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A Period of Consolidation

Mergers, acquisitions and consolidations are continuing throughout the food and beverage processing sector. By combining resources and improving efficiencies, these new combinations can help improve competitiveness in global markets. Manufacturers are want to expand their brand portfolios so they have more bargaining power in obtaining shelf space in supermarkets.

One of the largest consolidations is Philip Morris Companies' pending acquisition of Nabisco Holdings Corp. in an $18.9 billion deal expected to close this fall. Nabisco will be combined with Philip Morris' Kraft Foods Inc., creating an even larger industry giant. Meanwhile, Kraft Foods is expanding into new niche markets. So far this year, Kraft has purchased Boca Burger Inc., a manufacturer of soy-based meat alternatives, and Balance Bar Company, a maker of nutrition/ energy bars.

In June, Unilever, the Netherlands-based multinational, announced a merger agreement with Bestfoods. The combined company will have revenues of $52 billion and be one of the largest food companies in the world. In addition, Unilever purchased Slimfast Foods Company in April following 27 acquisitions in 1999, including ice cream, tea and home-care products.

General Mills bought Diageo's Pillsbury unit in July and announced plans to divest Pillsbury's North American dessert mix and Green Giant canned vegetable business. ConAgra spent $1.6 billion to purchase International Home Foods Inc., which makes Chef Boyardee pasta products, Pam cooking spray and Gulden's Mustard.

Britain's Cadbury Schweppes Plc announced in September it was buying the Snapple Beverage Group from Triarc Cos. for $910 million to build its presence in the U.S. soft drink market. The acquisition includes Snapple, Mistic, Stewart's Root Beer and Royal Crown Cola.

Major companies that aren't in the acquisition game are trying to improve their efficiency by investing in their facilities. Quaker Oats, for instance, is in the midst of a three-year plan to upgrade and optimize its manufacturing and distribution capabilities in North America and has closed several of its smaller Midwest plants.

What this corporate activity often means is that the name on a manufacturing plant may change, but the operations generally continue -- unless the combined company has two similar facilities in the same region. In that case, one of the plants might be adapted to other products, sold off or closed, according to Brian Todd, senior vice president of the Food Institute, an industry trade organization in Fairlawn, N.J. "They may reopen an old plant or look at the economies of scale and choose somewhere else to expand."

Right now, there's not a lot of food and beverage spending on new facilities in the United States, says Fred Ward, managing principal of Lockwood Greene Consulting in Atlanta, which consults with many food and beverage companies on their manufacturing operations. "The major companies have built up a lot of capacity in the past," he says. "Those companies are generally in a stable environment and are either increasing capacities within the four walls of an existing plant or contracting out for additional capacities."

Kraft, for instance, has not constructed new manufacturing facilities in recent years, says Cathy Pernu, a spokesperson for the Northfield, Ill.-based company. "Our manufacturing plant expansions are due to production needs," she says. "In the case of our warehouse/distribution facilities, it is proximity to the manufacturing plant each supports, their capacity, and the efficiencies gained by eliminating multiple storage and shipping sites."

In the beverage industry, soft drink giants Coca-Cola and Pepsi are looking at closing smaller bottling plants and consolidating into larger, more regional facilities. In Canada, for instance, Coca-Cola Bottling announced a $150 million investment in a new bottling plant in Brampton that will employ 540 people. It is scheduled to begin operations in 2001. This is the single largest facility investment ever made by Coca-Cola Bottling in Canada and will be the company's largest production and warehouse facility in the country, according to the Food Industry Competitiveness Branch of the Ontario Ministry of Agriculture, Food and Rural Affairs.

Economic development organizations and municipalities looking to attract new food and beverage investment should focus on the smaller companies, according to Ward. "It is the non-major consumer food companies that are occasionally developing new sites and new facilities today," he says.

Specific sectors of the food and beverage industry that are enjoying better than average growth include prepared foods, fresh-cut salads, juices and isotonic food drinks, according to Todd.

Consumer demand for processed foods in the U.S. and abroad continues to grow. Single-parent families and those with two working spouses have less time available for shopping and meal preparation. This creates opportunities for food companies to create new products based on convenience. For example, lunchbox packs of fresh carrots, and premixed salads in "breathable" plastic bags are successful ways of marketing traditional foods.