In the baking category, portion size matters. With 60% of U.S. households comprised of one or two people, fewer consumers want to make a full-size cake, said Bob Gamgort, chief executive officer of Pinnacle Foods.
To address this shift in the consumer landscape, the Parsippany-based parent company of Duncan Hines has launched a new baking kit platform called Perfect Size, designed specifically for smaller households. The products feature cake mix, frosting and a disposable six-inch pan. Varieties include chocolate cake with chocolate frosting, red velvet cake with cream cheese frosting, lemon cake with lemon frosting, strawberry cake with cream cheese frosting, and golden cake with chocolate frosting. Perfect Size launched nationally in July for a suggested retail price of $2.99.
The baking mix and frosting category declined 6% last year, as many of Pinnacle’s competitors drove aggressive promotional activity, Mr. Gamgort said.
“Instead of battling strictly on price, which tends to drive the category down, we continue to innovate to address some of the category’s structural issues and capitalize on opportunities resulting from changing consumer preferences,” Mr. Gamgort said during a July 30 earnings call with financial analysts. “It’s rough within the baking world if you look at it in aggregate. We love our strategy. It’s playing out really nicely from a profit and mix standpoint.”
Duncan Hines offers baking products at different price points, from the lower-priced Classic line of basic cake mixes to the more expensive Decadent line of baking kits packaged with pastry bags. Mr. Gamgort said the “troubling” numbers in the category are skewed to the entry-level price points, what he called a “more commoditized segment.”
“When you look at the more value-added segment, in which we’re the leader, you’re seeing very good growth and you’re actually seeing very good velocities in there.”
The trend is consistent with Duncan Hines’ performance, he said.
“(If you look at our) performance in Classic versus Signature versus Decadent, it's proved that our strategy of appealing to a slightly higher-end baker — I don’t mean that from an income standpoint; I mean it from an interest standpoint — with value-added products allowing to deliver better, that people are very responsive to that,” Mr. Gamgort said. “And we’re going to keep working that strategy. And again Perfect Size I think is one of many innovations to come that suggests that we can do that.”
As retailers continue to grapple with challenges in the category, Mr. Gamgort said the solution is not more price promotion but a “reset” of the baking section with a greater focus on premium products.
“If you look at interest in baking, it continues to grow with reality TV programs and all of the Internet excitement around baking,” he said. “That is not translating into the low end of baking mixes because people want to do more. And that's where our innovation is focused and that's sort of the interest that we're really capitalizing on.”