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The future of the biscuit industry

January 24th, 2014

comunidad europeaThe €12 billion Western European biscuits market has maintained steady growth in recent years, yet there are still challenges for biscuit companies to overcome, according to Rabobank’s latest report, dubbed Fewer Crumbs More Dough.

Average growth has been around 3%, yet the market remains fragmented and manufacturers are faced with two pressing concerns: volatility in value creation, and the high level of competition in the sector.

“Value creation volatility is mainly due to major swings in prices for commodities such as wheat and sugar, combined with inflexible price agreements with retailers,” explains Rabobank analyst Marc Kennis. “This creates substantial uncertainty in the variable cost base for manufacturers, who have limited room to pass on any price increase to customers due to intense competition and the sheer size of food retailers. Biscuit companies are caught between a rock and a hard place.”

The report claims that European biscuit companies should try to manage commodity prices more effectively and strengthen their proposition with trade and retail players. Rabobank believes that the European biscuits sector will consolidate to achieve these goals.

Rabobank foresees four likely consolidation scenarios:

  • Global brands buying large European branded players
  • Tier 2 Branded European players buying each other
  • Private label seeking scale to optimize
  • A private equity roll-up

Of these scenarios, a private equity roll-up is likely to generate the best opportunity for value creation in the industry. There are clear synergies to be realized through business combinations and there is a good availability of potential companies for acquisition.

Source: Sweets and Snacks Europe

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