Utz Brands Halts Price Hikes Amid Consumer Resistance

US snack maker Utz Brands has suggested it will be selective when looking for further price rises amid signs that shoppers are becoming more resistant to increases.

The owner of the On The Border, Utz and Zaps brands pushed through a series of price increases last year as it, like other manufacturers, sought to counter inflationary pressures in its supply chain.

But, speaking to analysts after the release of its 2022 financial results yesterday (March 2), Chief Financial Officer Ajay Kataria said there are “no plans to take any further broad-based pricing action.”

Like other companies, publicly traded Utz has benefited financially from price increases. In 2022, the company’s net sales increased 19% to more than US$1.4bn.

Chief Executive Howard Friedman, a former chief operating officer of Post Holdings who took over the top job at Utz in December, said: “While our margins have been hit by historically high inflation, the company did a good job running rounds of pricing actions. It is encouraging that we are now offsetting cost inflation.”

But like his peers, Utz has been watching consumer sentiment closely and believes a change in attitude is emerging among shoppers as they look to save.

Friedman said: “So far [we have seen] really modest or negligible elasticity, we didn’t experience any in the fourth quarter. But, as you have seen in the market, we hope that consumer pressure [to] start growing. Therefore, we have modeled elasticities in our guidance for fiscal year 2023.”

By 2023, Utz projects net sales growth of 3-5%. Kataria said: “Our outlook assumes that we will experience higher price elasticity in fiscal year 2023 compared to what we saw in fiscal year 2022.”

It added: “Comprehensive earnings from 2022 price actions will be highest in the first quarter of 2023 and then decline sequentially throughout the year.”

In addition to the pricing actions, Utz said its performance this year benefited from increased market penetration, with its expansion to more than 1,300 stores and the removal of more than 350 SKUs.

Friedman plans to increase the company’s marketing, which currently accounts for just 1% of the company’s total spending.

But Utz, who has been active on the M&A front in the past, is not looking to make acquisitions any time soon.

Kataria said: “From an acquisition standpoint, the acquisitions we made in the last 18 months, 24 months helped with our manufacturing and distribution capacity, I would say we have enough in terms of manufacturing capacity now. It’s more about optimizing that network at this point so we don’t need to do more anytime soon.”

The company has purchased a manufacturing site in Kings Mountain, North Carolina, which it is converting to a snack food production facility, which “will contribute to higher margins and capacity over time.”

Source link

James D. Brown
James D. Brown
Articles: 8689