Consumer demand shifts to fuel further consolidation: Rabobank

Food industry mergers and acquisitions will continue to be shaped by rapidly-changing consumer tastes and an increasing focus on the health and environmental aspects of food, according to Rabobank analysts.

Large established food companies will continue to adapt to an ongoing paradigm shift in food and agriculture markets through acquisitions that will allow them to offer more specialised products, according to Rabobank research.

At the Rabobank Markets Forum last week, analysts from Rabobank Food and Agribusiness Research and Advisory  explained that consumer shifts are driving a wave of consolidation and acquisitions in the food sector as big companies buy smaller, more-specialised firms that are focused on market niches.

“The consumer is really driving the strategy of big food and the only way for big food to innovate effectively is to outsource it through this type of investment,” said Rabobank head of mergers and acquisitions Donald Meltzer, noting that smaller companies in the $5 million to $10 million dollar revenue category are “going to see tremendous interest across the industry, with very high valuations”.

As examples reflective of this, analysts pointed to Tyson Foods’ acquisition of a 5 percent stake in plant-based protein provider Beyond Meat; General Mills’ $820 million purchase of Annie’s Homegrown; Hershey’s purchases of natural chocolate snack provider barkTHINS and KRAVE Pure Foods; and Campbell Soup’s purchase of Habit, a San Francisco company that creates personalised food recommendations based on individual DNA test results.

Consumers’ focus on health and wellness has driven a move towards natural ingredients and minimally-processed foods which challenges long-established products like frozen meals and breakfast cereals, Rabobank’s senior consumer foods analyst Nicholas Fereday said.

“As the tide turns, the most natural and organic products now are being sold in Costco and Kroger and mainstream retailers,” he said.

The analysts also pointed to trends driven by environmental, sustainability and animal welfare concerns as the main drivers behind recent consolidation. That includes the increasing number of Americans following a gluten-free diet, which has produced a decline in per capita wheat consumption, Fereday noted.

In addition, while the percentage of Americans who are vegetarian and vegan has remained constant for decades, so-called “flexitarians” – who only occasionally eat meat – are shifting market attention to plant-based and other alternative proteins, he noted.

The analysts expect both the consumer trends and the acquisitions to continue. However, retaining the creativity of a smaller operation that is needed for innovation will likely be a key challenge in the years ahead, Meltzer added.