Private label has long been a defining feature of the industry landscape in Europe. The US, however, is different.
Historically, US consumers have preferred brands and the own-label sector is smaller in size when compared to this side of Atlantic. Nevertheless, the tide has changed over the last few years. There has been an increase in demand for “private-brand” foods, particularly during the economic downturn.
Against this backdrop, the likes of TreeHouse Foods and Ralcorp Holdings have made a series of acquisitions to strengthen their position in a buoyant market. Nevertheless, branded food companies have shown little interest in expanding in own-label, not won over by the sector’s growth and wary, perhaps, of the lower margins on offer.
ConAgra Foods, the maker of brands from Healthy Choice ready meals to Hunt’s ketchup, is different. The company is keen to increase its presence in private label and, for at least five months, has pursued Ralcorp. ConAgra has made two approaches, snubbed by Ralcorp, which has instead pushed ahead with expansion and unveiled plans to split itself in two – one company focusing on own label and the other on its Post Foods business, a branded cereals maker struggling against Kellogg and General Mills in a fiercely competitive US cereals market.
Last week, Ralcorp, which wants to “aggressively” pursue acquisitions in own-label, struck a deal to buy a private-label business owned by meats and coffee maker Sara Lee for US$545m. At the same time as announcing the acquisition, Ralcorp again outlined the benefits of its plans to divide in two. Analysts wondered what ConAgra, seemingly still in the background, would do next.
ConAgra upped its offer. On Friday, Ralcorp announced it had received a takeover bid worth $5.2bn. It also announced that it had turned down the offer.
Chairman Bill Stiritz said Ralcorp would stick to its plan to split in two, which, he said, would allow each company to focus on “strategies specific to their particular businesses” and “unlock additional significant value for our shareholders”. He added: “We are firmly committed to this plan and, therefore, we have unanimously determined that we have nothing further to discuss.”
Will ConAgra return to the table? Even the finest minds on Wall Street are unsure. Until now, the company has insisted it wants to buy the whole of Ralcorp. However, perhaps ConAgra could bide its time, wait for its target to split in two and make an offer for the private-label operations on their own, which would at least mean it would not be saddled with Post.
A number of M&A deals were struck last week. As well as Ralcorp’s acquisition of Sara Lee’s North American refrigerated dough business, in Europe, Irish food company Valeo Foods Group continued its consolidation of the country’s food sector with a move for JACOB Fruitfield Food Group and UK firm Symington‘s snapped up two brands from Unilever.
Valeo was formed last year when it was spun off from Irish agribusiness company Origin Enterprises. At the same time, Valeo acquired Batchelors and created a business selling brands from Odlums baking mixes to Batchelors baked beans.
Now, Valeo has moved to buy Jacob Fruitfield, the maker of Jacob’s biscuits, Fruitfield jams and Silvermint confectionery. And, as we reported in our In the spotlight column last week, analysts believe Valeo could follow other Ireland-based food companies and expand into the UK.
Symington’s is a UK company known for the Golden Wonder pot noodle brand and a line of products made under licence for celebrity chef Ainsley Harriott. More recently, Campbell Soup Co. appointed Symington’s to make a range of products for it in the UK, including the US company’s hallmark condensed soup.
Now, Symington’s has added Unilever’s Chicken Tonight and Ragu brands to its portfolio. The deal, Symington’s largest-ever acquisition, sees the company acquire the rights to the brands in the UK and Ireland. It said the brands had been “in decline” as Unilever shifted its priorities elsewhere but chief executive David Salkeld added: “We have a proven track record of taking on heritage brands, rejuvenating them and introducing new product developments.”
Revitalising Chicken Tonight and Ragu will be a challenge but its work with Golden Wonder and Campbell suggests Symington’s does have the credentials to succeed.