Editor's Plate

Editor's Plate: Are Recent Acquisitions Signs of Desperation?

Deals will always be a part of this business, but they need to make sense. Several in the past month look questionable.

By Dave Fusaro, Editor in Chief

In the past month, Coca-Cola Co. agreed to pay $5.1 billion for a British coffeehouse chain. And who knows what obscene amount for sports-drink company BodyArmor. And pocket change for a little beverage brand called Moxie.

PepsiCo’s buying what’s essentially a kitchen appliance-making company (SodaStream International) for $3.2 billion.

Going back two months or so, Conagra’s paying $10.9 billion for Pinnacle Foods, That’s billion with a B. And not long before that, Nestle paid $7 billion for the right to distribute Starbucks products. And just before that, General Mills bought Blue Buffalo pet food company for $8 billion.

How desperate are these companies?

How does a coffeehouse chain fit into Coca-Cola strategy? Ditto for the PepsiCo, Nestle and General Mills buys. The Conagra-Pinnacle deal? Well, if you’re happy with second- and third-choice brands in mature (possibly dying) categories, when the experts say shoppers are buying either the leading brand or the store brand, then those two companies were made for each other. But $10.9 billion?

On the other hand, I know five companies whose top-line sales will grow next year. That’s the common thread here, top-line growth at any expense. Food and beverage companies seem to have peaked in about 2014 and have had a hard time growing ever since. In 2015, both sales and profits for many declined. But the second year, processors had started aggressive cost-cutting and profits resumed growth even as sales continued to decline. But you can’t keep cutting costs and losing sales forever.

Four of the five companies mentioned in those first few paragraphs have seen their sales decrease three years in a row, and the fifth, PepsiCo, eked out a tiny increase in 2017 after two straight years of decline. But that’s behind them all now, they’ve bought their way to sales growth. Hopefully, income growth will follow.

That’s not always the case. This month’s news pages tell of Campbell offering for sale just about every acquisition former CEO Denise Morrison made during her seven-year tenure (except Snyder’s-Lance). And Post Holdings shifting its private brands business – and much of its debt – into a newly formed company, 8th Avenue Food & Provisions, that Post will share with a private equity firm.

Post in a former life was a huge part of Ralcorp until the latter spun it off in 2012. Which allowed Ralcorp to be swallowed up by ConAgra for $6.8 billion ... only to be sold three years later to TreeHouse Foods for a mere $2.7 billion. Even bargain acquisitions may not be bargains: The difficulties in making that buy pay off gave TreeHouse its first annual loss in its history.

On the other hand, Tyson Foods last month paid $2.16 billion for Keystone Foods, one of the biggest animal protein suppliers to McDonald’s. Now that is interesting. And synergistic.

It’s a tough time to be a big food & beverage company. I don’t have the answer to organic growth of top and bottom lines. If I did, I’d be the new CEO of PepsiCo. But I am smart enough to think the companies that will be around in the future are making careful, synergistic acquisitions, not ones that just inflate the top line.

We’ve retired an editor

Kevin Higgins, our managing editor and plant operations writer for the past five-plus years, retired on Aug. 31. Some of you, especially the plant operations people, know him; all of you benefited from his many years and several jobs writing about – studying, really – the food and beverage industry.

Readers of all job categories should know him for his wide-ranging cover stories on such subjects as “Can GMOs Be Saved?” (this past June), “Nurturing New Age Food” (June 2017) and “Little Food Ascendant” (February 2016). His September 2015 cover story on Josh Tetrick, maverick founder of vegan mayonnaise company Hampton Creek (titled “Hero or Hustler?”) made him a finalist for a Jesse H. Neal Award, which is the equivalent of a Pulitzer Prize in the trade press. Very prestigious.

He had been writing about the food and beverage industry, with emphasis on the plant operations side, for 20 years. That’s enough to tire anyone. So give a read to this month’s cover story, which is his swan song, and virtually wish him well, as we do.