A full 100 years since a forerunner of Spanish food giant Ebro Puleva made its first dairy products, the company looks set to quit the category.
Yesterday (8 March), Ebro Puleva, which is the world’s second-largest rice producer, agreed to sell its dairy business to Lactalis, the privately-held French dairy giant.
Go deeper with GlobalData
The EUR630m sale, which includes dairy brands Puleva, Ram and Castillo, remains subject to due diligence and competition approval but signals the Spanish company’s latest move to focus on rice and on a second key business – pasta.
Throughout the Noughties, Ebro Puleva, a business formed in 2000 after the merger of sugar co-op Azucarera Ebro Agricolas and dairy group Puleva, steadily built up its rice and pasta businesses.
In 2003, Ebro Puleva bought Kraft Foods’ retail rice businesses in Germany, Austria and Denmark. A year later, the Spaniards made a significant acquisition in the US with the purchase of Riviana Foods and, in 2006, followed that deal by snapping up New World Pasta, the leading branded pasta business in North America.
In 2007, an apparently hungry Ebro Puleva struck another deal with Kraft to buy its Minute Rice business in the US and Canada. That year saw the last of Ebro Puleva’s major acquisitions, with the purchase of German pasta producer Birkel.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData2008 saw a major disposal. Ebro Puleva sold its sugar business, Azucarera Ebro, to the UK’s Associated British Foods, a deal seen as part of a policy of focusing on rice and pasta, as well as dairy, one of the founding businesses of the company.
Given the history that Ebro Puleva has with dairy, its plans to exit the business may come as something of a surprise. Profits from the company’s dairy business rose by a third last year.
However, Spain’s dairy sector has been hit hard by the economic downturn, with consumers looking to cheaper products, particularly private label. Ebro Puleva’s dairy revenues fell by more than 12% in 2009 and sales from the unit are half those generated by the company’s rice and pasta businesses.
Ebro Puleva’s dairy business is less international than its pasta and rice operations, leaving it particularly vulnerable to the sharp recession seen in Spain over the last 18 months. Spain’s housing bubble and subsequent crash led to unemployment running at just under 20%, hitting consumer spending and even weighing on food manufacturers. Last summer, US bakery giant Sara Lee scaled back its operations in Spain, an indication that the country was a difficult place to do business for the big brand owners.
Price has become all the more important for Spanish consumers, which has driven the “rapid” growth of private label in the country, according to Euromonitor. The analysts said private label increased its share of packaged food sales by more than 2% in 2008 – and it is likely that trend continued in 2009.
Own label is particularly strong in milk and, with commodity prices falling in 2009, Spanish retailers pushed down consumer prices last year, hitting the brand owners. Private label also gained ground in cheese, yoghurt and “other” dairy products – including desserts and creams – according to Euromonitor.
Given the challenging nature of dairy in Spain, it is perhaps understandable that Ebro Puleva wanted to exit the business – not least when they have built scale and an overseas presence in rice and pasta. But why would Lactalis want to further increase its presence in the category?
The privately-owned Lactalis is likely to have seen a long-term opportunity to build a robust dairy business in Spain. According to Euromonitor, there is a “growing interest” in health and wellness among Spanish consumers despite the pressures on spending.
However, even when the economy recovers, the depth of the Spanish recession is likely to have an impact on the way consumers shop, not least in the growing popularity of private label. With retailers holding the bargaining chips, suppliers will need scale and Lactalis, which has built a fledgling business in milk and yoghurt in Spain, has looked to acquisitions to bolster its operations.
Last month, Lactalis bought Spain’s largest branded cheese maker Forlasa for an undisclosed sum. Forlasa operates one manufacturing facility in Spain but owns the El Ventero, Gran Capitán or Don Bernardo brands. According to Euromonitor, Forlasa accounted for 11% of retail cheese sales in Spain in 2008 but, notably, that share was down 0.3 percentage points on the year.
As such, the acquisition of Forlasa and the planned purchase of Ebro Puleva’s dairy business will give Lactalis the necessary greater scale to deal with retailers armed with buoyant private-label businesses.
Euromonitor argues that Lactalis will not be alone in looking to M&A for greater scale in Spain.
“The Spanish dairy sector is distinguished by its fragmentation, compared with other European countries. Some of the main manufacturers (CAPSA and Pascual) have already announced their intention to seek short- and medium-term takeovers and mergers,” the analysts explain.
“Manufacturer concentration, organic growth, synergies and scale economies will be some of the important trends within the next few years.
“Therefore, manufacturers will need to acquire greater power when negotiating with retailers, since they currently determine the important market trends. It is expected that medium players will be the most damaged, with the market tending towards polarisation; private label and a few branded players.”
