Eager to occupy the thriving clean label market, food conglomerates have been gobbling up small competitors. PepsiCo is the latest to strike a deal.
Consumers’ preference for more natural, less processed foods has led to a flurry of food sector M&A activity in recent years. As analysts at Innova Market Insights assert, “clean label” – that is, no artificial flavors, colors, preservatives or sweeteners – is no longer a trend, but the rule. Products and competitors in the category have proliferated. Nielsen found that collectively, thousands of small food companies held 60% of the clean label market last year. To gain a foothold, food and beverage conglomerates have been acquiring their smaller competitors.
Healthy snacks are an area of particularly rapid growth. Snack sales in the U.S. have risen more than 12% in the past four years to $145 billion, according to Nielsen Retail Measurement Services. Much of this growth has come from organic or clean label snacks: Sales of nuts, trail mix, and organic savory snacks in the U.S. reached nearly $9 billion in 2017 from $7.8 billion in 2012, according to Euromonitor International. This growth has made healthy snack food companies tempting acquisition targets.
In March, Campbell Soup closed a $4.9 billion acquisition of Synder’s-Lance, maker of Snyder’s of Hanover pretzels and Cape Cod potato chips. It acquired organic product maker Pacific Foods late last year. Around the same time, Hershey announced plans to buy Amplify Snack Brands, the maker of SkinnyPop Popcorn and Paqui tortilla chips, for $1.6 billion. ConAgra purchased Angie’s Boomchickapop for $250 million, and Kellogg’s bought the Chicago Bar Company for $600 million, the New York Times reports.
Most recently, food and beverage giant PepsiCo announced it will acquire Bare Foods, a maker of baked fruit and vegetable snacks. “We have been on a journey of broadening the snack portfolio for many years now,” said Vivek Sankaran, President and Chief Operating Officer for PepsiCo’s Frito-Lay North America unit. The percentage of PepsiCo’s revenues coming from healthier food and beverages has risen from 38% to 50% over the past 12 years.
The real challenge in acquiring small or clean label snack food companies is predicting whether their offerings will have lasting appeal. “About eight or 10 years ago, you had a lot of small companies come into the world of snacking,” said Sankaran. “Many of them didn’t stick. Consumers tend to be fickle and try lots of different things. If something isn’t a powerful concept, it doesn’t last.” PepsiCo and its peers will have to wait and see.
