Dairy giant Danone has announced this week that it’s cutting €1 billion in costs over the next 3 years as business conditions are tough. Where? …. err everywhere, including fast-growing emerging mega-markets like China. Danone is not alone – in Europe, fellow fmcg titans Unilever, Henkel and Reckitt Benckiser are all desperate for growth. Even resilient Nestlé is struggling – “Swiss giant food company braces for slowdown as new chief hatches revival plan” screams the business press. Across The Atlantic it’s a similar scene for General Mills and Mondelez. There’s a well-worn strategic path taken by “Big Food” in these circumstances:
- First, slash costs to maintain margins. The drive is to trim fat/increase efficiency but, also, for self-preservation. Remember, around the corner lurking is 3G Capital and Berkshire Hathaway waiting to do a “Kraft Heinz” buy out and merger hatchet job on you! Scary, just ask Unilever!;
- Second, acquire a major player who is in a complementary and, preferably, higher growth part of the market. Danone has already done this with its purchase of WhiteWave Foods for $10 billion (completing this quarter) – owner of Alpro, Vega and Silk branded plant-based “non-dairy dairy” products which are expanding sales rapidly. Reckitt Benckiser (owner of Durex condoms, Dettol, Lemsip, Finish, Scholl, etc.) has mopped up infant formula producer Mead Johnson giving RB a jump start entry into fast-growing emerging markets where, currently, it has little presence. Dr. Pepper Snapple Group have snapped up Bai Brands maker of healthy, anti-oxidant rich new age drinks and, similarly, PepsiCo has bought the remaining piece of Kevita drinks company that it doesn’t already own (needless-to-say, Kevita drinks are organic, probiotic, gluten/GMO-free, vegan, stevia-sweetened and have very few calories);
- Thirdly, give the existing product portfolio a thorough make-over. In January, General Mills launched a raft of “new” or “augmented” products “meeting a range of consumer snacking trends worldwide” – new Cheerios RTE cereal with less sugar, anti-oxidant rich berries and whole grains; Yoplait Greek yogurt with extra protein and only 100 calories; Annie’s organic popcorn; Lärabar natural snacks which are gluten/dairy-free, non-GMO, Kosher and, for the lucky ones may contain a smidgeon of kale; Nature Valley muesli bars meeting the nut and non-dairy trends with added almond butter; and even Progresso soup has a 2017 face – Tuscany chicken broth, if you don’t mind!;
- Fourthly, and increasingly fashionable, is the trend for ”Big Food & Drink” to take ownership positions in exciting, on-trend, start-ups via their own in-house venture capital funds/companies.
Why would “Big Food &Drink” take the VC route? It’s an acknowledgement that they’ve been slow to spot and react to trends in increasingly fast-moving markets – fmcg companies they may be, but fast-moving they aint! The General Mills of this world have their genesis in the 19th Century – the brand Cheerios is 70+ years old, a youngster relative to 120 year old Kellogg’s Cornflakes. Brilliant performers in the era when the family sat down together for breakfast with father at the head and mother serving, they’ve looked more and more dated in the rushed world of the 21st Century and, now, sitting in the part of the supermarket that some call “The Morgue”, RTE cereals and highly processed foods look, frankly, old-fashioned. Quick-on-their feet start-ups, often run by those pesky millennials, have run rings around them – Rebel Kitchen and Sneakz Organics come to mind. But, give lumbering old fmcg its due “if you can’t beat them, join ‘em!”. So, they’ve offered VC finance to promising start-ups, taken ownership positions and, if they sense that the start-ups have market traction enough to make the big time, then, they just pop out and buy them:
- in mid-2016, Kellogg’s via its “all natural” company Kashi (acquired as long ago as 2000) bought vegan snack company Pure Organic; very recently, again via Kashi, Kellogg’s has invested in a tiny start-up Kuli Kuli which makes superfood bars and herbal teas from Moringa (a plant protein). General Mills has boosted its investment in Rhythm Superfoods, a kale chip start-up (gotta love that kale!);
- the General Mills VC vehicle is 301 INC (Emerging Brand Elevator), and Unilever has Unilever Ventures albeit specialising in financing personal care and digital start-ups. Campbell Soup launched a $125 million venture capital fund named Acre Venture for start-ups in February last year. Kellogg’s VC vehicle is eighteen94capital – “if you have a food-industry consumer product in-market or ready to launch, we have the capital and resources to take it to the next level. We’re all about collaboration, shared passion and a commitment to succeed”;
- it’s a moot point whether “Big Food” and new age start-ups can gel or are immiscible. We guess only time will tell. But Ben & Jerry’s is a decent example of success – acquired by Unilever in 2000 and still maintaining a slightly rebel edge to its culture and market positioning.
It is, however, instructive for “Big Food” to ponder on the following. Over the last 4 years, the entire USA groc
ery store food and beverage sales grew by just 2.3% per year (it’s been much less in the UK, in fact, the last couple of years sales were deflationary). The largest 25 food & beverage companies contributed only 0.1% of that annual growth. Where did the growth come from?: 20,000 small companies outside the top 100 which together saw revenue growth of $17 billion.
Thanks – very interesting. Why the slow down in the fast growing, emerging mega market China do you think?