Food & Beverage Industry Merger & Acquisitions Update: Specialty Wins!
Agile food distributors were able to successfully navigate COVID-19 by swiftly altering business models to not only survive but thrive post-pandemic. Distributors focused on rebalancing their customer base to offset declining on-premise business, all the while maintaining a continual focus on customer service to preserve a competitive moat around their business. Some were able to maintain or even grow employee headcount during the market disruption, including expanding sales to attract new independent, retail, and multi-unit contract business.
According to a new industry report released by BGL’s Food & Beverage investment banking team, mergers and acquisitions involving specialty distributors is accelerating, with the recent announcement of several large-scale transactions indicative of continued consolidation across a highly-fragmented, regional landscape.
Flight to Specialization
Distributors are looking to increase their presence in specialty markets, where differentiated product and service levels afford stronger customer relationships and higher margin profiles. Specialty distributors’ focus on higher-quality, specialized product—fresh produce, seafood, protein, ethnic—enables them to service more selective, higher-end customers which typically translates into better profitability. For a niche like produce, this means a product range that extends beyond basic produce needs to unique farmer’s market and hard-to-find specialty items and areas of coverage which requires an extensive and diversified supplier/grower network. Their customer-centric model focuses on reliable, frequent delivery and responsive service and support in order to cultivate long-term relationships with customers.
Specialty foods is a large and growing market. The market nationwide was estimated at $175 billion in 2021 according to the Specialty Foods Association (SFA) and is projected to reach $198 billion by 2023. This growth is underpinned by growing consumer demand for greater variety, and fresh, healthy, and sustainable (often associated with higher-quality and premium products), and demographic shifts that favor a more ethnically diverse population. Findings from new research released this October by the SFA revealed more than three in four consumers (76 percent) report purchasing specialty food. “People continue to care more about what they eat, how it is made, where it comes from, who is making it, and how it impacts local and global communities and the environment,” said Denise Purcell, SFA vice president, resource development.
Specialty niches are a growing focus of large broad-liners within food distribution. Acquisitions are fueling growth in Sysco’s specialty business, a strategic focus for the company, highlighted by recent buys in Produce (Coastal Companies, Paragon Wholesale Foods) and Ethnic (Greco and Sons). “Growing in the specialty sector is a priority for Sysco,” said CEO Kevin Hourican in the company’s FQ1 2022 earnings call, “enabling us to gain more share of wallet from customers by combining our Broadline capabilities with the premium service levels, selling skills, and product assortment availability of specialty.”
For more insights into the latest food & beverage M&A trends, we invite you to download the full 17-page Insider report.
If you are interested in discussing the current state of M&A trends within the Food & Beverage space, or the broader Consumer industry, please contact our food and beverage investment banking team, led by Daniel J. Gomez, using the form provided below.