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As the snacking industry contends with rising costs and rapidly evolving consumer preferences, merger and acquisition activity remains robust. Drawing on data from Houlihan Lokey's Q3 2024 Snacking Market Update, FoodBev’s Sian Yates examines the resilience of the sector, key drivers behind recent M&A transactions, and the challenges ahead for food and beverage manufacturers.

The snacking industry is navigating a complex landscape marked by rising costs, shifting consumer preferences, and ongoing supply chain disruptions.

Despite these challenges, the sector's merger and acquisition (M&A) activity remains robust, signalling confidence in its long-term potential, according to the latest report from Houlihan Lokey.

Crunching the numbers

Over the past 18 months, the snacking market has faced significant pressures from both supply and demand sides. Rising raw material prices, particularly for cocoa, alongside increased logistics costs, have strained profit margins across the industry.

On the demand side, consumers are feeling the pinch from a cost-of-living crisis, which has shifted their spending habits and forced many to reconsider discretionary purchases.

However, the snacking sector has demonstrated resilience, outperforming the broader food and beverage industry. This is largely attributed to strong brand loyalty among consumers, which has enabled major players to implement price increases without substantial loss of market share.

According to recent data, the snacking category is projected to grow, driven by trends such as healthier eating and increased consumption occasions.

Snacking M&A surges in 2024

The M&A landscape has seen a notable uptick in activity throughout 2024, characterised by several high-profile transactions that underscore the sector's attractiveness to investors.

The acquisition of Kellanova by Mars, valued at a whopping $35.9 billion, marks a historic milestone for the snacking industry and highlights the strategic interest in premium brands.

Other deals include PepsiCo's acquisition of Siete, a US-based Mexican-inspired food brand, for $1.2 billion, and the purchase of Princes by Newlat, demonstrating a continued appetite for quality assets.

These transactions indicate that despite economic headwinds, strategic buyers remain committed to expanding their portfolios and enhancing their market positions.

Key drivers of growth

James Scallan, managing director for Houlihan Lokey’s Consumer Group, identifies several key trends fuelling this M&A activity.

"A broader trend we've observed is the significant presence of corporate buyers in the M&A activity within the wider food and beverage sector, and this holds true for the snacking market as well," he said. "Many corporates are coming off strong financial performances, bolstered by healthy cash flows and robust balance sheets. This financial stability allows them to pursue acquisitions that prioritise long-term efficiencies over short-term growth."

He continued: “The shift towards healthier eating has bolstered interest in 'better-for-you' and 'healthy indulgence' snacks, creating opportunities for companies that can innovate in this space. By acquiring businesses that align with trends like healthier eating and sustainable sourcing, they aim to reinforce their market positions while capitalising on evolving consumer preferences."

"Additionally, the increased frequency of snacking occasions, driven by busier lifestyles and an expanding variety of snack formats, has sustained consumer demand. Strategic buyers, including private equity firms, are particularly drawn to premium assets within the sector."

Brands that can position themselves as leaders in the ‘better-for-you’ segment are likely to attract significant interest from potential buyers.

Moreover, the rise of ecommerce and direct-to-consumer models has transformed how snacks are marketed and sold. Consumers are increasingly seeking convenience and variety, leading to a proliferation of new brands and products in the market.

This trend not only enhances competition but also creates additional avenues for established companies to innovate and expand their offerings.

High stakes for snacking

Despite the positive outlook, the snacking sector is not without its challenges. Companies across the industry are grappling with rising operational costs that are impacting profitability.

The volatility of raw material prices, particularly for ingredients like cocoa and grains, poses a significant risk to margins. Many companies are being forced to make difficult decisions regarding pricing strategies and product offerings to maintain profitability.

The ongoing cost-of-living crisis has also altered consumer behaviour, with many opting for lower-priced alternatives or reducing their overall snack consumption. This shift could lead to a decline in volumes for some companies, particularly those positioned in the premium segment.

As a result, brands must navigate these challenges while remaining agile in their responses to changing market dynamics.

Snack to the future

Looking ahead, the snacking sector is poised for continued growth. As economic conditions stabilise and interest rates normalise, an uptick in M&A activity is expected as private equity firms become more competitive due to improved debt availability.

Scallan anticipates further consolidation in the market, particularly as companies seek to capitalise on emerging trends. “With inflationary pressures beginning to ease, we expect to see a resurgence in consumer spending, particularly in the snacking category,” he said.

“As companies refine their strategies to focus on health, sustainability and innovation, we anticipate a wave of new product launches that will resonate with consumers.”

While the snacking sector faces significant challenges, the combination of strategic acquisitions, evolving consumer preferences, and a focus on health and sustainability positions it for continued expansion.

Industry stakeholders should remain alert to the opportunities that may arise in this dynamic market. As companies adapt to the changing landscape, those that prioritise innovation and consumer engagement are likely to emerge as leaders in the next phase of growth.

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