ITEM 1A - Risk Factors
Our
business
is
subject
to
various
risks
and
uncertainties.
Any
of
the
risks
described
below
could
materially,
adversely
affect
our
business, financial condition, and results of operations.
Business and Industry Risks
Global health developments and economic
uncertainty resulting from the
COVID-19 pandemic could materially
and adversely
affect our business, financial condition, and results of operations.
The public
health crisis
caused by
the COVID-19
pandemic and
the measures
being taken
by governments,
businesses, including
us,
and
the
public
at
large
to
limit COVID-19’s
spread
have
had,
and
may
continue
to
have,
certain
negative
impacts
on our
business,
financial condition, and results of operations including, without limitation,
the following:
●
We
have experienced,
and may
continue to
experience, a
decrease in
sales of
certain of
our products
in markets
around the
world that
have been
affected by
the COVID-19
pandemic. In
particular,
sales of
our products
in the
away-from-home food
outlets across all our major markets have been
negatively affected by reduced consumer traffic
resulting from shelter-in-place
regulations
or
recommendations
and
closings
of
restaurants,
schools
and
cafeterias.
If
the COVID-19
pandemic
persists or
intensifies, its negative impacts
on our sales, particularly
in away-from-home food
outlets, could be more
prolonged and may
become more severe.
●
Deteriorating economic and political conditions
in our major markets affected
by the COVID-19 pandemic, such
as increased
unemployment,
decreases
in
disposable
income,
declines
in
consumer
confidence,
or
economic
slowdowns
or
recessions,
could cause a decrease in demand for our products.
●
We
have
experienced
minor
temporary
workforce
disruptions
in
our
supply
chain
as
a
result
of
the
COVID-19
pandemic.
Illness,
travel
restrictions,
absenteeism,
or
other
workforce
disruptions
could
negatively
affect
our
supply
chain,
manufacturing, distribution,
or other
business processes.
We
may face
additional production
disruptions in
the future, which
may place constraints on our ability to produce products in a timely manner
or may increase our costs.
●
Changes
and
volatility
in
consumer
purchasing
and
consumption
patterns
may
increase
demand
for
our
products
in
one
quarter, resulting
in decreased consumer demand for our
products in subsequent quarters. Short
term or sustained increases in
consumer demand at our retail customers may exceed our production capacity
or otherwise strain our supply chain.
●
The
failure
of
third
parties
on
which
we
rely,
including
those
third
parties
who
supply
our
ingredients,
packaging,
capital
equipment
and
other
necessary
operating
materials,
contract
manufacturers,
commercial
transport,
distributors,
contractors,
commercial banks,
and external
business partners,
to meet their
obligations to
us, or significant
disruptions in
their ability to
do so, may negatively impact our operations.
●
Significant changes in
the political conditions
in markets in which
we manufacture, sell,
or distribute our products
(including
quarantines,
import/export restrictions,
price controls,
governmental or
regulatory actions,
closures or
other restrictions
that
limit
or
close
our
operating
and
manufacturing
facilities,
restrict
our
employees’
ability
to
travel
or
perform
necessary
business functions, or otherwise prevent our third-party partners,
suppliers, or customers from sufficiently staffing
operations,
including
operations
necessary
for
the
production,
distribution,
and
sale
of
our
products)
could
adversely
impact
our
operations and results.
●
Actions we have
taken or may
take, or decisions
we have made
or may make,
as a consequence
of the COVID-19
pandemic
may result in investigations, legal claims or litigation against us.
The
categories
in
which
we
participate
are
very
competitive,
and
if
we
are
not
able
to
compete
effectively,
our
results
of
operations could be adversely
affected.
The
human
and
pet
food
categories
in
which
we
participate
are
very
competitive.
Our principal
competitors
in
these
categories
are
manufacturers,
as
well
as
retailers
with
their
own
branded
and
private
label
products.
Competitors
market
and
sell
their
products
through
brick-and-mortar
stores
and
e-commerce.
All
of
our
principal
competitors
have
substantial
financial,
marketing,
and
other
9
resources.
In
most
product
categories,
we
compete
not
only
with
other
widely
advertised
branded
products,
but
also
with
regional
brands
and
with
generic
and
private
label
products
that
are generally
sold
at
lower prices.
Competition
in
our
product
categories
is
based on
product
innovation, product
quality,
price,
brand recognition
and loyalty,
effectiveness
of marketing,
promotional
activity,
convenient
ordering
and
delivery
to
the
consumer,
and
the
ability
to
identify
and
satisfy
consumer
preferences.
If
our
large
competitors
were
to
seek
an
advantage
through
pricing
or
promotional
changes,
we
could
choose
to
do
the
same,
which
could
adversely affect
our margins
and profitability.
If we
did not
do the
same, our
revenues and
market share
could be
adversely affected.
Our market share
and revenue growth
could also be
adversely impacted if
we are not
successful in introducing
innovative products in
response
to
changing
consumer
demands
or by
new product
introductions
of our
competitors.
If
we
are unable
to build
and
sustain
brand
equity
by
offering
recognizably
superior
product
quality,
we
may
be
unable
to
maintain
premium
pricing
over
generic
and
private label products.
We may be unable to maintain our profit
margins in the face of a consolidating retail environment.
There has
been significant
consolidation in
the grocery industry,
resulting in
customers with increased
purchasing power.
In addition,
large
retail
customers
may
seek
to
use
their
position
to
improve
their
profitability
through
improved
efficiency,
lower
pricing,
increased
reliance
on
their
own
brand
name
products,
increased
emphasis
on
generic
and
other
economy
brands,
and
increased
promotional
programs.
If we
are
unable
to use
our
scale, marketing
expertise,
product
innovation,
knowledge
of consumers’
needs,
and category
leadership positions
to respond
to these
demands, our
profitability and
volume growth
could be
negatively impacted.
In
addition, the loss
of any large
customer could
adversely affect our
sales and profits.
In fiscal 2022,
Walmart
accounted for 20
percent
of our
consolidated net
sales and
28 percent
of net
sales of