Q: The grocery industry has undergone many changes over the last few years due to the pandemic. What is the current state?
A: Prior to COVID, grocery consolidation was active with brands like Amazon and Whole Foods partnering in new and innovative ways. Through COVID, there was a serious pause as the industry focused on meeting the consumer demands during the pandemic. With COVID receding, we have been seeing M&A activity pick up again, which is causing a chain reaction across other related sectors.
Q: What are the effects of this chain reaction?
A: One impact is that M&A activity has started to pick up in the snack food and packaged goods industry, as companies look for alternative channels to grow their top line with new sources of revenue. Smuckers’ acquisition of Hostess is one example and represents one of the biggest deals the industry has seen in five years. Although M&A levels are not quite what they were pre-pandemic, the increased rate of grocery consolidation points towards more food M&A to support food manufacturers’ sales growth goals, ability to leverage the cost structure and provide negotiating power with supermarkets.
Q: Do convenience stores provide a new opportunity for grocery and snack food companies? What other opportunities are you seeing?
A: Convenience stores are definitely a growing segment of the market as they target the snack and convenience consumer. It was one of the drivers of the Smuckers/Hostess deal, as the merger gave Smuckers increased access to the convenience store channel. Another area for opportunity within the food industry is the focus on “better for you” snacks, which is being driven by consumer demand for healthier alternatives. The snack category is beginning to put a strong emphasis on more natural ingredients, more protein enriched products and a wider variety of lower carb alternatives.
Q: What actions can food companies take to stay on top in such a competitive environment?
A: The ability to offer a broader assortment of products is key, because it gives them opportunities for growth as well as negotiating power with large grocery chains. I expect to see major food companies, such as Campbells and Smuckers, continue to diversify into other categories, like the “better for you” snack options, to boost their business. The companies who will succeed are the ones who can adapt to shifting consumer preferences.
Q: With interest rates remaining high, how is capital raising for some of the more startup-type snack companies?
A: The capital markets have tightened across all industries. But if you have a good business plan and strategy, there are still opportunities to get financing. It comes down to the quality of the management team, business plan and opportunity. The capital spigot is not totally shut off, but it is tougher than it was 24 months ago.
