The Mars-Kellanova merger strengthens them with inflation, Ozempic

Through the deal, Mars will acquire Kellanova’s many salty snacks, such as Cheez-It and Club crackers, complementing Mars’ chocolate offerings. The merger will allow Marte to expand its reach beyond just apparel, solidifying its place in a crowded market and keeping sales volumes high.

“It’s a way for them to be a massive player in the whole snack category, instead of just a segment of it,” said Braden Douglas, founder and CEO of marketing agency Crew Marketing Partners. wealth.

Big Snack’s solidity is threatened by consumers fed up with inflation and the price increases that have accompanied it. Food prices have risen 25% from 2019 to 2023, and consumers are responding by cutting back on spending. Kellanova’s rivals, PepsiCo and Mondelez, have raised costs amid steep inflation and both have faced declining sales as consumers grow weary of price hikes. Since then, companies have pledged to lower prices to lure back consumers.

But Kellanova, formerly known as Kellogg Co., managed to buck that trend, despite also raising prices. It reported revenue of $3.2 billion in the second quarter, beating expectations, although revenue was down year-over-year. Sales volume growth in North America – driven largely by innovation in its Pringles products – helped offset overall sales volume declines.

Mars is eager to follow suit.

“We are a bigger and stronger company,” said Mars CEO Poul Weihrauch Reuters Wednesday. “We hope to be able to absorb more costs in our structure and help mitigate the problems we have in an inflationary environment.”

Desire for change

The snack industry has undergone other changes based on consumer tastes. Beyond the strong desire for salty and crunchy foods, consumers are venturing towards healthier alternatives. Mars has already recognized this. It bought granola bar brand Kind in 2020, following Hershey’s program to acquire Amplify Snack Brands, parent of SkinnyPop popcorn, in 2017.

The trend mirrors what Neil Saunders, managing director of retail at GlobalData, calls “permitted indulgences,” or snacks that look like treats but contain enough nutrition to pass off as healthy. The desire for snacks that meet the criteria for indulgence has increased in the era of GLP-1 agonists, as diabetes drugs like Ozempic and weight-loss drugs like Wegovy suppress appetite, leaving users to seek out more nutrient-dense foods.

“Snacking is very impulse driven. It’s very traditionally driven, permissive,” Saunders said wealth. “What we’re moving into is a position where indulgence may still be a part of it, but there are other reasons why people are buying these products, and diet pills are accelerating that.”

The age of Ozempic is looming

Although the drug’s adoption is in its infancy, its potential to shake up the industry has been a growing concern for investors. Morgan Stanley has predicted that consumption of juice, sweets and snacks will decline by 3% over the next decade, and snack companies are expected to take inspiration from changing consumer habits.

Snack giants like Nestle already have. The conglomerate behind KitKats and Crunch bars launched Vital Pursuit in May, a line of smaller-portion frozen meals, mostly under $5, made specifically for Ozempic and Wegovy users. Kellanova CEO Steve Cahillane said last year that he was bracing for changes in consumers because of the weight-loss drugs, though he did not say the drugs were impacting sales.

“We are by no means complacent,” Cahillane said Bloomberg. “Like anything that can impact our business, we will look at it, study it and, if necessary, mitigate.”

Mars’ interest in salty, healthier snacks beyond its current chocolate-heavy portfolio could protect it if the use of GLP-1 agonists becomes widespread, Saunders argued.

“I don’t think that’s a rationale for the (Mars-Kellanova) business as a whole, but it does provide that more supportive angle, in terms of the influence of these weight loss drugs,” he said.

It’s too early to tell if Ozempic will make as big a splash as investors might think. Saunders believes the snack giant’s CEO only reached out because investors asked: “They’re talking about it because it’s being talked about; it is an area of ​​consciousness in the market. Investors are thinking about this and need to address the elephant in the room.”

There are plenty of reasons for the diet drug craze to die down without leaving a mark on the snack industry. The drugs are expensive, Douglas said, making them unaffordable for many. There are also too many unknowns about the drugs, including long-term side effects. Because of the massive investment required to design and launch new products, it doesn’t make sense for snack conglomerates to follow consumer trends unless they become obvious and inevitable.

“The food industry has always been a little behind,” Douglas said. “They are more reactionaries than innovators. They react to consumer changes, but they are usually quite slow.”