Dive Brief:
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Both Unilever and Nestlé are in a honeymoon period, and have beaten analysts’ expectations during the first quarter – but they face an uphill battle to deliver in the longer term, says Bloomberg.
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After turning down a $143 billion takeover bid from Kraft Heinz in February, Unilever has outlined a plan that includes selling its spreads business and gaining ground in developing markets, which now account for 58% of its sales.
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Meanwhile, Nestlé’s new CEO, Ulf Mark Schneider, has wooed investors with plans to expand sales and cut costs. Although the company’s first quarter organic growth was still the lowest for over a decade, analysts expect to see improvement in the near future.
Dive Insight:
The changes taking place at Unilever and Nestlé have given investors cause for optimism. However, the North American market in particular presents a challenge, as consumer spending has slowed in recent months.
As part of Unilever’s plans to change the mix of its business, it is keeping a close eye on North American trends, most recently with the purchase of New York-based ketchup and egg-free mayo brand Sir Kensington’s, Bloomberg reports.
Unilever’s rejection of the Kraft Heinz bid is far from unique in the M&A-hungry food sector. Last year, for example, Hershey refused a $23 billion offer from snack giant Mondelez, which would have combined Hershey’s Kisses and Reese’s candies with Mondelez brands Cadbury and Oreo. Immediately following the bid, General Mills, Kellogg, B&G Foods and Tootsie Roll all saw notable rises in their stock price, revealing investors’ appetite for consolidation in the industry. Fortune suggested that some were still hopeful for a Hershey takeover.
On the other side of the coin, Cadbury ultimately was unable to see off a hostile $19 billion Mondelez bid back in 2009, despite high-profile opposition to the deal.
This kind of mega-deal is hard to pull off, and many of the world’s biggest food companies instead are focusing on revamping their product range, acquiring smaller brands that help update their image — as it seems Unilever aims to do with the Sir Kensington’s purchase.
Expanding into new categories through acquisitions is a time-tested strategy, although it doesn’t always work out. Campbell Soup, for example, aimed to shake its reputation as a canned food maker. It made acquisitions including Bolthouse Farms, Plum Organics, Kelsen Group and Garden Fresh Gourmet. So far, the company has struggled to capitalize on its investments.
Meanwhile, M&A activity at Nestlé has been quiet recently, but Schneider has said the company will look at potential targets when the time is right. Unlike Unilever, Nestlé has ruled out shedding underperforming categories, like prepared foods and confectionery.