The global dairy sector experienced slower revenue growth in 2023, but a wave of mergers and acquisitions (M&A) could soon reshape the industry, according to Rabobank’s RaboResearch arm. The RaboResearch Global Dairy Top 20 report highlights that sustainability targets may drive these deals and other strategic shifts within the sector.
The report indicates that deal activity among the top 20 dairy players has been limited, with notable exceptions such as Danone. The French multinational divested its Russian business and sold its Horizon Organic and Wallaby brands to private equity firm Platinum Equity. These moves reflect a broader trend where large dairy companies are reassessing their priorities, often shifting their focus back to core businesses. This strategic realignment frequently involves shedding parts of the business that are less profitable or do not align with key strategic priorities.
Unilever is a case in point. Earlier this year, the company announced plans to spin off its ice cream business to become a “simpler, more focused company.” According to RaboResearch, this decision could also facilitate Unilever’s sustainability targets by removing a significant portion of its dairy-related brands from its overall portfolio. The report suggests that corporate sustainability goals could increasingly influence business structures in the future. Companies might retain minor controlling interests in divested units to achieve sustainability-related objectives more effectively by keeping these parts of the business at arm’s length from their core operations.
Another significant development to watch is Fonterra’s strategic pivot back to its business-to-business (B2B) ingredients and foodservice operations. This shift could result in the New Zealand-based dairy giant shedding its consumer-facing businesses. Similarly, General Mills has proposed divesting its Yoplait brand, signaling a potential trend where other companies might announce similar significant divestments in the coming years as the M&A landscape heats up after a period of stagnation.
The implications of these strategic moves are multifaceted. On one hand, they reflect a growing recognition within the dairy industry of the need to streamline operations and focus on core competencies. This can lead to enhanced efficiency and profitability. On the other hand, the emphasis on sustainability targets highlights the increasing importance of environmental considerations in corporate decision-making. By divesting certain brands or business units, companies can potentially reduce their environmental footprint and align more closely with global sustainability standards.
Moreover, these strategic shifts could lead to a more dynamic and competitive dairy sector. As companies divest non-core assets, new players may enter the market, bringing fresh perspectives and innovative approaches. This could spur further innovation and drive the adoption of more sustainable practices across the industry.
In summary, while the global dairy sector faced slower revenue growth in 2023, the industry is poised for significant transformation driven by M&A activity and a heightened focus on sustainability. As large dairy companies reexamine their priorities and restructure their businesses, the sector could become more streamlined, competitive, and environmentally conscious. The coming years will likely see a flurry of strategic deals as companies navigate this evolving landscape, striving to balance profitability with sustainability.