Food companies hungry for snacks turn to innovation and M&A to fill up
In an industry beset by slow growth, Conagra, Hershey, Campbell Soup and other large CPG firms are focusing more of their attention on the burgeoning space with $89 billion in annual sales.
As Campbell Soup executives combed their portfolio of well-known brands including Goldfish crackers, Pepperidge Farm cookies and iconic soups, they were left with one overarching question facing many big food companies: How could they accelerate their reach into the fast-growing snack space?
But in early 2017, it became evident to top officials that if Campbell Soup wanted to meaningfully shift its portfolio into the faster-growing snacking category and become a powerhouse in the space, it needed a transformational deal.
“That idea of knowing that consumers are going to continue to go after snacking, ... that it wasn’t going to be a one- year thing, but a trend that we see over the next 10 years, was one of the part of the undercurrent of why we believe this is an opportunity to make an investment" in Snyder’s-Lance, Carlos Abrams-Rivera, president of the recently created Campbell Soup snacking division, told Food Dive. "I think across the company, across Campbell's, the teams are looking at opportunities to go into snacking."
The bold move for Campbell Soup came in December when it spent roughly $5 billion to acquire Snyder’s-Lance, the manufacturer of popular snack brands such as Pop Secret, Kettle, Cape Cod and Emerald in a deal that closed in March.
It ranks as the company's largest-ever acquisition, and its biggest bet yet to claim a significant stake in the snacking category. Soup, which is synonymous with the 150-year-old company, went from making up 35% of it's pre-purchase sales to 27% after it closed. The all-important snacks segment jumped from just below a third of total sales to nearly half.
But Campbell Soup is not the only company under pressure from consumers for healthier, smaller and more convenient food options that has tried to reinvent itself by latching on to snacking as a way to stoke growth and recapture shoppers who have abandoned its packaged food business. On the same day the New Jersey company agreed to purchase Snyder’s-Lance, chocolate maker Hershey announced the largest deal in its history: The $1.6 billion acquisition of Amplify Snack Brands.
Even though both Hershey and Campbell Soup have core operations that have defined their companies for more than a century, the rapid changes in food consumption have forced them to bulk up on snacks — in most cases looking outside their own organization for businesses to expedite that growth.
Bucking the slowdown in the food space
Snacking is one of the hottest categories in the food space. According to market research firm IRI, sales in snacking rose to $89 billion in 2016, posting an annual growth rate of 3%. Nielsen found the growth has not been confined to just one area, with all individual snacking categories posting sales increases from 2013 to 2016, lead by bars, jerky and cookies/crackers.
Food consumption is no longer relegated to the three-meals-a-day routine that defined the baby boomer generation. Increasingly, consumers — led by millennials and Gen Z, in particular — are eating more frequently but in smaller quantities. A study by Datassential revealed that on average, consumers eat about four to five snack foods a day.
"For us, we're in the right space by being into snacking. But just like in any other competitive environment, you have to figure out what gives you the right to win in that environment. It's not enough to play in the snacking area or provide snacking solutions."
President of Campbell Soup's snacking division
Consumers also are looking for healthier foods that cater to their on-the-go demands and which are made with a slimmed-down, recognizable ingredients list. Products also need to serve a purpose beyond just indulging, such as providing essential nutrients, replenishing energy after a workout, or substituting for a meal.
Analysts said while grabbing a treat like a candy bar or bag of chips remains a prominent part of the snacking lexicon, what is defined as a snack and how often it is consumed has changed significantly. This has allowed snacking options such a bar, a package of nuts, pre-sliced fruit or yogurt cups to grab a share of the ever-expanding market.
"For us, we're in the right space by being into snacking," Abrams-Rivera said. "But just like in any other competitive environment, you have to figure out what gives you the right to win in that environment. It's not enough to play in the snacking area or provide snacking solutions."
Boosting growth through M&A
Until recently, Big Food has traditionally prioritized making packaged items for meals, such as boxes of cereal, canned vegetables, frozen pizza and soups. They have generally been slow to embrace the snacking trend that smaller, more nimble startups have been all too happy to fill, Dave Donnan, a partner with global strategy and management consulting firm A.T. Kearney told Food Dive.
To be sure, companies have stepped-up their innovation efforts internally to make their existing product lines more conducive to snacking and convenience. Kellogg, for example, has answered the demand for portability by reconfiguring some of their top cereals. But an increasingly attractive option has been to go out and acquire smaller firms that define a particular snacking niche.
A year ago, Tyson agreed to pay $4.2 billion for AdvancePierre, a maker of ready-to-eat hamburgers, stuffed chicken breasts, cheesesteaks and other sandwiches supplied to restaurants, hospitals, schools, convenience stores and vending machines. Then in October, Kellogg announced it was acquiring Chicago Bar Company, which makes the popular clean-label RXBAR, for $600 million.
Mars took a minority stake in healthy snacking company Kind last November. And Hershey acquired Krave jerky in 2015 and Ripple Brand Collective, parent of barkTHINS, a year later. These deals were a prelude to Hershey's much larger purchase of Amplify, which punctuated CEO Michelle Buck's commitment to turning the chocolate maker into an "innovative snacking powerhouse."
"If [companies] want to jumpstart, if they want to get there much quicker, they'll have to do an acquisition because it does take time to build brand equity, to build distribution, etc. for a new brand," Donnan said. "It's never too late [to get into snacking]. It just means they will have to pay more to get into the market."
"If [companies] want to jumpstart, if they want to get there much quicker, they'll have to do an acquisition because it does take time to build brand equity, to build distribution, etc. for a new brand. It's never too late [to get into snacking]. It just means they will have to pay more to get into the market."
Partner, A.T. Kearney
Jonah Berger, a professor at the Wharton School of the University of Pennsylvania who studies social influence and consumer behavior, said food companies entering or expanding their presence in snacks need to tread carefully.
Executives must not only determine how to differentiate their company from others and make sure they have longevity as tastes shift, he said, but do it all without giving the impression that they are merely tying themselves to a trend and overextending their reach, or poorly executing in the process.
"Consumers are smart," Berger said in an e-mail. "Pretending to be something you’re not and jumping on every bandwagon isn’t going to work."
A narrow focus on snacks
At Conagra Brands, the food products giant made the decision last fall to strengthen its foothold in snacking by focusing on three core areas that it had prior experience in. These include protein — where David's sunflower seeds and Slim Jim jerky are the top brands in their categories; microwaveable popcorn — Act II and Orville Redenbacher, which together make the company the leader in this space; and sweet treats, including Swiss Miss and Snack Pack pudding.
Last March, Conagra acquired Thanasi Foods, the upstart manufacturer behind Duke’s meat snacks and Bigs sunflower seeds for $218 million. Six months later, it spent $250 million to purchase Angie’s Boomchickapop. So far, the company has eschewed big acquisitions and stayed away from other ultra-competitive snacking areas like potato chips.
"Competition is fierce," Dale Clemiss, president of Conagra's grocery and snacks division, told Food Dive. "What sets us apart at Conagra is that we have a really focused strategy, so we're not trying to be all things to all" people.
By focusing on a few specific categories in snacking, he said Conagra is better positioned with the brands they own to grow and evolve with the consumer.
A few years ago, Clemiss said executives noticed that as people got into their late teens, they started to abandon Slim Jim. Conagra decided to expand the brand in 2017 to include a premium line with better ingredients and more sophisticated flavors such as Spicy Chili and Garlic and Memphis Style BBQ. While Duke's has some overlap with the premium line, it has helped Conagra cement its status among consumers who value natural, grass-fed and protein-packed snacks.
As Conagra's focus on snacking has grown and more brands have been added to the fold, the company realized it needed to have the framework to support it. In April, the company consolidated all its snacking brands into one group and hired Burke Raines, the former chief marketing officer with Hostess, to head the operations. The division, with nearly 25% of Conagra's overall sales, also has its own marketers, sales team and research and development staff.
"As much as Conagra's got a strong culture, what's required to win in snacking is going to be different," Clemiss said. "We have to move faster with more agility and speed."
Dare to be different
Erin Lash, a director of consumer equity research at Morningstar, told Food Dive the size of the Hershey and Campbell Soup deals — along with other transactions, including General Mills' $8 billion purchase in February of Blue Buffalo Pet Products — likely have minimized the chance of another major tie up in the snacking space as these companies work to integrate these purchases.
If manufacturers venture into more M&A, most of their focus is likely to be on smaller purchases, much like Mondelēz International's $500 million acquisition earlier this month of Tate's Bake Shop, a brand best known for its premium bagged chocolate chip cookies.
Lash said companies have been prudent in their capital spending to acquire new businesses, a discipline they will need to maintain if asking prices escalate as competition for the best remaining snacking firms available intensifies.
"There is going to be continued consolidation in this space, particularly within that smaller bolt-on realm as opposed to larger transformational deals ... assuming the valuations are appropriate," Lash said. "There are obviously a number of potential buyers which could drive up the valuation prices that sellers are looking to amass."
"What's going to differentiate them is going to have to be around taste, which it always has."
Partner, A.T. Kearney
Today, the snacking focus among big companies in corporate America has been largely centered on making sure they have a stake in this burgeoning space. But Donnan said e-commerce will change how people purchase snacks — a niche that has always been tied to impulse buys at the cash register or aisle end cap — leaving companies to figure out the best way to get their products into the hands of consumers.
It also won't be enough to tout things like transparency, clean label, simple ingredients lists and the absence of artificial colors and flavors as reasons to buy one product over a competitor's, he said.
"Every company is going to do that. That's not going to differentiate themselves in the future," Donnan said. "What's going to differentiate them is going to have to be around taste, which it always has."
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