Company Trend Analysis - Mars Ramps Up Health Drive, Invests In Snacks Bar Company - FEB 2018

BMI View: Amid the healthification trend seen across developed markets such as the US, major food manufacturers are expanding their healthy foods portfolio by acquiring smaller health-focused brands. Mars is the latest company to follow this trend, acquiring a minority stake in Kind Snacks, a fruit and nut snack bar company. We continue to expect major F&D companies to follow this strategy in 2018, in order to consolidate their market position, especially given the weak growth outlook for the chocolate and sweets s egment over the coming years.

US confectionery giant, Mars, has acquired a minority stake in Kind Snacks, a fruit and nut bar company, as the company strengthens its drive to cater to growing health-consciousness among consumers. The deal values Kind Snacks at USD4bn and would allow the company to remain independent while leveraging on Mars' distribution network as it seeks to expand into new markets.

The acquisition of Kind Snacks comes on the back of Mars's focus on health and wellbeing as the company aims to make its products healthier. This is a result of the healthification trend seen in developed markets, with consumers becoming more conscious of the food and drinks they consume ( see ' Food & Drink Mid-Year Update: Key Themes for 2017', July 5 2017) as more information and transparency about ingredients are available to consumers. This is prompting big food and drink manufacturers such as Mars to strengthen their portfolio of healthier food options.

We highlight that confectionary businesses in the US face slowing growth, on the back of increasingly health-conscious consumers across developed markets. In the US, we forecast sales of chocolates and sweets to continue to slow, from 3.4% y-o-y growth in 2017, down to 3.2% y-o-y in 2018, and down to 2.8% y-o-y over 2019-2021.

US Chocolate Market Slowing In Growth
Chocolate, Sweets And Similar, Sales, USDmn, % Growth y-o-y
e/f = BMI estimate/ forecast. Source: national statistics, BMI

Mars is also diversifying its portfolio away from foods with high sugar content, as governments across the world are enacting policies to curb excessive sugar intake and lower obesity levels through the implementation of sugar taxes. In 2017, countries such as the UAE, Saudi Arabia and Portugal implemented their own sugar tax, with South Africa, the UK and Ireland set to follow with their own in 2018. According to the OECD, obesity rates are rising in developed markets, with the US having the highest obesity rate globally, at 38.2% of the population over 15 years old obese. This has driven many consumers to turn away from sugary products towards more nutritious and healthy food options.

Mars has been strengthening its move to healthier food alternatives as consumer demand shifts towards this preference. In July 2017, Mars launched its 'Goodness Knows' snack bar range, a fruit and nut bar with dark chocolate. The company also made strides to diversify its portfolio through the acquisition of a majority stake in Tasty Bite, a manufacturer of all-natural, ready-to-heat Indian and Asian food products in August 2017.

Other Food Manufacturers Respond to 'Healthification'

Food manufacturers are steadily responding to consumer demand for healthier food alternatives. Nestle announced plans to sell its confectionary business in the US, on the back of weak performance of the segment ( see ' Nestl e To Shed Underperforming Confectionery Business', October 27 2017). Meanwhile, Kellogg announced that it will buy RX bars, a popular protein-heavy line of snack bars, for USD600mn in October 2017. In addition, in line with growing demand for vegetarian and vegan food options, food manufacturers such as Nestle, General Mills and Danone have all acquired plant-based brands ( see 'Food Manufacturers Respond To Vegan Trend', September 20 2017). We expect this trend to continue into 2018, with manufacturers favouring vertical M&A activity over horizontal 'mega-mergers', as they try to capture growth from new sources.