Anticipation

As the first three months of 2015 unfolded in the midst of a prevailingly fertile climate for food industry mergers and acquisitions, it was logical to presume at least a few key deals were in the works in the CPG supplier community in the aftermath of a sharp uptick in retail deal flow over the past two years.

But few saw the blockbuster $46 billion union of H.J. Heinz and Kraft Foods Group brewing, the consummation of which is expected to close in the second half of the year, and which will most assuredly go down in the books as one of the most widely watched and carefully chronicled mergers for years to come.

Spearheaded by the $72 billion Oracle of Omaha, Warren Buffett, chairman and CEO of Berkshire Hathaway, the resulting Kraft Heinz Co. — assuming all goes off without a hitch — promises to further dilute the U.S. food industry’s fundamental complexion, alongside what’s largely anticipated will bring about a dramatic reshuffling of the center store deck, whose shelves have housed the two companies’ ubiquitous brands for decades.

For retailers such as Delhaize America — which is radically transforming its center store strategy to cull irrelevant products across 80 percent of the overall category, with the goal of impacting 10,000 SKUs in its Food Lion banner in tandem with a major divisional overhaul — the advent of the merged entity would seem to be right on time.

While history hasn’t always been kind to mergers of this magnitude, the preliminary prognosis for the head-turning Heinz-Kraft pact — which was reportedly inked in a record four-week timeframe from start to finish — is a bit better than the average mega-merger introductory forecast. Even so, past history also looms large as profound uncertainty swirls around anticipated dramatic cost-cutting measures likely to transpire on the watch of majority equity partner-owners Berkshire Hathaway and 3G Capital, which are expected to hit the ground running to achieve meaningful short-term profitability

The majority of industry execs I’ve spoken with are betting on more upbeat prospects for product innovation, greater global synergies, increased scale and relevance both in the United States and abroad, and more efficient operations that will lower expenses and up the new conglomerate’s clout with commodity costs.

Consumers, meanwhile, will largely be unaffected by the transaction, for which antitrust concerns are muted in view of little overlap in the product lineups of the iconic brands’ parents. Out of the gate, Heinz CEO Bernardo Hees will take the reins of the combined global company, whose new executive team will be revealed during the transition period.

Indeed, while 2014 may have been the year of retail food mergers — with still more likely on the way — 2015 could well wind up being the year of significant supplier mergers. “Many traditional brick-and-mortar retailers have fewer opportunities for growth, and are turning to M&A to gain market share through consolidation or enter new markets to extend their brand and reach,” notes Ted Vaughan, partner in BDO’s consumer business practice, in regard to the recently released results of his firm’s ninth annual Retail Compass Survey of retail CFOs, 59 percent of whom expect M&A activity in the retail industry to further surge this year.

Indeed, as we look ahead to what’s widely viewed as open season for more acquisitions from the ranks of other center store stalwarts, the industry is clearly headed for a new phase of irrefutable evolution where further upheaval is all but guaranteed.

It thus seems appropriate to invoke the lyrics of Carly Simon’s timeless ballad that Heinz ketchup used for years in its memorable TV ad campaign: “We can never know about the days to come, but we think about them anyway.” For now, anticipation will surely make us wait to see how the thick — and emphatically rich — arrangement of two legendary CPG leaders will ultimately play out.

Meg Major
[email protected]

Twitter @Meg_Major/@pgrocer

Looking ahead to what’s widely viewed as open season for more acquisitions from the ranks of other center store stalwarts, the industry is clearly headed for a new phase of irrefutable evolution where further upheaval is all but guaranteed.

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