Contributed by Dave Donnan, Partner at A. T. Kearney, Global Food & Beverage Sector Lead
It has been six years since the 2008 Great Recession and the economy is slowly rebuilding and finding GDP growth again. But growth has not returned to many consumer categories. Basic categories such as cold cereal (down 4%), frozen dinners (down 3.5%), carbonated beverages (down 4%) and soup (down 2.3%) are all showing fundamental changes in how and what consumers are buying. (IRI 52 wks ending June 15, 2014)
A fundamental change is occurring in consumer diets. Years of constant attention to diets and health, to fat and sugar and to process vs. fresh are now impacting shopper behaviour. Consumers are shifting away from many processed food items towards healthier and fresher foods. Healthy and nutritious are the new attributes of breakfast, lunch, and dinner. General Mills recently announced the acquisition of organic food company Annie’s at the same time it announced major restructuring in its legacy businesses
Food companies are caught in a portfolio dilemma. Their brands have been built around legacy products that are no longer as popular with today’s consumer. For most food companies a new focus on innovation is underway. New products must compete against shrinking shelf space as many retailers move towards more convenient and smaller formats. The ability to flood the market with excess SKUs is over and a more targeted approach is necessary.
Targeted acquisitions and growth opportunities are reemerging as the primary growth engines for many CPG’s. Recent acquisitions of Muscle Milk
, Michael Foods
and Wild Flavors
show a desire to inject new ideas into the product portfolio. In many cases, the acquired company offers a whole new category of growth for the parent company. This is making it more challenging for private equity funds to successfully execute middle market and smaller acquisitions. While large CPG companies are on the hunt for new acquisitions, private equity players
are looking to find the emerging innovation or opportunity to build a brand portfolio and then turn it into something larger.
Finally, the increased interest of investor activists is also challenging some of the larger companies to consider breakup value. After the success of Mondelēz
, other corporations such as PepsiCo
are under break up pressure from their investors.
Large CPG companies need to become more comfortable acquiring emerging businesses and new categories in the natural and fresh foods channels. I am just waiting Kraft to buy Hain Celestial to make their packaged food portfolio ‘healthier’. For any company considering growth through acquisition, a thorough analysis of market growth, company performance and shifting consumer behaviour must be performed
. Without these, the chances of success drop dramatically.
Please click here to view the article origininally published on LinkedIn
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