Innovations, Social and Economic Megatrends to understand the World of Tomorrow.

Mergers, Buyouts & Innovations drive growth in Food Manufacturing

A record number of new product releases and significant mergers and acquisitions have changed the face of the industry among these leaders and innovators.

number-1JM Smucker Company

A food and pet food manufacturing company in three major food markets–retail coffee, retail consumer, and retail pet foods.

 

number-2The Kraft Heinz Company

Third largest consumer packaged food and beverage companies in North America and worldwide operating beverage, cheese, refrigerated meals, meals & desserts, enhancers & snack nuts segments.

 

number-3Frutarom

A leading flavor and ingredient house.

 

The food industry is estimated to grow approximately 2% within the next 5 years due to:

  • An estimated .2% decrease in unemployment
  • An increase in the consumer price index by 2% and low interest rates.
  • Changing preferences among Millennials are driving a rush to innovation for companies to maintain and grow market share.

A preference to store brands, according to a Mintel report, and a rising health consciousness of the consumers are driving consumers to want low fat and more protein while remaining convenient and fast. These new preference have driven rapid innovation of newer product lines that are simple with natural ingredients while remaining convenient.

Innovation is important in this industry due to changing population demographics, their product preferences and the threat of new entrants to the market from overseas.

Challenges for this company include general industry challenges such as the rising wages and varying safety and environmental regulations (Paulson Institute, 2014).  Additionally, there are increased capital expenditures that are required by regulators, which add significant cost to the company without a return on investment (National Association of Manufacturers, 2016).

1. JM Smucker Company

« Helping to bring families together to share memorable meals and moments. »  –JM Smucker

« Best Stocks of the Day: The J.M. Smucker Company » –News Journal

JM Smucker company recently added Big Heart Pet Brands to their family of brands to include innovations in snack products, natural/organic, and higher protein options. For the other brands, there have been innovations in new flavors, product forms and packaging of Jif peanut butter.  There has also been an ingredient change to a more simple and natural Smuckers Jelly. Additional innovations include the Jif bars, peanut powder and the swirled spreads. Smuckers has also added product lines such as the Smuckers Uncrustables, which produces 1million sandwiches per day.

Founded in 1897 in Orrville, Ohio, where the headquarters remains today, JM Smucker company has become a leader in consumer packaged food products. JM Smuckers’ overall strategy is for growth through acquisitions, meeting consumer preferences, capitalizing on pet and coffee markets, innovation, and increasing working capital efficiency.  With 4,775 employees according to Forbes, Smuckers is among the Global 2000.

Among the many reasons for their growth and value is their ability to adapt products to fit with changing consumer preferences.  They have changed products by reducing to simple natural ingredients, increasing convenience and making products more indulgent. Resultingly, the company is on track to perform aggressively in 2016 with $8 billion in estimated net sales.

Currently, Smuckers has a $13 billion dollar market capitalization, which is up from $800million in 2002.  They have $5.4 billion on net sales, $885 million in operating income, and $547 million in net income with a compound annual growth rate (CAGR) on net sales of 10% from 2005 through 2015. They have also returned over $200 million in dividends to shareholders in 2015, which has seen a 10-year CAGR of 10%.

Smuckers is the 8th largest shelf-stable food and beverage manufacturer with the leading share in the coffee (53%), ice cream toppings (61%), shortening (67%), sweetened condensed milk (42%), fruit spreads(44%0, and peanut butter (46%) categories as well as 32% dollar share of the dog snacks category.

Social media handles + website

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2.Kraft Heinz Company

“We are very pleased with the progress of the business, and I’m very optimistic about the perspective of what we can do together” –Bernard Hees

Kraft Foods, headquartered in Northfield, Illinois was founded in Chicago 1980 by James Kraft. With more than 21,000 employees, their corporate growth strategy is to focus on the three C’s: consumers, customers and communication. With an attempt to overcome growth challenges, Kraft Foods merged with Heinz Company in 2014 to become the Kraft Heinz Company.  Though this merger has positively affect stock value for the shareholders, it has not translated into sales and thus there are continued challenges to grow sales.

In 2013 alone, Kraft Foods released 40 new products and made this company innovation focused.  Yet, sales and revenue has continued to decrease making it difficult for Kraft Foods to find its new consumer base among the changing demographics. In 2014, net income decreased by 61.6% but gained a sharp stock appreciation of about 38% after the merger with Heinz.

The Kraft Heinz Company continues to underperform the market expectation.  The appreciation of the US dollar can offset increased profits from the larger international market base brought by Heinz. However, their challenge is that this offset is not likely to make up for the severe revenue decline.  Additionally, in the past, Kraft has almost been involved in a few product recalls.  Any actual participation in product recalls can reduce the consumer base and brand reputation.  Additionally, a recent survey by Mintel showed that 37% of US consumers preferred store brands items over national brands thus threatening the future of Kraft as a national brand.

Social media handles + website

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3.Frutarom

“We will make more acquisitions in 2015, maybe more than we have done in 2014, with a focus on emerging markets and the U.S.” – Ori Yehudai

Frutarom is a manfacturer and provider of extracted and distilled flavorings.  With 34 production sites, 41 research and development labs and 79 sales/marketing offices, Frutarom is a leader in flavoring products and innovation and is the seventh largest flavor house in sales.

Frutarom was founded in 1933 in Palestine as Frutarom Palestine, Ltd and is currently headquartered in Israel.  With an aggressive growth strategy, Frutarom acquired 37 companies such as JannDeRee, PTI, and Aroma.  As a result, they have accelerated growth in emerging markets, expanded market share to the United States and developed value-added value health products.

Frutarom’s overall strategy is to target mid-sized and local food manufacturing companies, private labels and multinationals.  They intend to focus on a natural product line with extracts, fruit bases and essential oils, functional food ingredients and cost reduction solutions. With sales in 145 countries and over 15,000 customers, they manage a product portfolio of 31,000 products; 4,000 raw materials; 2,700 employees and a pipeline for innovation.

Since 2000, Frutarom has seen a 19.1% CAGR and has grown from a $13 million to a $1.2 billion market capitalization. In 2013, revenue reached $784 million. The largest market for this firm are the emerging markets that represent 196% growth.

Social media handles + website

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Recommended Statistics

complaints sought by consumers in the processed food industry in 2015