Adam Ismail03.01.02
Restoring Growth Rates
Getting more involved inthe international market may improve supplement sales.
By Adam Ismail
For over a year now, companies in the nutrition industry have been asking each other when the industry slowdown was going to stop and growth rates were going to return. While they may never return to the double-digit figures we saw in the mid-1990s, everybody is really waiting for supplement sales to hit the 7-10% range again. Many of those players also said the key for companies to get those growth rates back involved international expansion. If that is true, then nutrition industry growth rates may soon return to normal because of significant cross-border acquisition activity in the last quarter.
According to Nutrition Business Journal and Health Business Partners Consulting’s database of acquisition activity for the nutrition industry, 57% of all deals announced in the fourth quarter of 2001 were cross-border deals. This compares to only 11% of all acquisition activity in the same quarter of 2000. The increase is dramatic, but what makes it an indicator of better times to come?
First, look at some of the deals being closed and the players behind them. The major players are no longer “mom-and-pop” companies that made the nutrition industry what it is today. Instead, they are companies that think in terms of the global competitive environment and know that growth does not come from a single market. For example, Hain Celestial (U.S.) acquired Lima BV (Belgium); Groupe Danone (France) acquired a minority interest in Stonyfield Farm (U.S.); Solbar (Israel) acquired a division of International Flavors and Fragrances (U.S.); Friesland Coberco (Belgium) acquired Nutricia Dairy (Netherlands); Groupe Danone (France) bid to acquire Frucor (New Zealand) and Bausch & Lomb (U.S.) acquired Fidia’s ophthalmics unit (Italy).
Second, look at the rationale behind some of those key deals. The Hain Celestial Group is the U.S.’ largest manufacturer of natural and organic foods, with key brands including Terra Chips. In January of last year, the company began its organized effort to grow internationally by acquiring Fruit Chips BV, a Belgian maker of natural snacks. The company felt the acquisition target would make good use of its distribution to grow the Terra Chips brand in Europe. To give you an idea of how much European sales affect the company’s plan, management named slower growth than expected in the region as one of the key reasons they posted lower than expected earnings in their third quarter of 2001. Despite that hiccup, Hain has stuck to its strategy. With Lima, Hain has pinned hopes that the company will give it European distribution for its Health Valley and core Hain brands.
Groupe Danone’s investment in Stonyfield Farm, a U.S. producer of natural, organic and functional yogurt products, gives it a significant opportunity to capture growth. While Danone does not currently control Stonyfield, it has the option to gain control by 2004 as part of the deal. What the deal does give Danone is access to a high growth brand that receives significant positive media attention. In addition, most of the company’s sales are spread across the two U.S. coastlines, giving Danone an opportunity in the U.S. to place Stonyfield products in its own distribution system. Also, there is a significant hole in the market in Europe and other regions for organic yogurt products, with no clear brand leader in any non-U.S. region. There is a lot of speculation about what has made Stonyfield a success, achieving $85 million in sales last year, but whatever it is, Danone hopes it can be replicated.
On the ingredients side, Solbar Hatzor, an Israeli maker of high-value soy ingredients, acquired the textured soy protein business of flavor house International Flavors and Fragrances (IFF). Soy products have grown significantly since FDA allowed heart health claims on certain soy products and this is part of what Solbar is banking on. The deal gives Solbar rights to the Bontrae brand of textured soy proteins, an expanded presence in the U.S. and access to a significantly larger customer base.
While many other industries have been competing in the global context for many years, and this industry’s maturation may seem trivial, it is a very new feature to the $128 billion global nutrition industry. It means consolidation will continue in the space as the industry gradually narrows its way down to a handful of key competitors. It means companies will increasingly bring new products and brands from region-to-region.
And most importantly, it means the industry’s growth may soon begin to recover again.NW
