60 million in debt from the investment arm of Branson’s Virgin Group — giving it first priority over Virgin Orbit’s assets. Around the same time, Virgin Orbit hired Goldman Sachs and Bank of America to explore other financial opportunities, ranging from a minority-stake investment to a full sale.

George Mattson, who sits on Virgin Orbit’s board of directors, has been heavily involved in the process of selling the company, people told CNBC. Mattson spent nearly two decades as a banker at Goldman Sachs, before co-founding the SPAC called NextGen, which took Virgin Orbit public at a $3.7 billion valuation.

Virgin Orbit disclosed in a filing Monday that it had approved a severance plan for top executives, if they are terminated “following a change in control” of the company. The plan covers Hart, as well as Chief Strategy Officer Jim Simpson and Chief Operating Officer Tony Gingiss, and includes paying out base compensation and annual bonuses. In the event of termination, Hart would receive a cash severance equal to 200% of his base salary, which is $511,008, according to FactSet.

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Business

Foot Locker touts ‘renewed’ Nike relationship as it reports slide in holiday-quarter profit

Published

3 hours ago

March 20, 2023

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Foot Locker CEO Mary Dillon on Monday touted a “renewed” and revitalized relationship with Nike, including an emphasis on what she called “sneaker culture.”

Shares of Foot Locker fell more than 2%. The sneaker and athletic-apparel retailer also reported quarterly earnings Monday morning.

During the holiday quarter, which ended Jan. 28, Foot Locker posted just under $2.34 billion in sales, slightly lower than a year earlier. Its profit for the period came in at $19 million, or 20 cents a share, compared with $103 million, or $1.02 a share, a year earlier. Excluding one-time items, earnings per share were 97 cents, down from $1.46.

For the current fiscal year, which will include an extra week, Foot Locker expects sales and comparable sales to be down 3.5% to 5.5%, with adjusted earnings per share of $3.35 to $3.65.

The retailer plans to close about 400 under-performing mall stores but said it will open around 300 new format stores.

Since Dillon took over as chief executive of Foot Locker in September, she’s spent a “great deal of time with Nike revitalizing our partnership” after Nike moved away from wholesale channels to focus on building out direct to consumer sales.

“Of course, Nike is our largest brand partner and the leader in the industry. From day one I’ve been welcomed to the industry by John and Heidi and their team,” Dillon said of Nike CEO John Donahoe and Heidi O’Neill, its president of consumer and marketplace.

Dillon, the former chief executive of Ulta, said Foot Locker and Nike have “re-established joint planning, as well as data and insight sharing.”

“The fruits of our renewed commitment to one another will begin to show up in holiday this year as we build increasing momentum to 2024 and the 50th anniversary of Foot Locker,” Dillon said.

For the past several years, Nike has been working to grow its direct to consumer business and with it, cut partnerships with numerous wholesale accounts so it could grow its e-commerce channels and open new stores.

However, like other retailers, Nike was stuck with a glut of inventory brought on by pandemic-related supply chain challenges over the last few quarters and relied on those wholesale partners to move that product out.

During its fiscal-second quarter that ended Nov. 30, Nike’s wholesale revenue was up 19% for the quarter after it’d been effectively flat over the previous several quarters.

“We’ve been starving the wholesale channel for six to eight quarters because of supply constraints and so as we had supply constraints, we were prioritizing adequate inventory levels within NIKE Direct and so we’re seeing strong demand as we go back into our wholesale partners with available supply,” Matthew Friend, Nike’s chief financial officer, explained to investors during an earnings call in December.

In January, when asked about Nike’s direct to consumer plans during an interview with CNBC, Donahoe spoke about the importance of an omnichannel model.

“Our strategic wholesale partners, partners like Dick’s Sporting Goods or Foot Locker or JD, are very, very important because consumers want to be able to try on products, they want to be able to touch and feel,” Donahoe said. “And so we’ve invested in strengthening those strategic relationships.”

While Nike was glad to get rid of that extra inventory during its last quarter, Foot Locker is now dealing with its own glut of shoes and apparel it’s struggling to get off the shelves. At the end of its fiscal fourth-quarter, inventories stood at $1.6 billion, about 30% higher than the year ago period, although down slightly from the fiscal third quarter.

As part of its new strategy under Dillon, Foot Locker is revisiting its store footprint in a bid to drive revenue and acquire new customers. While it plans to close about 400 underperforming mall stores in North America, it plans to bolster its new format stores from about 120 to more than 400 by 2026.

The new formats include Foot Locker’s community stores, power stores and its house of play concept.

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Business

New Starbucks CEO Laxman Narasimhan takes over nearly two weeks earlier than expected

Published

6 hours ago

March 20, 2023

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Starbucks CEO Howard Schultz, left, with incoming CEO Laxman Narasimhan, Sept. 7, 2022.

Source: CNBC

Starbucks on Monday said Laxman Narasimhan has officially become CEO, nearly two weeks earlier than expected.

He’ll lead the coffee giant’s annual shareholder meeting Thursday, marking his first public address as its chief executive.

After being named incoming CEO in September, Narasimhan has spent months learning about Starbucks’ business, including training as a barista. The official transition was expected to happen April 1.

Before his appointment, he was chief executive of Reckitt, which owns brands like Lysol, Durex and Mucinex. He also previously worked at PepsiCo and McKinsey.

Narasimhan takes the reins from Howard Schultz, who is ending his third stint in the top job.

“Today, I am entrusting you all with Starbucks – something that holds a place in my heart second only to that of my beloved family,” Schultz wrote in a letter to company leadership that was viewed by CNBC.

Schultz returned nearly a year ago after former CEO Kevin Johnson surprised investors by announcing his retirement.

This time around, Schultz suspended the company’s buyback program for months, pushed back against baristas’ union plans and announced a new strategy to keep up with how the company’s business has transformed.

Since Schultz returned April 4, Starbucks stock has risen nearly 8%, bringing its market value to $113 billion. The S&P 500, meanwhile, has fallen more than 13% over that time.

Despite stepping down earlier than anticipated, Schultz is still expected to testify in front of a Senate panel on March 29 about the company’s alleged union-busting activity.

In September, Schultz told CNBC that he’s never planning on coming back as Starbucks’ chief executive again.

Investors have been putting pressure on the company to make sure that never happens. On Thursday, shareholders will vote on a proposal from SOC Investment Group, which represents pension funds sponsored by unions, that would require the Starbucks board to start succession planning at least three years in advance.

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