Companies' finances hurt by Europe's competitive market

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To get an idea of how a higher prices for commodities and a
competitive European food market are hurting companies' bottom
lines, one only has to look at the financial results published by
threecompanies this week.

Restructuring, sales of under performing businesses, purchases of other companies and price hikes are some of the strategies being used to keep ahead of the pack.

Kraft Foods, the number two food company in the world by sales, said this week its Western European food sales were hurt than offset by a large decline in Germany. In France, revenues declined tolow single digits due to increased private label competition and the impact of a net price reduction.

The company's Europe, Middle East and Africa second quarter net revenues increased 5.2 per cent, driven by favorable currency, positive mix and price increases. The gains were partially offset bylower volume and the impact of a divestiture. The company was not able to provide separate figures for its European business.

Like many food producers this year, Kraft​ has been forced to introduce higher prices in a bid to combat increasing commodity and energy costs.

Overall Kraft posted a net revenue gain of three per cent for the quarter ended 30 June.

The company said it countered higher coffee, nuts, energy and packaging costs by raising its prices, which in turn dampened demand for its products.

During the second quarter commodity costs rose by about $150m compared to the second quarter of 2004. This follows a $250m increase in costs during the first quarter. The company forecaststhat costs rises will add up to about $600m during 2005. The company is attempting to counter the market problems by introducing new products, increasing marketing spending and continuing torestructure.

In the UK Northern Foods​ has announced it has changed its management team, restructured the business, closed factories and sold offnon-core sections during the past year. Operating profit fell by 4.3 per cent, while sales rose two percent, the company reported for the year ended 2 April.

The company has said growth has pick up in the first quarter of the current financial year despite a very competitive marketplace. The outgoing chairman, Peter Blackburn, said underlying sales forthe 13 weeks to 2 July 2005 were up by 3.2 per cent compared to 1.4 per cent for the same period last year.

The group makes frozen and chilled foods for supermarket chains, which are conducting a price war in the UK.

Meanwhile Axfood​, a Swedish retailer said sales and profit fell 4.4 per cent for the six months to 30 June 2005 amid what the company said wasfierce competition in the market. Sales decreased by 4.2 per cent.

The company has been on an acquisition strategy since 2000, increasing its share of wholly owned stores and sales of private label products. The company had set a target of annual organic growth of3.5 per cent . The company plans to add up to 85 stores for its Willys, Willys hemma and Hemköp chains during the period up until 2008.

The growth strategy also calls for acquisitions/mergers in Sweden or other Nordic markets as well as stakes in partly owned companies.

Related topics Processing & Packaging

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