COMMENT: PepsiCo's successful snacking
PepsiCo is to buy General Mills' share of their SVE joint venture.
PepsiCo [PEP] has announced a $750 million deal to buy General Mills' stake in their savory snacks joint venture, Snack Ventures Europe (SVE). The move comes as soft drink sales continue to slow. By focusing on growing its snacks business, PepsiCo can to some extent sidestep the soda slump that other soft drinks companies are experiencing and look to capitalize on a growth area.
Beverage and snacks giant PepsiCo has announced plans to purchase General Mills' 40.5% share of their joint venture savory snacks company in Europe for $750 million. SVE, formed in 1992, is continental Europe's largest snack foods company, with $1 billion in annual sales. The deal gives PepsiCo full control over sales of Fritos, Doritos, Ruffles, and numerous other popular savory snacks throughout Europe.
The move comes at the end of a healthy year for PepsiCo. PepsiCo's share value has increased 22% in the last 12 months and in addition, worldwide case volume for its popular beverage brands grew by 2% during its third quarter, while snack sales in general have soared throughout the US and Europe.
Indeed, PepsiCo has its snacks business to thank for much of its growth. According to Datamonitor research, the European snack market has grown 10% in the last five years to top $60 billion, while sales of soda have slowly gone flat. Pepsi's rival, Coca-Cola, has also seen sales languish. The cola company's volume growth has stagnated, rising less than 1%, while other soft drink companies are seeing regular sodas lose ground to diet beverages, sports drinks and bottled water.
The sale is expected to benefit General Mills as well. General Mills has noted that selling its stake in the lucrative snack company will allow it to pay down some of its debt. The company now expects to "significantly exceed" its $675 million debt-reduction target for the coming year.
By expanding its reach in the snacks market, PepsiCo is making a wise move to ensure continued growth. Indeed, the average number of daily eating and snacking occasions per person is set to rise over the next five years, from 4.5 to 4.6 in Europe and 4.9 to 5.0 in the US. By leveraging its snack businesses and expanding its share in Europe, PepsiCo is guaranteeing itself a larger piece of an expanding market - and getting one over its cola rival.
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