Mondelez: “There is more appetite for M&A and there is a clear strategy behind all the acquisitions”

By Elizabeth Crawford contact

- Last updated on GMT

Source: Getty/Zhanna Hapanovich
Source: Getty/Zhanna Hapanovich

Related tags: Mondelez

Even in the face of rising inflation and ostensibly competing financial priorities, Mondelez’s multi-year shopping spree shows no sign of slowing as executives last week touted the steady “high-single digit” returns from recent acquisitions that are part of a larger effort to reshape the CPG giant’s snack portfolio.

“We have made $1.5bn in terms of revenue in terms of acquisitions for the last three years. These are growing at a high-single digit,”​ and while the pandemic caused some “restrictions and challenges,”​ broadly speaking, the newly acquired businesses are growing steadily above the average growth rate of Mondelez, Vince Gruber, executive VP and president of European Operations, said last week at the Deutsche Bank Global Consumer Conference.

“I see a lot of untapped opportunities in terms of distribution, in terms geographical expansion and in terms of new launches,”​ Gruber said, calling out specifically the opportunity presented by Mondelez’s most recent purchase of European snack maker Chipita SA for $2bn.

The deal, announced late last month, gives Mondelez a stronger foothold in the bakery segment, and specifically the cake and pastry category, which Gruber estimated to be worth $65m-$1bn globally.

“It’s a really big and quite fragmented market. What Chipita gives us is capability in the countries where they already operate, which is more the Eastern European market – expanding our footprint in those markets even stronger,”​ Gruber said, adding Mondelez intends to bring the brand to other markets where it isn’t currently available.

The Chipita purchase builds on Mondelez’s previous acquisition of Give & Go in the US, which Gruber characterized as the company’s “first step in this cake and pastry territory in the US.”

Ultimately, Gruber added, Chipita is “an entry ticket for us to play a new game in an adjacency, which is very relevant from a snacking point of view,”​ and expands into new dayparts with morning and lunch.

Other recent acquisitions include a majority stake in Perfect Snacks​, Hu Products​, and Enjoy Life Foods​.

Mondelez is looking divest 25% of its lowest performing SKUs

Encouraged by the strong early returns of these acquisitions as well as market trends, Gruber said “there is more appetite for M&A and there is a clear strategy behind all the acquisitions that we have made in the last three, four years.”

To help fund this activity and ensure Mondelez’s portfolio is highly functioning, the company will divest some brands that either no longer align with the company’s direction or which are underperforming.

Mondelez’s CEO Dirk Van De Put said earlier this year that Mondelez is looking divest 25% of its lowest performing SKUs​. Likewise, it recently cut its stake in Keurig Dr Pepper stock with a 12.5 million share divestment in September – a move Gruber said was made to fund the Chipita acquisition.

Inflation is higher than expected, but ​manageable

As Mondelez continues to reshape its snacking portfolio, any current and near term acquisitions will take place against a challenging inflationary backdrop, but company executives reassured investment analysts that Mondelez does not plan on cutting investments to offset additional inflation.

“We are experiencing higher inflation than usual,”​ Luca Zaramella, executive vice president and chief financial officer, acknowledged at the Duetsche Bank Global Consumer Conference.

He explained that “the areas where inflation is most acute is for us edible oils … packaging, logistics costs, but importantly also label costs,”​ and it is most acute in the US.

Still, Zaramella said, Mondelez is well hedged for this exposure in 2021 and, while “a little bit higher than we originally anticipated it is still manageable.”

Some costs will be offset by additional productivity, price-pack architecture optimization, mix market promotions and improving return on investment in other areas, Zaramella explained, emphasizing, “the last thing we want to do is cut investment to offset this additional inflation.”

 

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Related topics: Business, Confectionery

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