Photo by Denny Müller on Unsplash
August 16, 2024
Is Mars Set To Take Over the Snack Industry?
Mars has made a big move in the snack industry by acquiring Kellanova for $35.9 billion in a deal that highlights Mars’ ongoing growth strategy. By purchasing Kellanova at a 44% premium per share, Mars is set to expand its global snacking footprint with popular brands such as Pringles and Cheez-It. This acquisition is expected to enhance Mars’ offerings in health and wellness while solidifying its position in the snacking sector.
The deal is slated to be approved and close in the first half of 2025, and it ranks among the top 10 global food and beverage mergers since 1995 and is the fourth-largest M&A deal of the year, as reported by CNN. With this latest acquisition, Mars continues to build on its recent buying spree, which has included notable brands like KIND Bars, Trü Frü, and Hotel Chocolat.
Mars’ CEO, Poul Weihrauch, emphasized in the company’s press release the opportunity to integrate Kellanova’s legacy brands into Mars’ portfolio. “In welcoming Kellanova’s portfolio of growing global brands, we have a substantial opportunity for Mars to further develop a sustainable snacking business that is fit for the future,” he said.
Per the Associated Press, “It is the biggest deal in the sector since J.M. Smucker bought Hostess for $5.6 billion last year.”
The acquisition of Kellanova will also boost Mars’ presence in the salty snack category, complementing its existing brands like Combos and Ben’s Original. While Mars is primarily known for its chocolates, candies, and pet food — such as M&M’s, Skittles, Pedigree, and Royal Canin — its chocolate sales have recently declined. U.S. chocolate sales have dropped by 5.5% over the past year as cocoa prices have skyrocketed and consumer preferences have shifted toward other flavors.
If the deal is approved by regulators and shareholders, Mars would gain substantial buying power with suppliers and increased leverage in negotiations with grocers and other retailers, according to Randal Kenworthy, a senior partner at consulting firm West Monroe. He explained that the combined entity of Mars and Kellanova would hold approximately 8% of the U.S. snack market, close to PepsiCo’s 9% share, which includes Frito-Lay. Kenworthy added that Kellanova’s larger international presence will also assist Mars in expanding its reach into global markets. Additionally, the acquisition would allow for crossover flavors and branded snack items that were not possible previously.
As reported by ProFood World, Mars generated $50 billion in revenue in 2023, with $18 billion coming from its snacking division, which includes popular products like Snickers, Starburst, Extra and Wrigley chewing gums, Altoids, and Dove chocolate.
Last December, Forbes shared an exclusive story on Mars and how it plans to target a significant increase in its snacking division over the next decade, aiming to double its annual revenue from $18 billion to $36 billion. Achieving this goal would further boost the company’s overall revenue, which was $47 billion in 2023 and $50 billion in 2023.
However, Mars might still be behind in at least one major snack category. According to Hershey, “With increasingly on-the-go lifestyles, Americans are reaching for snacks to satisfy their hunger cravings between meals, and some are using them to replace meals entirely.” Retailers and manufacturers have introduced single-serve, grab-and-go products to meet these demands.
Per Packaging Corporation of America, the lines between mealtime and snack time have now blurred, especially for younger Americans. David Walsh, VP of membership and communications for SNAC International, cited the fact that 92% of younger Americans replace one meal a week with snacks. “A lot of these younger people aren’t eating three square meals a day. They are eating five or six smaller meals, and many are snacks,” he explained.
And with this comes the need for healthier snacks. “According to ingredients provider ADM, 31% of people are buying snacks focused on health, with 50% preferring snacks featuring beneficial ingredients,” Packaging Corporation of America reported.
Hershey shared similar findings, noting that while all snack categories, from dairy to sweets, have seen growth, “products that call attention to specific healthful claims are driving the strongest uptick in sales.”
As consumers become more health-conscious and increasingly seek out better-for-you snacks, Mars may need to adapt its offerings to align with these evolving preferences. With this acquisition, it seems to already be taking a step in that direction. According to the press release, acquiring Kellanova will “expand the Mars health & wellness Snacking portfolio with the addition of new complementary products like RXBAR and NutriGrain to reflect global trends and preferences.”
Discussion Questions
How will Mars’ acquisition of Kellanova impact the competitive dynamics of the global snack industry, and what changes might we see in consumer behavior as a result?
What are the key risks and benefits for Mars in integrating Kellanova’s brands?
With growing demand for healthier snack options, how should Mars adapt its strategy to balance traditional snacks with new health-conscious trends to ensure long-term success?
Poll
Loading …BrainTrust
Neil Saunders
Managing Director, GlobalData
Brian Cluster
Insights Consultant
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
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This is not an industry takeover. On a global basis, the combined entity will have a 7.9% share of the sweet and savory snack categories. This is number two behind PepsiCo. However, there is logic in a deal because it allows Mars to diversify into savory snacks, which are growing at a faster clip than confectionery.
The challenge will be making the finances work. While Mars can afford this and has an ownership structure that facilitates getting the deal over the line, a price tag pushing $36 billion makes generating a satisfactory return difficult. Especially so as, at present, Kellanova’s sales and profit are declining.
Meanwhile, Mars has taken over the pet business . They own VCA, Banfield and many of the food brands. I wonder which business is more profitable
I vote for pets.
It would be an overstatement to say that Mars’ integration with Kellanova would position Mars to take over the snack industry. Despite holding an 8% market share, competitors still enjoy 92% of the market, including PepsiCo’s 9% stake.
The market share of a single company in many categories of consumer goods is much greater than 8%. When P&G was at its peak, it probably controlled 90% of the soap aisle. It is a memory I have well because I once worked at a company that had brands in the remaining 10%.
There will always be companies in the CPG industry that own multiple brands in any given category. Over the course of my four decades in the industry, I have learned that these matters tend to resolve themselves.
By the way, market leadership is often cyclical, with different companies rising and falling in prominence over time. Dominance in the market can shift due to innovation, changes in consumer preferences, or strategic mergers and acquisitions. It’s a natural ebb and flow that ensures no single entity maintains a monopoly indefinitely. Not to worry. – Db
74% of all adults in the United States are classified as overweight or obese, so I am not confident in the “increased interest in health conscious foods” trend. Business wise I like this acquisition, and the market is there for more snack consumption, as we eat our way through each day.
Despite consumers clamoring for GLP-1 drugs like Ozempic, the snack category continues to grow in the American diet. While the height of the pandemic pushed the category to new highs, the demand for trusted snack brands remains strong. At nearly 3x Kellanova’s annual sales, the Mars acquisition is rich in a discretionary category; however, Mars needs to invest to remain competitive with Pepsi, the snack leader.
In five years, in M&A classes, this acquisition will be another case study of an acquirer paying way too much and shareholders losing value. A possible 8% share is not a market takeover. I can see where someone spent a lot of time on Excel spreadsheets and very little time analyzing the marketplace.
While I agree with many of the BrainTrust that 8% does not represent a takeover of the snack food industry, this may miss the point. It is also important to look at the category or subcategory level since that is where consumers make their buying decisions and represents where brands compete. The Kellanova acquisition could suddenly give Mars a more dominant share of breakfast bars, granola bars and other snacking subcategories that could make it more difficult for smaller brands to compete for space, ability to launch innovative items and promote their brands, etc.
The Mars-Kellanova deal sets up a pitched battle over salty snacks in the convenience store channel versus PepsiCo/Frito-Lay. The latter has the edge with its direct distribution power, I think. Will be interesting to see what scale economies will ensue.
On the pet food side of the equation two popular brands – Eukanuba and IAMS – are certainly key parts of the value equation. Alongside Mars’ own Pedigree, Whiskas, Royal Canin and others, this adds up to strong shelf-space bid in the petfood superstore channel.
While Mars will certainly become more formidable with the addition of Kellanova brands, it is not dominant – yet.
Double the snacking revenue is an aggressive return for Mars. But as consumers cut back on sugar, with tastes shifting to ingredients with more substantive nutrition, it looks like a real thing, not a fad. It will take heavy lifting by the Mars teams to build a case for core and entertainment-oriented retailers to change up merchandising sets and variety. Some shelf space may have to come from sweets to make it all work. But if Mars wants to fund resets at store level and provide promotional money it’s entirely doable to pull off the aggressive growth.
This is the lane that Mars swims in, so it’s not a stretch to add to the merchandise lineup. Two issues worth considering: