Food and drink firms gear for rebound

By David Jones

LONDON (Reuters) - European food and drink groups may well be reporting destocking is coming to end, but they are looking to launch new products and lift marketing spending rather than wait for restocking to signal a recovery.

Companies are reluctant to talk about "green shoots" of an economic recovery, preferring to focus on driving a recovery in their own sales: Cadbury (CBRY.L) is launching a string of new products and Unilever (ULVR.L) plans a marketing boost.

And the world's two biggest spirits groups Diageo (DGE.L) and Pernod Ricard (PERP.PA), who suffered from sharp destocking in the first three months of 2009, are looking to gain from the shift towards more at-home drinking in the recession.

Last week, the world's second largest confectionery group Cadbury said the destocking it saw in the first quarter had ceased but Chief Executive Todd Stitzer said there was no sign of restocking that might be the early sign of an upturn.

"Trading in April and May improved due to the absence of destocking in the United States and some improved business performance," Stitzer said after a second-quarter update for the group ranking number two in the world behind Mars-Wrigley.

He did not call a recovery, but expected a further pickup in sales in the second half from new chocolate, candy and gum products and 2009 underlying sales to reach the lower end of the the group's medium-term 4-6 percent sales growth goal for 2009.

In the absence of destocking, RBS industry analyst Julian Hardwick estimated second-quarter underlying sales growth would rebound to show growth as high as 5 percent after a weak first quarter showing just 2 percent growth.

For Unilever (UNc.AS), under new Chief Executive Paul Polman, the focus is for a concerted pick-up in marketing to boost sales rather than wait for the upturn to roll along.

Credit Suisse analyst Charlie Mills said the key was innovation and new products supported by advertising and promotional spend.

"We have of course been here before -- bursts of marketing yielding short-term volume growth, only for it to subside in later quarters. Paul Polman and his team will be acutely aware of this and the focus will surely be on first gaining, but more importantly then sustaining, momentum," Mills added.

Unilever's recent sales growth has come from price rises taken to offset commodity price increases last year, so the focus will be on boosting sales volumes as price rises are proving more difficult to push through in a recession.

Smirnoff vodka-maker Diageo and Chivas Regal whisky group Pernod suffered badly from trade destocking in the first three months of 2009 with their quarterly underlying sales down 7 percent and 13 percent respectively.

Pernod's Chief Executive Pierre Pringuet said the group's April sales were better than March but it was too early to say if the worst was behind the company, after being hit by U.S. destocking and a fall in the Russian and also travel markets.

Diageo says it believes the majority of destocking in its biggest market, the United States, it now over, although it anticipates there may be smaller amounts of destocking still to come in areas such as Russia and eastern Europe.

It reflects the view of many in the consumer world in believing there will not be a move back to the relatively large stocking levels held by retailers and wholesalers before the recession.