Analysts are calling it a $2.8 billion testament to Americans’ changing tastes in food: On Tuesday, Nestle — the maker of Butterfinger, Baby Ruth and Raisinets — agreed to sell its U.S. candy brands to Nutella-maker Ferrero.
The deal is the latest in a torrent of food company mergers and acquisitions — the result, analysts say, of anemic growth in traditional packaged foods as a result of consumers’ ever-healthier preferences. That changing landscape is causing many large companies, such as Nestle and Ferrero, to reorient their strategies.
Nestle, the country's fourth-largest candy company, has said it put its U.S. candy business on the market to focus on healthy foods. The Italian Ferrero, meanwhile, is trying to expand into new territory — and will become the third-largest U.S. candy-maker in the process. The United States is the world's largest candy market.
“We’re seeing more and more mergers and acquisitions every year,” said Jennette Rowan, who tracks mergers and acquisitions for the Food Institute, an industry research and data firm. “In this environment, creating a new brand is more difficult than acquiring one that already resonates with consumers.”
According to Food Institute data, 587 companies completed mergers and acquisitions last year, vs. 505 in 2016 and 410 the year before that.
The largest of those deals, Amazon’s acquisition of grocery chain Whole Foods, topped $13.7 billion.
But the candy and confectionery sector has also been swept up in the M&A frenzy, bedeviled by competition from new better-for-you snack brands. Growth in the confectionery sector has slowed in recent years, down to a mere 1.7 percent in 2015 and 2016, according to Euromonitor statistics. The U.S. candy business is worth $33.8 million.
Many confectionery companies — including Nestle — have diversified into other products, such as coffee and vitamins, said Marlene Givant Star, the global industrial sector head at the financial analysis firm Acuris. Nestle acquired a majority interest in the high-end coffee shop Blue Bottle in September and has announced plans to buy the supplement-maker Atrium Innovations. Atrium's products include Garden of Life, a line of organic oils, powders and multivitamins, and Pure Encapsulations, which makes “research-based dietary supplements.”
In November, Snickers-maker Mars completed its purchase of a line of microwaveable vegetarian meals. And in December, Pennsylvania chocolate-maker Hershey’s bought Amplify Snack Brands, the maker of SkinnyPop popcorn.
“All of these companies are trying to reorient themselves toward healthier foods,” Star said. “Nestle is following that lead by divesting its candy business.”
For Ferrero, the play is slightly different, Star added. The Italian company is betting that it can ride out the dip in candies by expanding into new markets. Like other candy firms, it has been on a buying spree lately, snapping up Fannie May Confections, which makes boxed chocolates, and Ferrara Candy Co., which makes Lemonheads and Brach’s.
“In combination with Ferrero’s existing U.S. presence, including the recently acquired Fannie May Confections Brands and the Ferrara Candy Company, we will have substantially greater scale … in the world’s largest confectionery market,” executive chairman Giovanni Ferrero said in a statement.
Which strategy will work best in the long run remains to be seen. But consumers shouldn’t worry about their favorite brands disappearing, Star said. It is unlikely that Ferrero or other new owners will ax product lines that are performing well.
In the meantime, large companies such as Nestle will continue to add or buy new, innovative products as they rejigger their portfolios.
“I don’t think consumers are going to have any shortage of snacks to choose from,” Star said. “We’re seeing such huge growth among these fledgling brands, and such huge interest in acquiring them.”