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October 23, 2017

Baby Ruth Likes Benevolent Bacon!

MHT Partners  | Consumer Investment Bank

While late to the “healthy” food & beverage acquisition game, Nestle (“the Company”) is attempting to quickly catch up to some of its more active competitors with the recent acquisitions of Blue Bottle Coffee, Sweet Earth and Chameleon Cold Brew.   These companies, Sweet Earth and Chameleon Cold Brew in particular, are miniscule compared to the global behemoth but speak strongly to the Company’s growth aspirations and likely portend more similar acquisitions to follow.

So why the change of pace for Nestle?

  1. The Millennial generation, in particular, continues to drive exaggerated change in consumer tastes that are at odds with staid brand portfolios of large CPG (consumer packaged goods) food companies.  While Millennials favor organic, clean label, sustainable and authentic brands, the Nestle’s of the world largely offer Kit Kat’s, Nerds and Toll House.  Nestle is just the latest large CPG company to increasingly embrace smaller, food & beverage M&A as their outsourced, new product innovation arm.
  2. Third Point, a global hedge fund, headed by activist Daniel Loeb, announced a significant stake in the Company earlier this summer and immediately publicized “suggestions” that Nestle shed some of its 2,000 plus brands, among other corporate actions.
  3. Nestle, coincidentally or not, shortly thereafter announced plans to both buy back stock, as well as to consummate acquisitions in fast growing categories such as coffee, pet care, bottled water and consumer health care.  Blue Bottle and Chameleon certainly check the box for coffee and Sweet Earth occupies a position in the fast-growing plant based food category (a market growing at double digits and one in which Nestle expects to be a $5.3 billion market worldwide by 2020.

While Nestle’s acquisitions are not without risk – a common refrain from consumers is that these smaller brands have “sold out” – the key to successful integration and growth will be maintenance of quality in consumers’ eyes.  The stock market has rewarded the Company (Nestle’s stock is up 3.7% since Sweet Earth, the first of the deals to be reported, was announced on 9/7) and given the inertia of consumer tastes, you can be assured we will see more from Nestle – likely soon.


Photo Credit: Nestlé Media

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