Following an announcement from US food giant Heinz that it is to merge with Kraft Food Group earlier today; David Turner, Global Food Analyst at Mintel, explores the impact the move could have on the food market as a whole…

The proposed merger of Heinz and Kraft to form the “The Kraft Heinz Company” is clearly huge news, not just in the US but for the global food industry.

The deal will be a record maker, as the combined value for the new company would likely be over $40 billion, this is a significant level higher than the previous largest food M&A (3G & Berkshire Hathaway $23bn take over of Heinz in 2013).

This will give the Kraft Heinz Company significant leverage domestically and in many global markets – it is likely this combined company will be the 3rd largest Food and drink company in the US; the 5th largest globally.

The merged company would have 8 brands with global sales exceeding $1bn and 5 more valued in the region of $500K-$1bn.

It also offers potential for expansion, Kraft’s food portfolio is heavily skewed to the US and brands such as Oscar Meyer could benefit from Heinz International trade channels.

The track record of 3G in managing Heinz clearly shows that part of the cost of the merger will be funded from “logistics synergies”.

The companies have a number of brands competing in the same markets, condiments being one example. Press reports suggest up to $1.5 billion in savings has already been identified and it is likely production, supply chain and sales and marketing arms will be merged and headcounts reduced, in addition to greater purchasing power over ingredient suppliers.

However, challenges will remain. In the US in particular, Heinz and Kraft both over trade in “centre aisle” ambient and frozen foods. As consumer trends to eat fresh continue it is likely that ambient and frozen food sales will continue to struggle.

There is also likely to be fallout in the rest of the food market. Large food acquisitions tend to trigger a wave of other market consolidations. Campbell Foods, Kellogg’s and even General Mills had previously been tipped as potential 3G/Berkshire Hathaway targets. Though the likelihood of further 3G buys will be reduced, companies may be on the radar for other raiders, especially cash rich companies from fast growing Asian markets that may be looking to establish stronger footholds in North America and Europe.

It is likely the repercussions from this deal will be felt by the food industry for some time to come.

Mintel’s Global Food and Drink Analyst, David joined Mintel in 2012. During a 20-year career in the food and drink industry, he has gained commercial experience in CPG and foodservice markets, leading the brand and private label marketing activity for major dairy, foodservice and spirits brands

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