Retail, Food and Beverage

Retail, Food and Beverage M&A Outlook 2010

As the economy has worsened, the outlook for the retail, food & beverage (RFB) industry has grown increasingly grim. With less disposable income, RFB as an industry suffers. Further, shopping habits change in response to the recession. Many consumers have adopted a “recession mind-set” and have changed their spending habits, such as choosing “store brands” over national brands. Supermarkets are doing well as a result. This factor may well influence mergers of smaller markets into one or acquisition of a smaller market by a large supermarket chain.

Further, health is an issue. Aside from various E. coli, salmonella, and H1N1 scares, which have resulted in various new accreditation programs, many consumers have responded to recent campaigns painting obesity and type 2 diabetes as major health concerns, causing significant, albeit modest, increases in health and wellness-related products. The trend toward “green” and “sustainable” products continues to expand the size of a valuable niche market characterized by high value, frequent purchases, frequent marketing trips and high brand loyalty. This trend has resulted in large multinational or international corporations acquiring smaller organic farms and plants to hedge their brand portfolios.

Going forward, 2010 likely will continue to see M&A activity in the health/wellness and weight loss sector and the “green living” sector, as well as modest interest in low-cost goods. Larger companies will look to acquire established low midmarket companies to capitalize on a particular niche market. Shopping methods have also grown into a niche, with an increasing number of shoppers choosing to purchase goods online, a factor that may cause established RFB giants to acquire smaller companies that already have the needed technology and/or in-house knowledge.

But the overall 2010 outlook for the RFB industry is much darker. There is a general lack of consumer confidence. Many RFB companies may find sales decreasing rapidly. This coupled with difficulty finding access to financing will leave many companies desperate and facing the prospect of fire sales. Unfortunately, those who would purchase distressed RFB companies will face these same issues. For those who can afford the high levels of equity that will be required, the rewards will be huge.

Thomson Reuters announced on March 1, 2010 that 189 M&A deals have already been announced for the year, totaling $374 billion. Of that sum, $12.3 billion is attributable to Coca-Cola and its recent decision to purchase its bottling operations in an effort to control costs and improve productivity. In addition, Kraft Foods bought Cadbury for $19.5 billion.

SOURCES: PriceWaterhouseCoopers, Deloitte, Investment Dealers’ Digest

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• Retail, Food and Beverage M&A Outlook 2009
• Food & Beverage M&A Overview 2008