Ferrero to gain scale in the US
On Tuesday, January 16, Nestlé announced that it agreed to sell its US confectionary business to Ferrero for $2.8 billion in cash. Nestlé’s confectionary business, which represents about 3.0% of its total US group sales, was losing market share to bigger rivals such as Hershey (HSY) and Mars.
A consumer shift toward healthy foods and away from sugary foods may have further encouraged Nestlé to divest its candy business in the US (SPY).
Despite this consumer shift, the confectionary industry is growing in the US. However, its growth rate has decelerated over the past few years.
Ferrero, which has been focusing on growing its business in the US, would gain significant scale with the acquisition of Nestlé’s brands. Ferrero would emerge as the third-largest chocolate company in the US behind Hershey and Mars.
What it means for Hershey and Mondelēz
Following this acquisition, Ferrero would emerge as a key player in the world’s largest chocolate market and could dent Hershey’s market share. Mondelēz’s (MDLZ) efforts to gain hold of the US chocolate market after Hershey turned down its $23 billion bid is likely to face new challenges.
Notably, packaged food manufacturers are shifting away from unhealthy sugary products. Instead, they have been focusing on reinventing their portfolio through acquisitions and innovation to better align with consumers’ changing needs and preferences.
Hershey and Mondelēz have been relying on innovation-led healthy products to drive sales amid sluggish demand for traditional products.
Mondelēz is witnessing traction in its newly launched well-being products, particularly belVita, Véa, Good Thins, and organic Triscuits. Hershey’s Cookie Layer Crunch and Popped snack mixes are also witnessing higher demand. Hershey announced the acquisition of Amplify Snack Brands, which produces the fast-growing ready-to-eat SkinnyPop popcorn brand.
Other major packaged food manufacturers are also reinventing their product portfolios and are moving toward healthier products. Kellogg (K), Conagra (CAG), and General Mills (GIS) have been reshaping their product portfolios through acquisitions and new product launches.
Please read Key Updates on Stocks of Packaged Food Manufacturers to gain insights on the prospects of the major packaged food manufacturers in the US.