Amazon and the Food Fight to End All Food Fights

By: Richard Berger

March 8, 2018

I don’t think about granola very much. I associate it with hiking, a healthy breakfast, or the remains of a snack bag after someone has already picked all the chocolate out. But for some, it seems that granola is pretty fascinating.

Enter the Bear Naked brand granola customization tool, an online platform designed to empower customers to choose their base (chocolate, honey or cacao with cashew butter), up to three ingredients for “flavor synergy” (a dizzying array of choices), and the bear illustration to grace the cover of the tin. Make your choices, complete the purchase and your very own custom granola is shipped direct to your doorstep.

That last part is what matters most to Kellogg, parent company of Bear Naked and one of the big Consumer Packaged Goods (CPG) players getting squeezed on prices by Amazon, Aldi and an increasingly challenging marketplace.

When Amazon’s purchase of Whole Foods was announced last year, the stocks of the 10 largest U.S. food companies — Kellogg is one of them — lost a combined $8 billion in market value, according to Bloomberg. With increased sales in the industry, Amazon has increased its leverage over CPG manufacturers and is using it to push for lower prices.

But with prices about as low as they can go, what are the CPG giants to do?

In the past, the Kelloggs and Campbell Soups of the world leveraged smaller acquisitions to reignite innovation within their firms (such as Campbell’s Bolthouse Farms deal). Today, acquiring a company with just $100 or $200 million dollars in sales is difficult to justify when only the billion-dollar brands can move the needle.

Thus the arrival of truly transformative, larger acquisitions such as Campbell’s $4.8B acquisition of Snyder’s Lance and Hershey’s $1.6B purchase of the parent of Skinny Pop.

Further, many traditional Big Food (and Beverage players) see lackluster or negative growth in their core sectors – Pepsi has had flat or negative growth in their soda business and been completely reliant on the Frito Lay snack business to drive growth. Coke has had similar problems.

A few noteworthy conclusions as we prepare for a food fight among Big Food:

  • We are likely to see many more large-scale transformative acquisitions in the coming months – who Coke might buy, is General Mills or Kellogg a buyer or a seller, etc.;
  • The only surefire way to counteract Amazon’s increasing pressure is to grow online retail channels such as Bear Naked’s granola play – kudos to them for creativity;
  • All large CPG firms need to fundamentally reassess their value props to their retail partners and end consumers as they brace for upheaval.