At first glance, Mars’ decision to pay a whopping $36 billion for Kellanova – home of Kellogg’s (outside the US) and Pringles – may have raised eyebrows.
If the deal goes through (and despite some speculation there may be competition concerns, antitrust authorities are unlikely to block or seek to redraw the deal), the acquisition will be the largest in the food sector in some time – and by some estimates, the largest M&A deal overall so far in 2024.
Mars’ decision also comes at a time of growing concern about the long-term prospects for less healthy foods. Despite all the headlines about topics like GLP-1 drugs, a growing number of consumers are making the connection between what they eat and their health.
In recent years, the privately held maker of Snickers and Twix chocolates has itself sought to consolidate its portfolio, using mergers and acquisitions to add healthier products to its assortment.
Last year, Mars made another move into the “better-for-you” food space by acquiring prepared meals and sauces company Kevin’s Natural Foods for an estimated $800 million.
In 2022, the company acquired Tru Fru, an American healthy snack company. Two years earlier, Mars had bought full ownership of Kind, an American manufacturer of healthier snack bars (but still with flavors like dark chocolate and nuts) – after acquiring a minority stake in the company in 2017.
Nevertheless, Mars has demonstrated its willingness to continue investing in snacking and chocolate; its decision last year to buy Hotel Chocolat, a British retailer of premium chocolate products, is a good example.
The company’s Kellanova transaction should be viewed in this light. The Hotel Chocolat and Kellanova transactions underscore the continued strength of snacking as a trend and, more fundamentally, as a way of consuming food, while also highlighting What People’s snacking habits are changing.
Hotel Chocolat is a business that was built on consumer interest in premium chocolate and its provenance and origins. The decision to turn to Kellanova – with Pringles as the flagship product of its snack range – reflects a desire to meet the demand for savoury snacks.
Talk to Just food Looking at trends in the U.S. — and before Mars announced its acquisition of Kellanova — John Baumgartner, an equity analyst covering the sector for Mizuho Securities, suggested that consumers were less concerned about the health implications of salty snacks compared to their sweeter counterparts.
“If you think about the snack industry, if you look at the volume of consumption per capita for chocolate, for confectionery, you had seen volumes decline virtually every year for five to seven years before Covid,” Baumgartner said.
During the pandemic, sales picked up, he noted, before adding: “Inevitably, you were going to hit a wall for some of these categories, where you go back to trend.
“Some of these snack categories are clearly under more pressure than others. When we compare salty snacks to sweet snacks in our consumer survey, we find that consumers see sugar as the most unhealthy ingredient and sodium as slightly less so.
“We also see that consumers are increasingly aware of issues such as diabetes and the health consequences of sugar consumption. As a result, salty snacks are more popular than sweet snacks.”
Mars isn’t alone among the global chocolate heavyweights in looking to expand its snacking empire into savory options — look at Hershey’s recent M&A activity.
At the end of last month, Just food Shaun Browne, President of Houlihan Lokey’s Consumer Practice in Europe, discussed the trends driving M&A in the food sector. He believes that companies that are not active in the less healthy segments of the market are unlikely to enter these categories, but that those that are already present need to respond.
“If you are not currently in the junk food space, why would you want to get into it? People are looking for growth and that is usually in the healthier segment of the food market. But nobody believes that we are going to see the consumption of snacks and chips go away,” he said. “If you are already in the biscuits, chips and cakes and so on, you cannot easily reinvent yourself, but you have to act when you see competitive threats.”
Industry observers will now be looking ahead to what might happen next.
Internally, once the dust settles on this deal, parts of Kellanova’s portfolio could find new homes. It’s hard to imagine Mars, for example, keeping the plant-based business centered around the MorningStar Farms brand.
But, perhaps more importantly, how might Mars’ rivals respond? The Kellanova deal and the potential marriage of salt and sweet have recalled discussions in recent years about the possibility that Cadbury and Mondelez International, owner of Oreo, might one day team up with PepsiCo, maker of Lay’s and Doritos. It was a deal proposed by activist investor Nelson Peltz more than a decade ago, but an idea he abandoned when PepsiCo said it wasn’t interested.
“We have long believed that a merger between Frito-Lay and Mondelez would be the ideal global deal to merge salty and sweet snacks,” AllianceBernstein analyst Alexia Howard wrote in a note last week, when rumors of Mars’ interest in Kellanova first surfaced. There is no indication at this point that Mondelez or PepsiCo are interested in such a deal.
Howard noted that the Kellanova acquisition could lead to more deals in the U.S. food sector in particular, which she is focusing on.
“This deal could have broader implications for consolidation in the packaged foods sector: it’s a larger deal than many we’ve seen in recent years, certainly since the Kraft-Heinz merger in 2015. Perhaps unsurprisingly, Kellanova has become an acquisition target since it spun off its underperforming North American cereal business last fall, as it is now a more attractive business with a more global footprint and much higher exposure to snacking.
“It is possible that a deal of this magnitude could attract interest from a broader range of activist investors who would like to see further consolidation in the packaged food sector, given that the U.S. food sector remains a much more fragmented sector than other commodity sectors in developed markets.”
“Mars’ gesture for Kellanova highlights the persistence of snacking – and the changing shape of indulgence” was originally created and published by Just Food, a brand owned by GlobalData.
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