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A group of people in a factory engaged in strategic manufacturing, examining machinery and discussing potential CPGs and M&A opportunities.

Strategic Manufacturing Moves: CPGs Harness M&A Amid Supply Challenges

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Strategic Manufacturing Moves: CPGs Harness M&A Amid Supply Challenges

by Daisy Mae D.
09/20/2022
in Industry, Manufacturing

Amidst the complexities of today’s supply chain challenges, consumer packaged goods (CPG) companies are deploying strategic mergers and acquisitions (M&A) to fortify their manufacturing capabilities. Rather than solely focusing on brand acquisitions, these companies are increasingly acquiring production facilities, fostering quicker production scale-ups, broader brand outreach, and reduced reliance on external manufacturers.

The Hershey-Dot’s Homestyle Pretzels Deal:

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A case in point is Hershey’s $1.2 billion acquisition of Dot’s Homestyle Pretzels. Beyond the brand itself, Hershey aimed to secure control over Dot’s proprietary flavor application process. In the face of supply chain uncertainties and labor shortages, Hershey recognized the importance of integrating both the brand and manufacturing capacity to sustain long-term growth.

Manufacturing Capacity as a Valuable Asset:

Companies like Hormel Foods and Utz Brands are actively seeking additional manufacturing capacity through acquisitions. The challenge, however, lies in the realization that those with plants to sell are cognizant of the goldmine they possess. As Annemarie Vaupel from Hormel Foods notes, available plant facilities are a scarce commodity, making acquisitions highly competitive.

Strategic Benefits of Acquiring Plants:

  1. Protecting Proprietary Information:
    • Acquiring a plant enables companies to safeguard proprietary processes and technologies that might be challenging to implement with a co-manufacturer.
  2. Accelerating Product Innovation:
    • Purchasing manufacturing capacity accelerates product innovation, improves profit margins, and provides a secure investment avenue, simultaneously reducing dependence on an overburdened supply chain.
  3. Addressing Immediate Production Needs:
    • Acquiring existing plants offers a swift solution to meet surging demand, contrasting the time-consuming process of building new facilities, especially in the current economic climate.

Success Stories:

Hershey’s acquisition of Dot’s and Hormel’s purchase of Planters exemplify how strategic acquisitions can lead to substantial growth. Hershey’s retail sales for Dot’s have surged by 50% in the past three months, indicating a successful integration of both the brand and its manufacturing capacity.

The Changing Landscape:

This strategic shift in perspective signifies a departure from the asset-light model adopted by CPGs in the past. While divesting factories was once a trend, the current wave sees companies using M&A to augment the capacity for previously acquired brands, marking a significant change in approach.

Challenges and Risks:

While acquiring existing assets is generally seen as beneficial, it is not without risks. Evaluating the efficiency and modernity of the facility, along with ensuring sustained demand for the products, becomes crucial to justifying the acquisition cost. Overcapacity may become a concern if the market dynamics change unfavorably.

Ownership of Manufacturing: Brynwood Partners and Eat Just Cases:

Companies like Brynwood Partners and Eat Just emphasize the advantages of owning manufacturing capacity. Brynwood’s CEO, Henk Hartong III, underscores the ease of effecting changes independently, eliminating dependency on co-manufacturers’ pace, investment decisions, and quality standards. For Eat Just, bringing manufacturing in-house mitigated inconsistencies and unpredictability, resulting in superior product quality, consistent taste, and a dominant market share.

The trend of CPGs leveraging M&A for manufacturing capacity highlights a strategic response to the challenges posed by the current supply chain landscape. By acquiring existing plants, companies are not only securing production capabilities swiftly but also gaining autonomy over crucial processes. As the competition for available manufacturing facilities intensifies, these strategic moves are likely to reshape the manufacturing landscape within the CPG sector

Stay current with supply chain report news at The Supply Chain Report. For international trade resources, visit ADAMftd.com.

#Hershey #DotsPretzels #HormelFoods #UtzBrands #ManufacturingCapacity #SupplyChainSolutions #CPGAcquisitions #MergersAndAcquisitions #BrandGrowth #StrategicAcquisitions #InnovationInManufacturing #EatJust #BrynwoodPartners #ProductInnovation #ManufacturingOwnership #SupplyChainChallenges #BusinessExpansion

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