Takeovers of smaller innovative brands will bring more dough to food stores, more relevance to large CPG.
Originally published in the weekly e-newsletter, Facts, Figures & the Future.
Food retailers should get their payday soon from the scooping up of small, innovative, well-managed brands by Big CPG.
It should happen once large manufacturers determine the potential impact of innovative brands they've bought to connect better with Millennial consumers - and begin to pump money into gaining them greater shelf presence. Facts, Figures & The Future (F3) expects that more slotting allowance payments and powerful trade promotion events will (a) bring food retailers more cash, (b) shift category dynamics and planogram placement in favor of the supported brands, (c) potentially raise category performance through higher-ticket transactions since these brands often have traits that earn a premium price, (d) give acquirers presence in more categories with more cross-merchandising opportunities, (e) potentially uptick center-store traffic, and (f) engage shoppers who become more aware of these brand choices through exposure in stores and media.
Wedding innovative brands (often with the same visionary management leadership intact) to the financial strength of established CPG powerhouses is a popular strategy today to retain company market share and consumer relevancy as shopping and eating habits evolve.
F3 believes the trend could bring center-store alive as it hasn't been in years - because Big CPG now has some new positive stories to tell that align with consumer interests, for instance, eating healthier.
A few recent examples: WhiteWave Foods agreed to buy Vega, a maker of plant-based nutrition products such as powdered shakes and snack bars. Campbell Soup agreed to buy Garden Fresh Gourmet Salsa, a maker of the #1 refrigerated salsa brand in the U.S. (IRi data), plus dips, hummus and tortilla chips; the brand will become part of its Bolthouse Farms refrigerated fresh platform, which also includes Campbell's retail refrigerated soups. ConAgra Foods agreed to buy Blake's All Natural Foods, a maker of frozen organic meals; IRi data show more than 33% growth between 2011 and 2015 in the natural and organic frozen single-serve meals category.
The fresh thinking of the acquired senior management teams could become contagious within larger enterprises and generate benefits yet to be seen, F3 believes as well. The less pigeon-holed this talent, and the more they're allowed to rise, the better we think it will be for CPG and retailers. New energy could be a tonic that distinguishes companies in today's low-growth economy, and helps cement foundations for future growth.
Realistically, financial pressures on U.S. households, which restrain them from free spending, will temper gains today. Millions of people are coping with food stamp cutbacks, tuition debt, unemployment and under-employment that is more rampant than government figures indicate, scant retirement savings, and mortgages that continue into retirement.
Nevertheless, David Molnar, partner & managing director at HighTower, told CNBC this week to expect more acquisitions (overall, not just in food) because of the nation's low-growth environment and the ability to lock in low interest rates for the long term.