The recent news on Post holdings Inc. acquiring Weetabix does not seem to be out of place, in terms of mergers and acquisitions in the food industry. There is continued expectation that the food industry will continue to get consolidated, as market participants across the supply chain try to meet various challenges faced by the industry.
The common perception is that businesses are sold when they are struggling to meet their objectives in a particular market, however, these acquisitions sometimes go beyond this and it is beneficial to explore the growth opportunities offered.
Weetabix is consumed by a considerable number of people and is a top cereal brand in the UK, thus holds a significant market share. However, the brand also operates in a mature market with stiff competition; in line with the rise of supermarket own brands.
Weetabix’s products are high in fibre and it remains one of the top breakfast cereals that targets digestive health. According to Frost and Sullivan’s latest report on prebiotics, the global prebiotic ingredients market is expected to register a CAGR of 5.4% from 2016 to 2021. This growth will be highly dependent on consumer trends, one of which is the need to increase fibre consumption plus the continuous focus on gut health. Various food health authorities and nutritionists recommend that an average adult should consume 25 to 35 grams of fibre through their daily diet. However, consumers still struggle to achieve this. Consequently, digestive health remains a top reason for consumers purchasing functional food and beverages, which shows the significant value of this acquisition.
On the other hand, consumers interested in freedom foods might not see significant value in this acquisition. The food and beverage industry is currently dominated by trends such as clean label, reduced sugar, “free from”/freedom foods; hence it is now a necessity for participants across the supply chain to capitalise on these trends. The main ingredients in Weetabix is whole wheat grain which poses a challenge for the growing trend of moving away from wheat and gluten (either by personal choice or for allergy reasons), thus some people might question the value of the £1.4bn deal. Nevertheless, the acquirer (Post holdings) is not new to acquisitions and the company has successfully taken this route to growth, while also strengthening is portfolio and reaching more consumers across the globe. Post holdings Inc. reported record sales of USD 5.03 billion in 2016, of which Post consumer brands (ready-to-eat cereal) contributed 34%. In 2015, Post Holdings also acquired MOM brands, another cereal breakfast manufacturer. Other recent acquisitions by Post Holdings include: Willamette Egg Farms (2015), American Blanching Company (2014), Michael Foods (2014), Power Bar and Musashi (2014), Dakota Growers Pasta (2014).
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