China Promises to Increase Purchases of American Products
China will lower levies for frozen pork, increase the purchase of American farm products, including soybeans. Beijing and Washington are expected to close the “phase-one” trade deal by early January. This comes at a time when China is looking to import large quantities of meat supplies amid an outbreak of swine fever that significantly reduced its livestock. Over the next two years, China promised to purchase $200 billion of American goods, including $80 billion U.S. farm goods.1
US Expected to Increase Agriculture and Food Product Exports to Mexico and China
Ratifications to the United States-Mexico-Canada Agreement are expected to increase growth in US food exports, reduce supply chain concerns, and lower prices to consumers. As a result of the trade agreement, International Dairy Foods Association forecasts U.S. agricultural and food exports to Mexico and Canada to rise by 1.1% or $2.2 billion. Grocers, packaged goods operators, and retailers that rely on their Mexican supply chains will benefit from easing distribution concerns and continue to deliver affordable products to the U.S. market.2
Discount Grocery Chains Take Market Share From Traditional Supermarkets
German discount chains, Aldi and Lidl, are growing their U.S. market share, pressuring U.S. rivals to lower prices. Limited assortment stores, such as Trader Joe’s and Aldi, are projected to grow 5.6% annually through 2023, while traditional supermarkets are expected to rise by only 0.5% annually. U.S grocers are trying to win back customers by cutting prices, remodeling their chains, adding fresh foods, and selling less-expensive private-label brands.3
Kroger's Plan to Stay Relevant is Paying Off
Kroger’s issued stronger guidance indicating the “Restock Kroger” investment program is paying off. The grocer forecasts same-store sales to grow above 2.25%, adjusted earnings of $2.40 – above analysts’ estimates – and repurchase between $500 million to $1 billion worth of shares in 2020. Kroger’s investment program that started two years ago aimed to remodel stores, expand online and delivery presence, upgrade private-labeling, and lower prices to compete against traditional and online competitors.4
Consumer Preference for Produce Reflected in Supermarket Offerings
Supermarkets are adding more fresh food to capitalize on rising demand and attract big spenders. Produce sales in the U.S. rose by 2.0% to $62 billion in 2019. Organic produce grew the fastest between 2017 and 2018 by 6.9% to $4.1 billion. Retailers are expanding their produce section to profit from a fast-growing market and boost overall revenue from higher foot traffic as it leads to additional purchases at different aisles.5
Agriculture Industry is Hurting Kansas’ Economy
Personal income growth in Kansas is below the national average as a result of pressures to its agricultural industry. Agriculture accounts for 40% of Kansas’ economy, which has been hampered by droughts, low commodity prices, and the ongoing trade dispute between the U.S. and China. Weak performance in the industry dragged Kansas personal income, growing at an annualized rate of 1.6% versus 2.1% for the national average since late 2007. Over the last year, Kansas had the eighth-worst personal income growth in the nation.6
President Trump’s Battle With Orangeworm
On December 20, 2019, President Trump signed a $6 million federal spending bill aimed to reduce the population of navel orangeworm, a major pest of important tree nut crops such as pistachio and almond orchards. The bill increases the production of sterile insect technology to combat the infestation. California’s tree nut industry loses $800 million annually due to the insect.7
New Methods for Aging Whiskey Fast
New distillers discover a faster method of distilling high-quality whiskey and bourbon. Traditionally, whiskey is aged in barrels for years or months before consumption. However, distillers are using sound waves, chemistry, and climate-controlled containers to age whiskey faster, in weeks or even seconds. To prove its quality and taste, 3,500 taste testers in Cleveland rated rapidly-aged Knob Creek bourbon at the top 54% of the time.8
Blast From the Past; Mead is Back
Growing demand for craft mead is pushing the industry to double within the next five years. Mead is an alcoholic beverage dating back to 7,000 B.C. The increasing demand is driven in part by consumers looking for an alcoholic drink with a sense of locality. To meet rising consumer interest, three meaderies, on average, are opening every three days – growing by 2,233% since 2003.9
Health Conscious Consumers Say No to Sugar
Consumers are choosing less sugary beverages and experimenting with new flavors due to shifting consumer preferences and taxes. Beverage drinkers opt for reduced sugar to achieve their health goals and avoid sugar taxes. This has been fueling the rise of fortified flavored water, iced teas, and sparkling waters as substitute beverages.10
Brewery Tax Savings May Fuel Industry Growth
Small and independent brewers celebrate as Congress extends current federal excise tax rates (FET) for one more year. The industry sees annual tax savings above $80 million after lawmakers paused the FET rates from rising by 100%, previously planned to be effective at the end of 2019. Brewers plan to use the tax savings to grow their businesses and capital expenditures, fueling future industry expansion.11
Largest Transactions Closed
- Arnott's Biscuits Holdings, Campbell Hong Kong and Related Business of Campbell Soup Company
- KKR & Co. Inc.
- Reinhart FoodService L.L.C./Associated Real Estate Companies
- Performance Food Group Company
- Quest Nutrition, LLC
- Atkins Nutritionals Holdings, Inc.
- National Beef Packaging Company, LLC
- Marfig Global Foods S.A.
- International Dehydrated Foods, Inc./American Dehydrated Foods, Inc.
- Symrise AG
- B&R Global Holdings, Inc.
- HF Foods Group Inc.
- Castle Brands Inc.
- Pernod Ricard SA
- Direct Store Delivery Snacks Business
- Utz Quality Foods, LLC
- Portfolio of Seven Giant Supermarket in Pennsylvania
- Vastgood Properties, LLC; RW Partneres, Inc.
- Zumbro River Brand, Inc.
- SensoryEffects Flavor Company
Source S&P Capital IQ as of 1/10/2020 and PCE Proprietary Data
This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.
EBIT - Earnings Before Interest and Taxes