Campbell Soup recently agreed to acquire the Tyrell’s Chips owner for $4.9bn, a move that analysts believe would make snacking account for nearly half of the company’s annual net sales.
“It is an interesting dynamic if you compare Kellogg to the new Campbell Soup Company: Kellogg is exiting its DSD model for their snacks business, they are really taking a bold step there and staying out of convenient stores where on-shelf merchandizing could make a huge difference, and instead, investing in e-commerce,” said Koerten.
“Whereas, Snyder’s-Lance has a DSD division itself, so maybe there is a potential for Campbell to use DSD to take up more shelf space and do more in-store promotion,” he added.
A deal unlike Kellogg-RXBar
Campbell Soup’s move came at a time when other large CPG companies, including Kellogg and Hershey, are actively investing in smaller, innovative snacking brands.
However, what makes Campbell Soup’s acquisition different from the recent Kellogg-RXBar and the Hershey-Amplify Snacks deals is that it picked a publicly traded company rather than an up-and-coming brand under its umbrella, which could put its short-term growth at risk, Koerten pointed out.
“The Kellogg-RXBar case is a typical example, in which big companies buy dynamic brands… Snyder’s is a conglomerate that has a broader product range – they bought Diamond [Foods] and got much bigger within the savory snacks category, but many of its brands are not necessarily ‘growth brands’,” said Koerten.
“They have some growth areas like Kettle chips, Cape Code Potato Chips, and some of them are doing quite well,” he added. “Then there are other traditional brands such as Snyder’s of Hanover that have not been growing as quickly.”
Koerten believes that Campbell is less interested in “grabbing one brand here on the way up and seeing how they can integrate that,” but is more interested in longer-term expansion.
“Campbell Soup might pick through some of the brands, divesting some of the areas that are not growing as quickly, and maybe Pop Secret would be on the chopping block,” he said.
One thing is for sure, Campbell Soup “clearly has snacking on its radar” moving forward as it did not have much foothold in the salty snacks category with only its Pepperidge Farm line, Koerten continued. “Snyder’s can give them a quick presence [in salty snacks] easily,” he said.
Additionally, “the cost entailed in some of the deals like Kellogg and RXBar is significant,” Koerten said.
“Buyers usually ended up paying a premium given the tremendous potential that brand has, so you are paying a lot to get RXBar. There are other cases when companies buy those brands, and they fall apart because it just doesn’t work out.”
Local potato chips producers under threat
Kellogg is not the only snack company that might face share-taking challenge from Campbell Soup’s purchase of Snyder’s-Lance, said Koerten.
“And I don’t think Frito-Lay and Kraft Heinz are going to face any major threat just because of the size and scope of their businesses and the power of their brands,” he said.
“There are many regional potato chip brands that are popular but not necessarily national brands like Utz and Golden Flake that might face more competition moving forward.”
“If Campbell brings Cape Cod [Potato Chips] to a much broader distribution for instance, some of these regional companies might face the sheer size of the pocket Campbell has,” Koerten said.