Patties Foods looks to post a 7% profit increase as its Four’N Twenty pies continue to sell well despite tough trading conditions and pressure from supermarket private labels.
In an earnings update to the Australian Stock Exchange, the maker of Four’N Twenty, Nanna’s and Herbert Adams said its margins had come under pressure in the supermarket category as the popularity of private-label products continued to grow.
But Patties managing director Greg Bourke told SmartCompany the popularity of Four’N Twenty pies at football matches and new product ranges contributed to sales growth.
Patties expects net profit after tax for the year to June 30 to increase to $19.2-$19.7m, after recording an $18.4m profit in 2011-12.
“What we are finding at the moment is certainly sluggish trading conditions,” Bourke says.
“Consumer sentiment in our out-of-home food service market, corporate entertainment and functions are down on last year and there is a flight to value in the consumer space, people are cautious with spending.”
Patties is combatting weakness in the home food service market and cautious consumer spending with an emphasis on new products, with four new products being tested by focus groups and Patties staff working on producing about 20 new products from a pool of 90 ideas.
Patties has launched a new Four’N Twenty range of “Aussie Classics” including a chicken parma pie and a spag bol flavour pie in petrol and convenience stores as well as supermarkets.
“People are very open to new products. They are looking for new innovative food products and the other way they are looking to purchase is attractive pricing,” says Bourke.
While Patties has experienced increasing pressure on margins in its supermarket channels because of the continued growth of private label brands in supermarkets, it has also benefitted from the trend through supplying some private label products.
“Depending on the categories; in the savoury categories there is small growth in private label, in the dessert growth there is stronger growth in private label, but that is growing the category,” says Bourke.
“Our branded business is growing but our private label business is also growing in some products.
“It has been a growth area for us but it is also at a lower margin.”
Bourke says customers prefer branded products to private label in savoury, a tendency Patties has capitalised on by continued marketing spend of Four’N Twenty, in particular through sport sponsorship and sport advertising.
“In our savoury category, having a pie at the football is an Australian iconic experience, so most of our sports marketing effort is around supply rights at the major stadiums around Australia. We have supply rights at most NRL, AFL and soccer,” says Bourke.
“We have very resilient categories; when times are tough our categories remain in growth.”