Four Conclusions from Recent Acquisitions by Nestlé & Kellogg's

Source: Rabobank

Author: Nicholas Fereday 

A spate of recent acquisitions reminds us that companies are still looking to pick up emerging brands to help shift the center of gravity of their portfolios to be more on trend. Ultimately, they also need these brands to drive top-line growth, which remains stubbornly flat. We draw out some conclusions from recent acquisitions:

The snack bar platform

At times, walking around trade shows such as the Fancy Food Show or Natural Food Expo, it feels like we have already hit ‘peak’ snack bar. How many more me-too products can the market take? Nevertheless, according to Euromonitor, the U.S. snack bar market continues to grow, averaging 6 percent annual sales growth since 2012 and having a market size of about USD 7 billion in retail sales. Over the past decade, snack bars have become an established platform for the on-the-go time-starved crowd who are looking for a better-for-you option than what can be found in the candy aisle. These trends show no signs of waning, with the snack bars providing a constant source of innovation around ingredients, flavors, and branding to continue to try entice consumers and disrupt the market. Adidas, for example, recently partnered with Juice Press to make a snack bar with the main ingredients being dates, walnuts, and cold-brewed coffee.Kellogg’s purchasing the protein snack bar company RXBAR for USD 600 million in October is a good recent example of an established company betting on these trends. RXBAR, in addition to being the fastest growing nutrition brand in the U.S., attracted the attention of Kellogg’s in part through using a novel protein source (egg whites) and differentiated branding: the ‘no BS’ on the label doesn’t stand for ‘no balance sheet’ (the company is less than three years old) but for ‘no bullshit’—a swipe at other food products that falsely claim to have clean labels and be all-natural. (On the kid’s line, ‘no BS’ stands for ‘no bad stuff’, by the way.) For Kellogg’s, the Chicago-based bar company will prove a good test case on how well it has learnt the lessons from past acquisitions such as Kashi, where the company might have been a bit too controlling to the detriment of both parties.

RTE popcorn: it's all about being 'better for you'

Recent acquisitions in the ready-to-eat (RTE) market also talk to the experiences of the snack bar market and attempts by established players to modernize their portfolios. Although the popcorn market is over a century old, RTE popcorn is a relatively new market and aspires to mirror the success of the snack bar market and not crash and burn like other fads that died after a few years of gravity-defying growth. Both ConAgra and Eagle Foods have put bets on RTE popcorn with their respective purchases of Angie's Artisan Treats, the maker of Angie's Boomchickapop from TPG private equity for USD 250 million, and Popcorn Indiana. Compared to potato chips, the bellwether of the salty snacks category, which according to IRI have averaged growth of less than 1 percent per year since 2014, RTE popcorn has exploded by 17 percent per year over the same period. For ConAgra and Eagle Foods, the expectation is that better-for-you snacking options with fewer calories and less sugar, salt, and fat will continue to crowd out their potato chip competitors.

Plant-based foods: more than meat alternatives

In perhaps the most forward-looking of recent acquisitions, Nestlé bought the Californian-based company Sweet Earth in September, known for its chilled and frozen breakfast and entrée meals using its plant-based proteins branded as ‘Harmless Ham’ and ‘Benevolent Bacon’. This is part of Nestlé’s meals strategy to build out its plant-based food options, as well as draw a younger audience to the frozen food aisle, to appeal primarily to the growing ranks of flexitarians: consumers who eat meat but are no longer looking for it at every meal. Nestlé has plant-based meal solutions in Europe, but this is their first move into the U.S. market. Growing consumer interest driven by a number of different reasons (from ethics and health to sustainability) has led to a growing interest from food companies to provide relevant brands that offer up plant-based solutions while trying to avoid the ‘meat alternative’ labeling. Other recent examples include Unilever buying Sir Kensington’s and more recently Maple Leaf purchasing Lightlife Foods back in February.

The limits to brand-stretching

Perhaps the over-arching conclusion of these transactions is that they highlight the limits of trying to stretch existing brands into new categories. Kellogg’s is already established in snack bars (think Kashi, Special K, etc.), as is ConAgra in popcorn (Act II, Jiffy Pop, and Orville Redenbacher’s), but neither have been as successful as hoped for. Certainly, ConAgra’s brands have failed to transition from microwaveable into RTE popcorn. Rather than over-reaching with existing brands, companies are buying into the authenticity and hipness of these smaller players.

About author:

Nicholas Fereday is an executive director in Rabobank’s research department in New York, specializing in food and consumer trends. He has been quoted widely in the media including CBS, The Wall Street Journal, The New York Times and The Financial Times. Prior to joining Rabobank, he was a senior economist and VP sales & marketing for LMC International. Before that he worked for the Natural Resources Institute in the UK, The Department of Agriculture in Papua New Guinea and was also a journalist for The Economist Intelligence Unit. 

尼古拉斯·菲尔迪是荷兰合作银行纽约分行研究部的执行总裁和分析师，专注于食品和消费者动态研究分析。每月发表一次对美国食品行业的评论和分析，观点常被美国华尔街日报、纽约时报、金融时报、哥伦比亚广播公司等财经媒体引用。之前做过巴比亚新几内亚财政部顾问、大学教师、英国经济学人记者和农业经济咨询专家等工作。

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