Given Saputo’s acquisitive recent past, its high levels of free cash flow and its recent indication that it will continue looking to M&A investment to drive growth, the news should – perhaps – come as no surprise.
Announcing the deal, Saputo insisted that the acquisition of DCI will “complement” the activities of its US business and increase its presence in the speciality cheese category south of the border. DCI’s portfolio includes import licences for speciality cheeses and the company manufacturers spreads, salsa, hummus and dips under brands including County Line, Great Midwest, King’s Choice and Nikkos.
However, when assessing the short- to mid-term prospects of the acquisition it is also perhaps worth noting that DCI’s stall is filled with higher-end goods. And, currently, the higher end of the dairy category in the US is not the greatest place to be.
In the current economic climate, US consumers are placing price over brand in the dairy aisle and the jury is still out on whether these new buying patterns will have a longer-term impact on the way US shoppers purchase dairy products.
This issue – and the need to drive volume – could restrict Saputo’s ability to push through higher prices. Add to the pot the likelihood of higher costs and margin pressure over the next 12 months or so and Saputo’s aim to be a big cheese in the US could face some serious challenges.