Who’s Your Daddy In Food Industry?

Recently I did some cleaning out of my research articles I collect over the years, I ran across the following articles that I just could not get rid of and felt the strong urge to share. Some info may be a little out of date but the message from the food industry is still quite obvious true today. Read it and judge for yourself. So here it is, per verbatim, without editing on my part.

Who’s Your Daddy? Guess 8 Surprising Ownerships in the Food Industry

February 4th, 2011

Can you guess which megacorp on the right owns each of the young brands on the left?

 

In many cases, these baby brands don’t prominently display their parent company logo on their packaging or website because they want to retain an innocent, healthy image, one that is long gone in the multi-billion dollar conglomerates.

Here’s the list:

  1. Stoneyfield Farm, a producer of organic dairy products led by visionary entrepreneur Gary Hirshberg, is owned by French Danone Group, manufacturers of conventional Dannon Yogurt. It’s not full ownership, rather a majority stake.
  2. Horizon Organic is part-owned by Dean Foods, one of the largest conventional dairy and soy companies in the world.
  3. Cascadian Farm, purveyor of organic cereals, is owned of  General Mills. The brand is part of Small Planet Foods, whose portfolio includes Larabar and Muir Glen. General Mills acquired Small Planet  in 2000, to the dismay of some fans of Cascadian Farm.
  4. Not to be outdone, Kashi is owned by Kellogg’s since 2000.
  5. Ben and Jerry’s, eco-loving cows and all, is owned by Dutch food conglomerate Unilever.
  6. Honest Tea, Odwalla, Dasani water, and Sokenbicha Japanese tea are all owned by Coca Cola.
  7. Naked Juice is owned by PepsiCo.
  8. Jenny Craig, the fitness empire, is owned by Swiss Nestle. They now have an entire line of foods for weight loss…

What you need to know:

Many of the companies started out as small regional players. But getting shelf space in supermarkets is incredibly difficult. As are the distribution logistics when you want to grow from one metro area to several, or to expand nationally.

Becoming part of a big food corporation solves these two issues nicely. It usually brings in a tidy amount of cash to the founding team as well.

Sounds like a win-win. But what can be the downsides?

  • Degradation of product quality. This can happen because corporate HQ now demands cost cutting measures every quarter. It can also happen as a result of opting to work with cheap ingredients rather than more expensive locally sourced inputs.
  • Reformulation of products. Example: Cascadian Farm customer noticed a funny new taste one day. it turns out the cereal tripled its sugar count!

This doesn’t always happen. But it happens enough

Nestle wins pricey battle for Pfizer baby food unit

ReutersBy Martin de Sa’Pinto and Catherine Bosley | Reuters – 26 mins ago

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ZURICH (Reuters) – Swiss food group Nestle is to buy U.S. drugmaker Pfizer’s baby food business for $11.85 billion, beating out French rival Danone in the battle for dominance of fast-growing emerging markets.

The world’s biggest food company had to dig deeper than expected into its ample pockets to win the high-stakes fight for Pfizer Nutrition, which makes 85 percent of its sales in emerging markets.

“The price tag is high, however Nestle is securing a high growth/margin business with high exposure in the emerging markets. China will become the number 3 market for Nestle overall,” said Vontobel analyst Jean-Philippe Bertschy.

Nestle said the deal would add to earnings per share from the first year, and would allow cost synergies of $160 million. Bertschy estimated the deal would add about 0.5 percent to earnings per share in the first year and 1.5 percent in the following years.

Nestle shares, which hit an all-time high of 57.50 francs ahead of solid first-quarter results last week, fell 2.19 percent to 55.85 francs at 1104 GMT, compared with a 0.96 percent weaker European food and beverage index. The shares were trading ex-dividend, but were down less than the 1.95 francs payout.

“Although the growth profile, attractive margins and emerging market exposure makes this a compelling asset, we believe that the multiples being some way ahead of market expectations may dampen near term enthusiasm for the deal,” said Citi analyst Robert Dickinson.

The deal price was well above the $10 billion which had been expected. Nestle said it was paying 19.8 times expected 2012 core earnings, above previous Nestle deals in the sector when it paid 15.7 times for Gerber and 17.6 times for Novartis Nutrition, according to Citi.

Danone shares rose 2.1 percent to 53.54 euros as investors expressed relief that the French group would not have to leverage up its balance sheet to pay a big price for Pfizer.

CHINESE MARKET KEY

The Pfizer unit is a high-growth business built on its top SMA Gold brand, which ranks number five globally in the infant milk formula market – the world’s fastest-growing packaged food category – after Nestle, Mead Johnson, Danone and Abbott Laboratories, with a quarter of sale in China.

Nestle said the Pfizer business should boost its margins and it forecast its sales at $2.4 billion this year, bringing revenue from the combined business to above $7 billion.

Chief Executive Paul Bulcke said it was premature to comment on regulatory issues, but analysts have speculated Nestle might have to sell 25 percent of the Pfizer unit by disposing of interests in Latin America, southeast Asia, Australia and South Africa, which could be bought by Danone or Heinz.

Chief Financial Officer Wan Ling Martello said the deal, to be paid for by a combination of cash and debt, could close at best in six months but it could take up to a year.

Kurt Schmidt, head of Nestle Nutrition and former chief executive of the U.S. baby food group Gerber that Nestle bought in a $5.5 billion deal in 2007, said the global infant nutrition market was worth $30 billion.

He said the market is growing 10 percent annually, with emerging markets accounting for 73 percent of sales and with a 13 percent growth rate due to increasing births and affluence there.

The $6 billion Chinese market is key as it is set to double to $12 billion by 2016 to feed 16 million new births a year. Mead leads the Chinese market followed by Danone. Pfizer is fifth with an 8 percent share, while Nestle has just 4 percent.

Nestle’s roots go back to the 1860s development by Henri Nestle, a pharmacist, of the first infant formula for babies whose mothers who could not breast feed.

Nestle, which expects emerging markets to account for half of total sales by 2020 from 41 percent last year, has been an active player in recent emerging markets merger activity, taking stakes in two Chinese food companies.

“The deal makes strategic sense, it really was Nestle’s deal to lose as it very much wanted to add to its Asian business and boost growth and margins,” said Kepler analyst Jon Cox, adding the price was almost as high as Danone’s 2007 buy of Numico.

Danone paid 12.3 billion euros in 2007 for Dutch food group Numico, at the time Europe’s largest baby food producer, paying a similar multiple, a price many analysts said was too high.

(Additional reporting by Emma Thomasson in Zurich and David Jones in London; Editing by Hans-Juergen Peters)

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Posted by Paul

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