business news in context, analysis with attitude

The Wall Street Journal has a story about how stagnant growth at a number of food manufacturers is driving some to acquire smaller brands and products that they hope will bring a level of innovation to their companies.

It works when “it plays to the buyer’s existing strengths,” the Journal writes, but not when the acquisition becomes more about efficiency and less about effectiveness. Eventually, in many cases, “mergers designed to cut costs have been undermined by lack of growth.”

“One of the biggest failures was Campbell’s foray into fresh foods, which contributed to the downfall of former Chief Executive Denise Morrison, who stepped down last month. Under Ms. Morrison’s leadership, Campbell acquired carrot and smoothie seller Bolthouse Farms in 2012 for $1.55 billion, and salsa and hummus maker Garden Fresh Gourmet in 2015 for $231 million. But the canned soup maker struggled to grow carrots, leading to quality problems and cost overruns. Bolthouse’s beverages also lost favor with consumers due to their high sugar content—a reminder that health fads can shift quickly.”

The Journal says that “General Mills’ acquisition of mac and cheese producer Annie’s scores as a success … The company boosted Annie’s presence from around 20% of U.S. grocery stores to 80% and extended the brand to soup and yogurt, doubling revenue, said Jeffrey Harmening, who became chief executive last year. That success silenced critics of the deal who said the $820 million price was too high at 27 times earnings before interest, taxes and depreciation.”

The Journal also has a story about how “the classic consumer food companies—makers of cereals, snacks, soups and condiments—are no longer the staples of pantries or portfolios. Shares of some are down by a third or more over the past year as strategies to boost sales fail, and consumers embrace fresh food and new brands.

“Supermarkets are feeling the same pressure. Last year, unit volume of the packaged products sold in the middle aisles fell by 1.7%, according to research firm Nielsen. The only places where there was unit sales growth of groceries were in the outer aisles: fresh meat, produce, and bakery, according to Nielsen.”

The Journal writes that “four broad trends are coming together in the industry: Consumers are shifting toward fresh produce and meat, and away from packaged foods heavy on carbohydrates and sugar; digital advertising and e-commerce are allowing small brands like Kind bars to effectively reach big audiences; rising sales of prepared foods and meal kits are giving packaged brands added competition; and a group of aggressive new competitors in supermarkets, most notably Inc. but also European disrupters Aldi and Lidl, are pressuring margins across the industry.”
KC's View:
The strategies that work, I think, are the ones where all the players involved have a sense of narrative and mission … there is an organic sense to what a company represents, as opposed to just a desire to bolt on this company and that brand in the hope that it can jump-start growth.

I’ve always driven cars with manual transmissions, so I know something about jump-starting cars. It is possible to do, but it doesn’t always solve the core problem. Sometimes you need a new battery, and sometimes you need to drive the car for a long time just to get the existing battery recharged.

There’s also another metaphor I can use - to the best of my knowledge, you can’t jump start a car that is facing uphill. You have to be going downhill. (Maybe you can do it in reverse, but I’ve never done it, and I cannot imagine that it is easy.) The companies in trouble generally are facing uphill, and so jump starting the business with a quick deal or acquisition is a lot less likely to work.