Pillsbury Feeds Foreign Craving for U.S. Market
The brands are as American as apple pie--Keebler crackers, Carnation milk and Lipton Tea--but the companies that own them are located overseas.
And as a result of an agreement reached Sunday, such familiar names as Pillsbury, Green Giant and Haagen-Dazs will join that list. In what would be largest foreign takeover of a U.S. food company, Pillsbury has agreed to be acquired by the British conglomerate Grand Metropolitan for $5.7 billion.
Grand Met has said it has no major changes in mind for Pillsbury and its highly valuable brand names, although it promises to revitalize its struggling Burger King subsidiary.
Lured by the huge and stable U.S. economy and a weak dollar, foreign companies have filled their corporate shopping carts with some top American food makers and brand names in recent years. Many have also loaded up on U.S. supermarket chains as well.
Forays into the American food industry by overseas firms have increased the competition in what is already the most competitive consumer market in the world. The takeovers are part of sweeping changes that have seen the creation of mammoth foreign and American food and consumer product makers that compete on an international basis. Plenty of U.S. firms, analysts note, have also been busy buying food companies overseas.
“What you are seeing are companies buying companies all over the world,” said Timm F. Crull, president of Los Angeles-based Carnation, which was acquired by Swiss-based Nestle in 1985. “You will continue to see more of it. No doubt about it.”
The foreign ownership of food makers and retailers might result in a greater variety of products, industry experts said. U.S. consumers might see their favorite brand names on different types of products, discover more store brands and find themselves shopping in more of the huge new supermarkets pioneered in France, they said.
“The whole idea of acquiring these brand names and paying such high prices for them is because of the equity in them,” food industry analyst Nomi Ghezat Goldman, Sachs & Co., said. “You don’t want to take away the value you are paying for” by tampering with the products, she said.
In fact, Ghez said, “companies like to capitalize on these brand names by introducing new products.”
Grand Met--the world largest liquor company and a major owner of restaurants and gaming companies in Britain and Europe--has said it also plans to keep and turn around Pillsbury’s Burger King subsidiary. The world’s second-largest fast-food chain, with about 5,000 restaurants, will also see a larger expansion overseas, Grand Met executives have said.
Pillsbury was one of several American food companies that lost or sold their independence to firms with headquarters in London, Tokyo or Bern, Switzerland. The American Institute of Food Distribution says 58 U.S. food makers were acquired by foreign companies during the first nine months of this year. That compares to 47 firms purchased during the same period in 1987.
“What you’re seeing is a consolidation of the industry, and you are seeing it on both sides of the Atlantic,” said Crull at Carnation. “Philip Morris and Heinz are large in Europe. The Pillsbury acquisition by Grand Met is a continuation of that industry consolidation.”
Crull added that “I don’t think these changes are going to affect the American consumer at all. They’ll never know the difference.”
In fact, Crull said, consumers stand to benefit from a cross-pollination of products between nations. For example, he cited Carnation’s new lines of infant formulas, Good Start and Good Nature, which were created by Nestle scientists in Europe.
“It opens up American management to products available through the parent company in other parts of world,” Crull said. “We will take some of their products and they will take some of ours.”
Grand Met, for example, has said it is interested in tapping into Pillsbury expertise on foods that can be prepared in microwave ovens. Pillsbury is regarded as the worldwide leader in that category.
The arrival of Grand Met and other overseas food makers is also making life tougher for domestic food companies.
Campbell Soup Co., for instance, has seen cookie makers from Belgium, France and West Germany try and fail to overtake its line of Pepperidge Farm premium cookies.
But even more troublesome are the Japanese and other Asian firms that have captured 17% of American soup sales with low-priced Asian noodle--Ramen--products, says Herb Baum, president of Campbell’s American operations, which is testing its own line of noodle products to answer the challenge.
Once the Asian companies “get a foothold in the market, they start to go upscale, like Honda and Toyota did,” Baum said. “That’s why we believe that we have to be able to hold them off right now before they move up.”
Bringing Own Ideas
Besides food makers, American supermarkets, particularly in the East, have also attracted foreign owners. The Tengleman Group of West Germany owns 52% of Great Atlantic & Pacific Tea Co. (known as A&P;); Britain’s Marks & Spencer owns the Kings chain in New Jersey.
In the West, Albertson’s is 11% owned by West German interests and Los Angeles-based Boys Markets was purchased by a wealthy Mexican family.
“In part, some of their investment in the U.S. are investments in their own education to learn about the supermarket retailing in the U.S. and to transfer those skills back home,” said supermarket industry analyst John B. Kosecoff at First Manhattan Co.
And Europeans are bringing their owns ideas to the U.S supermarkets. The French have teamed up with an American partner to build a chain of sprawling stores--called hypermarkets--that combine groceries, housewares and other items under one roof.
Foreign supermarkets also tend to rely more heavily on house brands, which are heavily promoted, industry experts say. American executives are watching what Marks & Spencer, known for its support of house brands, will do at the Kings chain, says Kosecoff.
“That could create some precedent for the rest of the industry if it is successful,” Kosecoff said.