- Minnesota food distributor Schwan’s announced last week that it sold 80% of the company to South Korea’s largest food firm CJ CheilJedang, also known as CJCJ, for $1.8 billion, reported the Star Tribune.
- Schwan’s will retain 20% ownership, the CEO will remain in place, and the business will continue to run its home delivery service. The company’s main operations will remain in Marshall, Minnesota, and the corporate offices in Bloomington, Minnesota.
- CJCJ will gain 17 food manufacturing facilities and 10 distribution centers in the U.S. "Obviously there’s a certain amount of nervousness with a sale," Dimitrios Smyrnios, the company’s chief executive, told the Star Tribune. "We want to grow. This is not a cost-cutting exercise."
Amid a slow-growing food industry and a rash of acquisitions and mergers, this is not the first time Schwan’s has looked to sell. Last year, the company hired investment firm Piper Jaffray to help it assess strategic options, which many imagined would include a potential sale. While speculations about the buyer didn't pan out then, Schwan's took the plunge this time around, selling the majority share of its privately owned company to an overseas conglomeration eager to grow in the U.S.
With about $3 billion in annual sales, Schwan’s was an appealing target for many companies looking to expand their frozen food portfolios. Although frozen was a shrinking category for years, earlier this year sales in the segment posted the first positive volume growth in five years. The largest increase of 3% came from meals and appetizers, according to a report from RBC Capital Markets covered by MarketWatch.
Schwan’s frozen foods product portfolio — which includes pizza brands Red Barron, Freschetta and Tony’s; Mrs. Smith’s and Edwards pies; as well as Asian snacks brand Pagoda — is perfectly situated to benefit from this resurgence of interest in the category. An Acosta study found 26% of all U.S. consumers now shop the frozen foods department more frequently than they did a year ago. This increase is driven primarily by millennials who are searching for convenience. About 43% of that generation said they bought more frozen foods than they did in the prior year. Nielsen data found sales of frozen meals grew 2% in the year ended Oct. 28, a vast improvement from the 2.3% decline three years earlier.
Companies are presenting similarly renewed enthusiasm for growth in this sector by tapping innovations in ingredients, flavors and packaging with a focus on today's definition of health. Green Giant recently debuted its own line of frozen, spiralized vegetable noodles and Conagra is appealing to younger consumers through its new "power bowls."
Seeing a chance to expand into the U.S. market and gain a foothold in this growing category, the CJCJ group jumped at this deal. Already this company has billions in sales in South Korea — last year they reported $14.5 billion in sales, according to the Star Tribune — but they are currently confined to selling rice, noodles and Korean sauces and spices under the CJ, Annie Chun, Bibigo and Omni labels in the U.S. market. With the Schwan’s acquisition, CJCJ hopes to gain scale and cost efficiencies to not only enter the American food market, but to bring Korean products into more groceries and restaurants.
"CJ will accelerate the globalization of Korean food culture," Shin Ho-kang, chief executive of CJCJ, said in a statement.
Schwan’s, on the other hand, will continue to operate business as usual, but with this new partner, they might finally be able to fully expand across the U.S. — which it has been trying to do for a decade. It could also gain access to international markets and begin a much wider expansion, bringing frozen American food to the Korean population.