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    Diamond Foods to Grow Microwavable Popcorn

    Nut giant looks to expand reach into consumers' snacking habit.

    SAN FRANCISCO -- Once solely the marketer of nuts packaged for home cooking, the marketer of Emerald brand snack nuts is looking to crack into the microwavable popcorn market in a big way, according to a report in Investor's Business Daily.

    Chief Executive Michael Mendes, who oversaw Diamond's 2004 move into the snack nut category by appealing to younger consumers with new flavors and packaging, told the newspaper he plans to do the same with the newly acquired Pop Secret microwavable popcorn business.

    "We want to use a similar strategy in terms of bringing new packaging and new flavors and effective consumer advertising," he said.

    Diamond acquired the Pop Secret popcorn business from General Mills last month for $190 million. Pop Secret is the No. 2 microwave popcorn brand, with a 25 percent share in U.S. grocery stores.

    "The microwave popcorn market has been pretty stagnant over the past few years, with little money spent on marketing," according to analyst Mark Argento of Craig-Hallum Capital Group. "There's a big opportunity to re-grow the category with some marketing dollars and product improvement."

    The snack nut category was also stagnant when Diamond entered the market, Mendes said, adding it was seen as a packaged commodity.

    Diamond launched Emerald with a resealable lid that made the product more portable and ergonomically correct than the glass and metal jars used in the past, the newspaper noted. It also added new flavors, including cashews with sea salt and pepper, and cocoa roast almonds, which debuted nationwide in September. In addition, it invested heavily in marketing the brand, including three years of Super Bowl spots.

    Mendes is wasting no time pumping up Popcorn Secret with a marketing program. Diamond will soon air national TV ads for the brand, according to Investor's Business Daily.

    Mendes would not disclose details on ad spending for Pop Secret. But the company forecast total advertising spending this fiscal year of $26 million to $29 million.

    In the report, Argento estimated Diamond will invest $10 million to $15 million back into the Pop Secret brand for the first year, through marketing and other efforts.

    "They're taking a brand orphaned by General Mills and spending a lot of money marketing it and trying to get the category growing fairly nicely," he said.

    Diamond expects the acquired business to add annual sales of $85 million to $90 million. That translates into $74 million to $83 million for the 10 and a half months Pop Secret is in the mix for fiscal 2009.

    Argento sees an opportunity for Diamond to double Pop Secret's sales over the next few years. The analyst expects the buy to buoy margins. "The incremental margins are pretty significant on popcorn," he said.

    The company expects Pop Secret to add "modestly" to earnings in the first fiscal year after accounting for marketing support and financing costs.

    Diamond will integrate the buy into its business and research what consumers value, he says. Then it will try to develop new products that deliver the value consumers are looking for.

    Buying a popcorn business was a good fit for Diamond, Mendes said. For one, popcorn is sold in the snack aisle, and in many cases sits on the shelf next to the snack nuts. Plus, the same retail buyer who manages snack nuts often oversees popcorn buying. Also, popcorn, like nuts, has a long shelf life and doesn't need to be refrigerated.

    Mendes forecast this year's total snack business sales—snack nuts and Pop Secret—at $175 million to $185 million.

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