Western Europe’s biscuit market braced for M&A storm, says Rabobank

Rabobank predicts how the cookie will crumble in Western Europe

The Western European biscuit sector is set to consolidate through a series of mergers and acquisitions, according to an analyst at Rabobank.

Speaking to ConfectioneryNews about the bank’s latest report, ‘Fewer Crumbs More Dough’, analyst Marc Kennis said: “There’s quite some room for consolidation.”

Industry consolidates

The €12bn ($16bn) Western European biscuit sector is led by Oreo owner Mondelez International, followed by the UK’s United Biscuits, Italy’s Barilla and Germany’s Bahlsen. There are also troves of smaller companies with a 1% or less market share.

“In terms of growth, it’s a relatively attractive market [averaging +3% per annum], but at the same time, with the sheer number of companies you see, it’s highly competitive,” said Kennis.

In November last year, UK biscuit firm Burton’s Biscuits was sold by owners Canadian Imperial Bank of Commerce and Apollo Global Management to Canadian pension fund Ontario Teachers’ Pension Plan (OTPP) for around $565m.

Kennis said that the Burton’s sale could mark the start of further M&A activity.

The analyst refused to name names but said that sales could range from family-owned business without successors deciding to sell to global brands buying large European branded players.

Rabobank also believes private label players may look to up their market share, while private equity firms could also be on the prowl for a stake in the sector.

Instability from commodity prices

But Kennis warned: “It is by no means guaranteed that all firms will do well. If you look at the longer term, it’s mostly driven by volatility in commodity prices.”

The analyst said spikes in the price of wheat, sugar and cocoa were problematic for companies to deal with because they were usually in long-term contacts with customers and had to absorb the cost themselves.

Rabobank’s report recommended managing commodity prices more effectively, both in purchasing and in passing on higher prices to customers.

Kennis added that it was better for a biscuit company to dominate a sub-category rather than to be widespread.

“Be sure that the consumer wants your products,” he said. This may mean setting up production in the market of sale to avoid export costs that could drive pricing beyond the reach of consumers, continued the analyst.

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