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Are Food Industry Mergers About to Get Supersized?

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By Casey C. Sullivan, Esq. on February 22, 2017 2:59 PM

Kraft-Heinz made a $143 billion bid to takeover Unilever last week. The potential merger would have brought iconic U.S. brands like Jell-O and Velveeta together with Unilever best-sellers like Ben & Jerry's and Knorr's instant pea soup, creating a packaged food powerhouse to rival the world's current biggest food company, Nestle.

The takeover didn't work out, with Kraft withdrawing the offer over the weekend. But, it could be a sign that more food industry mergers are likely in the future.

Food Learns From Drinks

When it comes to food industry consolidation, Kraft has gotten "the grocery carts rolling," according to Reuters' Lauren Silva Laughlin. She compares the food industry's state today to that of the beer industry over the past decade. As craft beers boomed and interest in Bud Light waned, brewers experienced a surge in mergers, combining Ambev with Interbrew,  Anheuser-Busch with InBev, and Miller with Fosters. It was a frothy frenzy that gave us many new combination and hyphenated names, topping off with SABMiller's acquisition by Anheuser-Busch InBev.

Those deals, Laughlin says, helped companies cut costs while growing profits, even as their sales faced challenges. Today, she argues, food companies are in the same situation:

Between 2002 and 2016, global packaged-food sales grew at a modest 4 percent a year, according to research by Natixis. No single company has more than 3 percent of the $2 trillion global market.

Krafting a Solution

When it comes to packaged food, Kraft has already been a leader in merging its way to better business. The company became Kraft Heinz after a 2015 merger with the ketchup company and saw its operating margin jump to 23 percent last year, from 14 percent in 2015.

Kraft probably isn't done pursuing Unilever, according to analysts, and could be looking at other targets as well. Laughlin posits that Kellogg and General Mills could merge, "given their strong cereal roots."

Of course, any such mergers would have to pass regulatory scrutiny and antitrust laws could force companies to sell certain assets -- but right now, things are heating up.

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