The supplier deck reshuffles
There’s some good and bad as companies and brands change hands.
Food industry mergers and brand acquisitions will likely place more upward price pressure on key categories, since food and nonfood prices are already rising today, says The Lempert Report. And supermarkets will have to decide whether to absorb them or pass them along.
Surviving companies do often shed costs by removing redundancies, yet these savings often go to satiate Wall Street or private investors rather than stores or consumers. This is especially true if manufacturers control greater category share as a result of a deal. If this happens, dozens of categories across retail selling floors could be affected, as Procter & Gamble culls its vast brand portfolio by about half.
For P&G, the strategy will be to focus on brands with the greatest growth prospects, and sell or disband the rest. If this shakes loose 90 to 100 brands that The Wall Street Journal says currently generate about $8 billion in annual sales, retailers may need to quickly reassess suppliers and the total impact on their business that any one enterprise has.
Meanwhile, as other CPG companies match their own brand lineups with what’s available from P&G, they should look beyond today’s financial performance. By figuring in evolving consumer buying and consumption patterns as well – and the potential these represent – they could select the strongest companion brands (that have global sales potential as well). Such holistic thinking could possibly enable the smaller companies that acquire P&G brands to leverage outsized gains. Well-conceived cross merchandising and trade promotions could help keep competitors and private label at bay. And new powerful stories that connect brands to customer lifestyles could stimulate new interest in categories as well.
Meanwhile, the acquisition of Hillshire Brands by Tyson Foods was moving through antitrust review at press time. That deal ended a bidding war between Tyson and Pilgrim’s Pride that drove the purchase price to about $8.55 billion – a level that Forbes called “significantly overpriced.” If that is true, where is the incentive to lower prices?