PepsiCo. Inc.'s purchases of Quaker Oats Co. (Gatorade) and South Beach Beverage Co. announced with a splash its entrance into the sports and nutritional beverage markets.

A number of methods can boost food sales: 1) Create a marketing program that captures the attention of the nation and inspires tremendous demand; 2) Develop a new product that makes shoppers' mouths water with desire; 3) Just buy another company.

While R&D labs search for the next PowerBar and ad agencies struggle to find another "Whassup," U.S. food executives are finding that the easiest way to raise revenues and value is by buying them. For the 12 months ended June 1, 2001, the value of food industry mergers topped $69.2 billion, according to Los Angeles-based Mergstat, a global merger and acquisition information firm. To put that number in perspective, for the five preceding years, the value of all food industry mergers combined totaled only $50.1 billion.

Major food companies are on an acquisition spree not seen since the deal-happy 1980s, but unlike the Reagan years (where agreements were consummated for the sake of the big getting bigger) these deals are more strategic. The current run of M&As are based on the principles of placing a company in faster-growing, complementary food categories, expanding in geographic areas where they are weak, and positioning themselves better to counter consolidation on the supermarket side of the business that has given even more clout to retailers.

"Today, people obviously are acquiring to get bigger, but the mergers are more to wield strength with respect to retailers and maintain shelf-space. It is a different rationale today. Companies are getting bigger to defend brands," says Ben Buettell, managing director at investment banker Houlihan Lokey Howard & Zukin, Los Angeles.

Just look at the biggest deals of the past 12 months. General Mills Inc.'s acquisition of the Pillsbury operation from Diageo Plc. was practically a necessity for the Minneapolis packaged food company to compete with the burgeoning size of Kraft Foods Inc. (pumped up to new heights with last year's purchase of Nabisco Holdings) and Nestlé Inc. The deal made General Mills the third biggest food manufacturer in the U.S. and is expected to send a jolt of innovation to Pillsbury's stale new product development business.

PepsiCo Inc., drooling to get a foothold in the booming nutritional beverage market, established an instant presence by buying rebel beverage firm South Beach Beverage Co. at the end of October 2000. The purchase might have been bigger news had the soft drink and snack giant not acquired the Gatorade brand with its purchase of Quaker Oats Co. a month later, pending approval by the Federal Trade Commission. The deals suddenly gave Pepsi the leadership position in a category that had been passing it by.

The merger of Suiza Foods Corp. and Dean Foods Co. achieves "the virtual completion of our national geographic footprint," says Gregg Engles, Suiza's chairman and chief executive officer. Not since the glory days of Borden Inc. has a dairy processor approached such nationwide coverage. The deal should provide operating efficiencies of $60 million the first year and $120 million after three years.

What the Mergers Mean

One of the most common themes in deal activity is the desire to capitalize on the growing legions of on-the-go eaters. The restaurant share of the food dollar has been on the rise for more than 30 years, hitting 45.8% in 2000, according to the National Restaurant Association (NRA), and expected to hit 53% by 2010.

People want their food fast. Kellogg Co. has been hit hard by consumers eschewing tradition breakfast cereal for grab-and-go snacks. While the company has had great success with its convenience food division, the purchase of Keebler Foods Co. in October 2000 extends its snack penetration even more.

Besides the Gatorade brand, Pepsi will also get in Quaker a line of breakfast snacks to complement its dominant Frito-Lay business. The merger creates a company "with exceptionally strong position in the rapidly growing market for convenient foods and beverages," Pepsi says.

Looking to counter the Pepsi strategy, arch rival Coca-Cola Co. inked a deal with Procter & Gamble Co. in February to form a jointly owned but separate operating company that gives Coke a snack presence and Procter & Gamble a much wider distribution scope for products like Pringles and Sunny Delight. That venture, however, is still in the planning stages.

However, the deals are not all blue skies and lollipops. While analysts have generally praised the actions taken by food manufacturers to boost business, Wall Street investors have not been as eager. Through the first six months of 2001, practically all of the biggest U.S. food companies have seen their share prices tumble: Quaker, -1.5%; General Mills, -3.7%; Hershey Foods Corp., -5.3%; H.J. Heinz Co., -9.3%; Campbell Soup Co., -17.0%; Sara Lee Corp., -21.3% and ConAgra Foods Inc., -22.1%. Kellogg stands above the rest by merely posting a 0.6% gain.

In addition, a couple of the highly touted acquisition announcements are running into rough waters. Philip Morris has been planning to spin off Kraft since last year's acquisition, but analysts fear the uncertainty in food sector stocks--combined with possible residual effects of tobacco lawsuits-- might make the IPO waters a little rough. Also facing uncertainty is the Pepsi/Quaker deal, now being delayed by antitrust discussions with the Federal Trade Commission, that are expected to continue into the third quarter.

The next 12 to 24 months will see a slowdown in merger activity due, in part, to the economy but also because manufacturers need time to analyze the deals they have made.

"On the back of merger activity, you see a lot of divestiture activity. Now we are starting to see larger companies spin off non-core businesses and slower-growth brands. There will be internal reviews--companies questioning what to keep and improve and strengthen and what to get rid of," says Buettell. "There is still going to be M&A activity, but the number of larger deals will slow down as a result of the digestion, or perhaps indigestion, companies will go through." PF

PREPARED FOODS TOP 100 PUBLIC & PRIVATE U.S./CANADIAN FOOD & BEVERAGE COMPANIES
Ranking is based on 2000/2001 food & beverage sales. All figures in millions of U.S. dollars.

Sales Operating Income

na = Not Available * = Prepared Foods Estimate

¹ = Net Income

 

PREPARED FOODS TOP 100 PUBLIC & PRIVATE U.S./CANADIAN FOOD & BEVERAGE COMPANIES
Ranking is based on 2000/2001 food & beverage sales. All figures in millions of U.S. dollars.  

Sales Operating Income

	Rank								%						Net
2001		2000	Company	Web Address	2000/01		1999/00		Change		2000/01		1999/00		Change
51		45	Imperial Sugar Co.	www.imperialsugar.com		1,821		1,889		-4%		-		48		-48
52		49	Gold Kist Inc	www.goldkist.com		1,707		1,766		-3%		-21		122		-133
53		62	Leprino Foods Co.	www.leprinofoods.com		1,650*		1,240		33%		na		na
54		53	Rich Products Corp.	www.richs.com		1,600		1,500		7%		na		na
55		54	E&J Gallo Winery	www.ejgallo.com		1,590*		1,425		12%		na		na		3
56		57	Pilgrim's Pride Corp.	www.pilgrimspride.com		1,499		1,357		10%		81		110		-105
57		52	Del Monte Foods Co.	www.delmonte.com		1,462		1,505		-3%		147		113		34
58		55	JR Simplot Co., Food Group	www.simplotfoods.com		1,450*		1,400*		1%		na		na
59		60	Saputo Group	www.saputo.com		1,419		1,861		-24%		328		237		91
60		58	Vlasic Foods International	www.vlasic.com		1,308		1,357		-4%		-126		-6		-120
61		47	Schreiber Foods Inc.	www.sficorp.com		1,300*		1,800		-28%		na		na
62		56	Ocean Spray Cranberries Inc.	www.oceanspray.com		1,300*		1,365		-5%				135
63		63	Pro-Fac Cooperative Inc. (Agrilink)			1,269		1,239		2%		108		133		-25
64		61	Fortune Brands Inc.	www.fortunebrands.com		1,229		1,270		-3%		309		294		15
65		65	Dreyer's Grand Ice Cream Inc.	www.dreyers.com		1,194		1,100		9%		49		27		22
66			Shamrock Foods Co.	www.shamrockfoods.com		1,177		1,071		9%		na		na
67		74	Seaboard Corp.	www.seaboardcorp.com		1,151		920		25%		42		19		23
68		64	WestFarm Foods	www.weffoods.com		1,120		1,120		0%		na		na
69		67	Colgate-Palmolive Co.	www.colgate.com		1,118		1,069		5%		244		220		24
70		69	Prairie Farms Dairy Inc.	www.prairiefarms.com		1,102		1,046		5%		na		na
71		66	Associated Milk Producers Inc.	www.ampi.com		1,100		1,100		0%		na		na
72		59	Foremost Farms USA Co-op	www.foremostfarms.com		1,093		1,302		-16%		10		19				-91
73		68	Michael Foods Inc.	www.michaelfoods.com		1,080		1,053		3%		87		86		1
74		71	Aurora Foods Inc.	www.aurorafoods.com		1,000		876		14%		25		64		-39
75		70	Foster Farms Inc.	www.fosterfarms.com		1,000*		1,005*		-1%		na		na
76		72	Cott Corp.	www.cott.com		994		962		3%		45		8		37
77		77	McKee Foods Corp.	www.mckeefoods.com		865		860		1%		na		na
78			Sunkist Growers	www.sunkist.com		847		862		-2%		657
79		76	WLR Foods Inc.	www.wlrfoods.com		833		888		-6%		7		39		-32
80		79	Riceland Foods Inc.	www.riceland.com		825*		813		1%		na		na
81		86	Ralcorp Holdings Inc.	www.ralcorp.com		809		637		27%		36		36				01
82			Sensient Technologies Corp.	www.ufoods.com		809		796		2%		131		124		7
83		85	Goya Foods Inc.	www.goyafoods.com		770*		675*		14%		na		na
84		84	Great Lakes Cheese Co.	www.greatlakescheese.com		770		717		7%		na		na
85		78	American Crystal Sugar Co.	www.crystalsugar.com		731		844		-13%		377		386		-9
86		80	Vitality Beverages	www.pascobrands.com		700		800		-13%		na		na
87			National Grape Co-op Assoc.	www.nationalgrape.com		679		631		8%		82		80		2
88		87	J.M. Smucker Co.	www.smucker.com		633		603		5%		55		41			14
89		95	Sanderson Farms Inc.	www.sandersonfarms.com		606		559		8%		-6		23			-291
90			Florida's Natural Growers	www.floridasnatural.com		605		549		10%		na		na
91		89	Seneca Foods Corp.	www.senecafoods.com		605		576		5%		24		19		5
92		94	Russel Stover	www.russelstover.com		600*		560*		7%		na		na
93		92	Chef America	www.chefamerica.com		600*		575*		4%		na		na
94		96	Moyer Packing Co.	www.mopac.com		591		541		9%		na		na
95		98	American Foods Group	www.american-foods.com		580		510		14%		na		na
96		97	Lance Inc.	www.lance.com		576		531		9%		22		25				-31
97		82	Borden Foods	www.bordenfamily.com		571		777		-27%		3		27		1
98		91	Wells' Dairy Inc.	www.bluebunny.com		530*		580		-1%		na		na
99		93	Rocco Enterprises	www.rocco.com		525*		560*		-6%		na		na
100			Agri-Mark Inc.	www.agrimark.net		520		554		-6%		na		na

na = Not Available * = Prepared Foods Estimate

¹ = Net Income

TOP 50 GLOBAL FOOD & BEVERAGE COMPANIES
Ranking is based on food & beverage sales in millions of U.S. dollars. Does not include U.S. and Canadian companies.

Rank						Sales		Net
2001	2000		Company		Headquarters	($ million)		Profit
1		1		Nestle	Switzerland		45,855		3,246
2		2		Unilever	Netherlands/U.K.		21,127		2,300
3		3		Diageo	U.K.		16,651		2,777
4		4		Groupe Danone	France		12,308		1,335
5		9		Kirin Brewery	Japan		11,628		671
6		8		Asahi Breweries	Japan		11,599		628
7				Bunge	Brazil		10,000		na
8		5		Snow Brand	Japan		9,457		-434
9		6		Suntory	Japan		8,820		153
10		15		Nippon Meat Packers	Japan		8,451		98
11		7		Eridania Beghin-Say	France		8,315		-20
12		11		Maruha	Japan		8,992		11
13		17		Ajinomoto	Japan		7,531		-95
14		10		Heineken	Netherlands		6,888		571
15		14		Cadbury Schweppes	U.K.		6,318		1,100
16		20		Yamazaki	Japan		6,120		na
17		12		Associated British Foods	U.K.		6,089		526
18		19		Meiji Milk	Japan		5,872		127
19		13		Tate & Lyle	U.K.		5,735		325
20		22		South African Breweries	South Africa		5,424		646
21		21		Sapporo Breweries	Japan		5,156		135
22		34		FEMSA	Mexico		5,012		784
23		23		Groupe Lactalis	France		4,878		na
24		25		Nichirei	Japan		4,612		33
25		33		Nippon Suisan Kaisha Ltd.	Japan		4,338		-27
26		30		Uniq (formerly Unigate)	U.K.		4,229		44
27		24		Carlsberg	Denmark		4,025		388
28		43		Nisshin Flour Milling Co. Ltd.	Japan		3,819		103
29		29		Pernod Ricard	France		3,739		na
30		16		Allied Domecq	U.K.		3,614		555
31		26		Friesland Coberco	Netherlands		3,538		66
32		49		Grupo de Bimbo	Mexico		3,480		201
33		39		Bongrain S.A.	France		3,475		53
34		36		Morinaga Milk Industry Co.	Japan		3,343		17
35		42		Wessanen	Netherlands		3,343		83
36		35		Campina Melkunie	Netherlands		3,348		na
37		18		Parmalat Finanziaria	Italy		3,198		164
38		27		Scottish & Newcastle	U.K.		2,893		na
39				Kikkoman Corp.	Japan		2,854		na
40				AmBev	Brazil		2,730*		na
41		45		Panamco	Mexico		2,600			3861
42				Ezaki Glico Co. Ltd.	Japan		2,473		24
43				CSM nv	Netherlands		2,396		132
44				Nichiro Corp.	Japan		2,295		31
45		48		Kerry Group PLC	Ireland		2,209		147
46				Barilla G&R Fratelli S.p.A.	Italy		2,140		na
47		38		Glanbia PLC	Ireland		2,041		71
48				Foster's Brewing Group Ltd.	Australia		2,035		269
49		44		Arla Foods (MD Foods)	Denmark		2,016		64
50				Goodman Fielder Ltd.	Australia		1,902		147

na = Not Available * = Prepared Foods Estimate

¹ = Operating Profit

"Today, people obviously are acquiring to get bigger, but the mergers are more to wield strength with respect to retailers and maintain shelf-space. It is a different rationale today. Companies are getting bigger to defend brands."