Diversification continues with recent CPG acquisitions

Opportunities seen for growth in healthy snacks, retail foodservice

Mark Hamstra 1 | Jan 19, 2018

A spate of recent acquisitions and divestitures in the CPG space illustrates that such activity is still very much alive among suppliers, although the types of deals being done may be evolving.

Manufacturers for the past several years have been adjusting their product portfolios to add product lines in fast-growing categories, such as natural and organic, to compensate for slower moving legacy brands, particularly in center store. Those investments have yielded mixed results and in many cases burdened the manufacturers with debt, analysts said, even as they often yield learnings about the market and expand their better-for-you assortments.

In the past two to three years, many of these companies have increasingly looked at new ways of investing in emerging product lines and brands, such as through venture capital funds and incubators. These funds are often focused on niche product lines from startups that may not yet have mass distribution in traditional food retail channels.

“After over a decade of CPG companies acquiring and assimilating brands, they have realized that a lot of times, that doesn’t work,” said Diana Sheehan, director of retail insights at Kantar Consulting. “It’s actually the uniqueness of how those innovative small brands operate that makes them so adaptive and so flexible.”

Among the CPG companies that have formed venture capital funds or incubators for nurturing startups are Campbell Soup, Coca-Cola, General Mills, Mondelez, Unilever, Procter & Gamble and Néstlé.

General Mills’ 301 Inc venture capital division, for example, has invested in several food brands that represent a diversification from its core portfolio of cereals and baking products. The 301 Inc division recently led a $17 million series B round of funding for Urban Remedy, a California-based maker of organic, plant-based ready-to-eat meals and beverages that operates its own retail stores, as well as kiosks inside other locations and an e-commerce delivery business.

“Scaling a high-quality fresh food business is very challenging,” said Paul Coletta, CEO of Urban Remedy. “Our new partnership with 301 Inc and [new board member and former General Mills executive] John Foraker brings significant strategic resources and experience to our effort.”

Sheehan said she expects more investments from CPG’s venture capital firms and startup incubators in the year ahead.

“It’s a safe and smart way to invest, without going all in,” she said. “This allows them to follow the firm, then decide how much they want to spend over time.”

The concept of acquiring a small brand and trying to roll it out nationally “just doesn’t work any more,” said Sheehan. “It’s not the nature of retail.”

Opportunities in fresh, prepared foods

General Mils’ investment in Urban Remedy also reflects the potential opportunity that the fresh and prepared foods categories offer for CPG brands.

Campbell’s Soup, whose core center store business has been under pressure, has been one of the leaders in this area since its 2012 acquisition of Bolthouse Farms, followed by the 2015 purchase of Garden Fresh Gourmet.

Both those investments have proven challenging, however, as the company has struggled with weather-related issues that affected Bolthouse Farms’ carrot business and distribution challenges at Garden Fresh.

"The one-size-fits-all model that works in packaged food is harder to apply to newer, artisanal products, especially in the fresh aisles of the store," Ken Goldman, an analyst at JPMorgan, said in a research note last year.

Campbell, in addition to having its own venture capital fund to invest in food startups, called Acre Venture Partners, continues to diversify its center store portfolio with acquisitions as well. It recently sealed the biggest deal in its history, an agreement to acquire snack maker Snyder’s-Lance for $4.87 billion.

"This acquisition will dramatically transform Campbell, shifting our center of gravity and further diversifying our portfolio into the faster-growing snacking category," Denise Morrison, CEO of Campbell, said in a statement.

That agreement was announced the same week that Hershey Co. announced a deal to acquire Amplify Snack Brands, parent of the SkinnyPop brand, for $1.6 billion. The two acquisitions were among a cluster of deals in the fast-growing better-for-you snack category, including an agreement by Kellogg to acquire RXBar, and another for Conagra Brands to acquire Angie’s Artisan Treats, which makes Boomchickapop popcorn products.

While these and other manufacturers continue to make bets on what they hope will continue to be growth categories, many are also divesting some longtime core businesses.

Unilever recently said it would sell its spreads business to investment firm KKR, for example, and Nestlé said it would sell its U.S. candy business to Ferraro, the maker of Nutella spread, for $2.8 billion.

“It’s a smart move for both of them,” said Sheehan. “Ferrero’s whole focus in on sweets, and Nestlé needs to find some new avenues for growth.”

Sheehan said she also sees opportunities for CPG companies to expand beyond their core businesses by seeking to be a part of retailers’ foodservice offerings, another fast-growing category for retailers.

While the focus on channel blurring has historically centered around competition among brick-and-mortar channels of retailing, it has become more and more about food at home vs. food away from home, she said.

“For shoppers today, it’s not a question of whether I go to Kroger or whether I go to Walmart, it’s whether I eat in or eat away from home, and that changes the dynamic,” said Sheehan.

Manufacturers have traditionally sold products differently to foodservice and food retail channels, Sheehan said, but it is becoming increasingly important to consider their product portfolios more holistically.

“It’s not going to change completely overnight, but they need to start having conversations about foodservice,” she said.

Recent CPG investments and divestitures

A few of the recent deals announced by CPG manufacturers:

• Jan. 17, 2018 — General Mills’ 301 Inc division backs Urban Remedy, a maker of plant-based meals and beverages
• Jan. 16, 2018 — Ferrero to buy Nestlé’s U.S. candy business, which includes the Butterfinger, Baby Ruth and other brands, for $2.8 billion
• Jan. 4, 2018 — Lactalis to buy Siggi's, a maker of Icelandic yogurt
• Dec. 18, 2017 —  Campbell Soup to buy Snyder’s-Lance, maker of Kettle Brand, Pop Secret and other snack brands, for $4.87 billion
• Dec. 18, 2017 — Hershey Co. to buy Amplify Snack Brands, maker of SkinnyPop and other snack brands, for $1.6 billion
• Dec. 15, 2017 — KKR to buy Unilever’s global spreads business, for about $8.4 billion
• Dec. 14, 2017 — Unilever to buy Schmidt’s Naturals, maker of natural deodorants, bar soaps and toothpaste
• Oct. 23, 2017 — Conagra Brands completes acquisition of Angie's Artisan Treats, maker of Boomchickapop popcorn, for $250 million
• Oct. 6, 2017 — Kellogg Co. to buy Chicago Bar Co., maker of RXBar protein bars, for $600 million