May 11, 2020 / 5:39 PM / 16 days ago

UPDATE 1-Cheerios maker, other big brands see sales spike in pandemic

(Adds context, background)

By Martinne Geller

May 11 (Reuters) - General Mills Inc on Monday said it saw record demand for its pantry staples, becoming the latest packaged food maker to see business spike during the COVID-19 pandemic, as homebound shoppers stocked up on comfort foods during lockdowns.

The company joins Nomad Foods, Premier Foods , Nestle, Mondelez International and other processed food makers, which have benefited since March, when restaurants around the world closed, forcing people to eat at home.

The trend marks a bright spot for a sector that has been upended in recent years by challenger brands offering products seen as healthier or less-processed.

"In March, the company experienced an unprecedented increase in consumer demand for food at home," General Mills said in a statement. "While the magnitude of ... demand moderated in April, it remained significantly elevated compared to pre-COVID-19 levels."

Sales of General Mills products - which include Cheerios, Progresso soups and Old El Paso meal kits - at U.S. retail stores tracked by Nielsen jumped 45 percent in March and 32 percent in April, the company said.

Besides basic pantry-stocking, large packaged food companies are seeing renewed strength in their traditional, classic brands, many of which have struggled to keep pace with changing tastes.

"In times of uncertainty, consumers turn to brands that they trust. They want to experiment less," Miguel Patricio, Chief Executive of Kraft Macaroni & Cheese maker Kraft Heinz, said last month. "That's what we're seeing right now."

A consumer survey last week by Jefferies analysts found that 38 percent of respondents were purchasing more standard or classic brands versus only 16 percent who were not.

Jefferies analyst Rob Dickerson said those big brands might be easier to find because their supply chains tend to be larger and more secure.

"In times of stress and duress, larger retailers are probably going to want to lean on some of their larger suppliers," Dickerson said.

"It's been all about the emerging brand. But all of a sudden, stuff hits the fan and when in doubt, you call on the big guys."

Even in May and beyond, as lockdowns are lifted and eateries begin to reopen, consumers are not expected to rush out immediately, due to lingering fears about the coronavirus and soaring unemployment, which will slash household spending.

In a report last week, research firm Kelton Global found in a survey that more than 60 percent of respondents remained afraid to go to a bar or restaurant.

Analysts at Wells Fargo estimate food-at-home sales to rise 14 percent in 2020, and then fall 5 percent in 2021.

"We suspect that between some permanent restaurant closures, lingering social distancing measures ... and some stickiness to the work-from-home movement, at-home spending may not see as hard of a landing that some expect," said Wells Fargo analysts.

Jefferies predicts an incremental boost to U.S. retail spending on food at home of around $43 billion every three months for a period following the panic-buying that marked the early spring.

The S&P 500 Packaged Foods & Meats index is down 6.5% for the year, compared to a 9.5% decline for the S&P 500.

General Mills expects fourth-quarter organic net sales to increase by a double-digits percentage. (Additional reporting by April Joyner in New York and Nivedita Balu in Bengaluru; Editing by Saumyadeb Chakrabarty and Nick Zieminski)

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