The M&A move could present an opportunity for competitors, according to retail and grocery stakeholders.
Food and beverage giant J.M. Smucker recently announced its acquisition of Hostess Brands in a mammoth $5.6 billion deal. A move that big could have ramifications for competitors in the snacks category.
According to J.M. Smucker, the deal will help expand its portfolio, allow it to provide products for different occasions, and strengthen the company’s overall financial position due to Hostess’ scale and profitability. The transaction includes all of Hostess’ sweet baked goods brands, along with manufacturing facilities in seven states and a distribution facility in Kansas. J.M. Smucker is also set to receive 3,000 Hostess employees.
CPG Specialist spoke to retail and CPG stakeholders to learn more about how the acquisition might affect the competitive landscape of the snacks category, as well as how other snacks CPGs can prepare for the acquisition.
The Competitive Landscape
Given that J.M. Smucker and Hostess have complementary portfolios, the transaction should enable the former to enhance its strong presence in the snacks segment and further expand its reach within the convenience retail channel.
Generally speaking, however, large transactions usually result in a less-competitive landscape, according to David Sutton, private equity practice leader at advisory and accounting firm GHJ. Although choice may remain the same, the ability to compete on price will erode, and products will start to be bundled, he said.
Consolidation between these snack giants will most likely be unfavorable for their smaller competitors, Sutton continued. Vendors are likely to prefer catering to larger customers more than their smaller counterparts, leaving some out in the cold.
“Giants of an industry make it harder for new entrants to succeed, and for existing players to sustain longer periods of competition,” Sutton said in an email.
However, Sutton also said he believes the acquisition may not shift the needle too much on the competitive landscape overall, due to the abundance of established players in the consumer snack category.
A Leg Up on Peers?
The deal will add a meaningful expansion to J.M. Smucker’s consumer foods portfolio, providing an “insulating layer of depth” that its competitors do not have since it is arguably better positioned than premium rivals, Sutton continued.
However, the expanded portfolio also poses execution challenges and the potential for a reduced focus on a core set of products, he said, questioning whether the move would truly give J.M. Smucker a competitive advantage.
The deal will expand the Jif maker’s grocery presence and strengthen its buying power. But the success of the acquisition will come down to how well J.M. Smucker integrates Hostess into its existing retail distribution network and how innovative the CPG can be while doing so, according to Philip Alberstat, managing director at corporate finance advisory firm Embarc Advisors.
“Smucker’s is not known as a snacking brand,” Alberstat said in an email interview. So, he continued, the CPG will need to innovate and create shelf-stable snacks that could be placed into Hostess’ distribution network, such as more shelf-stable or Twinkies-flavored variations ofUncrustables.
“Would it have been better to go outside the sweet-baked category to diversify offerings?”Jeanna Madlener,
Alberstat was also unconvinced that the acquisition would give J.M. Smucker a leg up on its peers. Millennials and Generation Z consumers are currently moving towards better-for-you snacks, he said, and the acquisition does not necessarily do much for J.M. Smucker’s ability to provide healthier snacks, given Hostess’ lack of healthy options.
Jeanna Madlener, a VP at insurance brokerage and consulting firm Woodruff Sawyer, echoed Alberstat’s sentiment. She questioned whether it would have been better for J.M. Smucker to target another CPG to broaden its portfolio.
“The merger will bring together two sweet brands when we see consumer behavior moving away from sweets,” Madlener said in an email. “Would it have been better to go outside the sweet-baked category to diversify offerings or is it better to consolidate complimentary products?”
What Can Other CPGs Do to Prepare?
J.M. Smucker expects to close its acquisition of Hostess in November, December or January. To prepare, competitors in the snack category should prioritize maintaining shelf space and digital shelf “health,” according to Andy Friedland, chief revenue officer at retail technology company Swiftly Systems.
“This means ensuring top-notch content, including images and product descriptions, and establishing a strong presence with both large and small retailers,” Friedland said in an email, adding that J.M. Smucker’s expertise in retail media will likely boost Hostess, making it imperative for competitors to proactively secure their share of voice if they want to remain competitive.
Sutton said the acquisition will leave competitors thinking more about their own strategies and seeking a chance to capitalize if the deal plays out badly for J.M. Smucker.
“Has Smucker’s bitten off more than they can chew?” he asked, adding that the CPG’s management could be distracted by a focus on execution and present opportunities for its competitors to take advantage of.
However, if J.M. Smucker can figure out a way to make healthier indulgent snacks, its competitors should be nervous, Alberstat said.
“Other players will need to keep an eye on how Smucker’s introduces new products into the strong distribution network that Hostess already has,” he said.
If J.M. Smucker gets it right on innovation, he continued, it will put competitive pressure on existing snack CPG’s products that may get bumped by its new and innovative shelf-stable products.