In what was a record week for just-food in the volume of stories published, the political crisis in Egypt and its impact on the food sector took centre stage.
Multinational manufacturers from Kraft Foods to Danone and retailers from Carrefour to Metro Group were forced to close factories and stores as the unrest and violence grew; Metro, the German retail giant, which first entered Egypt last summer, saw its two cash-and-carry outlets burnt and plundered. There were also signs that the fragility in Egypt was having an effect on the trade of food products into and from the EU, while the situation was also driving up the price of some commodities.
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The uncertainty in Egypt also reportedly helped cause investors to pull around US$7bn from equity funds in emerging markets last week. At the weekend, The Financial Times reported that the shift is being driven by the violence in Egypt, the jump in oil prices and broader concerns about inflation – itself partly caused by rising food prices – in emerging economies.
Now, it would be wrong to assert that countries like China and India no longer offer huge potential to investors and food companies looking for growth abroad. The largest food makers like to publicly state how much of their business is in emerging markets – last week senior Unilever executive Michael Polk, when he wasn’t busy insisting that the consumer goods giant had the “real capability” to deal with the spike in commodity prices, was extolling the fact that the company generates over half its sales in emerging markets.
However, as we have reported in our BRICs and beyond column before, there is real concern over the outlook for some of the world’s developing markets, particularly on issues like inflation. The political uncertainty in Egypt – and the fears that the unrest in the country could create a domino effect across parts of the Middle East – is causing investors and businesses to think a bit more carefully before deciding where to put their emerging-market dollars.
Unilever was among a clutch of food manufacturers to report their annual financial results last week. As always, there was much to analyse behind the numbers and Unilever, Kellogg and Hershey gave some useful insight into how their businesses were performing and how they saw 2011 developing. Polk’s comments on Unilever’s ability to handle commodity costs came as some City analysts questioned the company’s ability to push through price increases – pointing to the group’s fall in margins in the fourth quarter of the year.
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By GlobalDataAcross the pond, Hershey said it expected its input costs to be up “meaningfully” this year but did not go much further. However, Wall Street analysts are starting to look at the level of cash on Hershey’s balance sheet with interest – prompting questions to return about the US confectioner’s M&A strategy. Hershey remained coy, although its CFO did admit the company was “spending more time” looking at acquisitions “particularly on a bolt-on basis”.
Hershey has faced accusations in recent years that it is too dependent on the US and the company’s management has been busy driving growth abroad, so any acquisition activity could have an international flavour. Hershey is set to divulge more on its international plans at the CAGNY analyst conference later this month and, although the company is unlikely to give too much away on M&A, industry watchers will be awaiting news of the confectioner’s expansion plans outside the US with interest.
Late last week, two more mid-tier food manufacturers announced acquisitions outside their domestic markets. On Thursday, US organic food group Hain Celestial said it had struck deals to bolster its fledgling European operations with the acquisitions of French organic business Danival and Norwegian cracker maker GG UniqueFiber. The businesses, though small, will expand Hain Celestial’s presence on this side of the Atlantic, where, in the UK, the company is growing sales and seeing margins improve despite the tough trading environment.
On Friday, Raisio, the Finnish food group behind the Benecol brand, secured the acquisition of UK cereal maker and confectioner Big Bear Group. The deal is Raisio’s latest move to expand its business in the UK; last year, it snapped up Glisten, a maker of healthy snacks and confectionery.
The acquisition of Big Bear won praise from the analyst community and Raisio CEO Matti Rihko told just-food that the deal would make the business stronger in snack bars and cereal. Later this week, we are running our interview with Rihko at length in which he discusses the Big Bear deal, future acquisition opportunities and the possibility of entering new categories.
