Can food manufacturers survive?
Campbell Soup has been struggling recently as soup sales have dropped, but that could all change if Kraft Heinz acquires the company.
After Kraft Heinz announced that their interest in Campbell Soup, Campbell’s (CPB) stock price jumped more than 9%. The merger would give both companies a competitive advantage they desperately need in the food industry. Further Kraft Heinz’s (KHC) stock has fallen nearly 29% in the past twelve months, and Campbell has fallen nearly 22%.
The struggles stem largely from increased competition created by Amazon. The e-commerce giant has managed to slash prices significantly while also expanding its grocery arm with the acquisition of Whole Foods and the development of AmazonFresh. Plus, Walmart, Target, and Costco have also thrived recently due to their low prices.
However, when grocery stores cut prices, food manufacturers lose, as they make less profit. Consequently, they have turned to mergers to help them diversify their products and generate more revenue. For example, General Mills recently purchased pet food firm Blue Buffalo for $8 billion. Also, Hershey bought Amplify Snack Brands, Ripple Brand Collective, and Krave Pure Foods in recent years.
Aside from the Blue Buffalo deal, most of these acquisitions have been relatively small deals. The purchase of Campbell would be far from the same playing field, as the company is worth roughly $13 billion. However, if Kraft Heinz wants to see a rebound of its stock, it may need to take a risk and purchase the soup company.
Low-cost grocery stores are hurting food manufacturers, and mergers and acquisitions will only help them stay afloat for so long. That poses the question: how will they survive in the long-term?
Featured image via Flickr/Andy Warhol: 32 Campbell’s Soup Cans