General Mills announced on November 21 its agreement to purchase natural yogurt brand Mountain High from Dean Foods. Mountain High offers yogurts in 32- and 64-ounce containers sold in the western United States and the acquisition stands to double the size of GM’s large-size yogurts business. Dean Foods’ sale of Mountain High came after an especially disappointing third quarter, when the dairy company announced a 51% drop in profit compared to the same period in 2009. Mountain High will become part of General Mills’ Yoplait USA franchise, the U.S. distribution arm of French yogurt giant Yoplait.
The acquisition comes at a time when General Mills is in jeopardy of losing its license to the Yoplait brand, but stands to potentially gain the entire French company. Yoplait itself—which, according to Reuters, accounts for 7% of the global dairy market (second only to Danone with 21%)—has been a hot topic of late, after French equity firm PAI Partners, 50% owner of the yogurt maker, announced this summer that it intended to sell its share of the company. A €1.4 billion ($1.96 billion) bid for the entire company from French dairy maker Lactalis has already been rejected by Yoplait’s owners, leaving industry giants Nestle and General Mills as the frontrunners in the bidding war for PAI’s share. General Mills has the most to gain from the investment; it has operated Yoplait’s U.S. franchise since 1977, but stands to potentially lose it in 2012 due to a contract issue with the company from which it has licensed the brand. Swiss titan Nestle could of course make the 50% acquisition—which is estimated at around €700 million ($1 billion)—without batting an eye.
In an interview with DairyReporter.com, European food industry analyst Jon Cox of Kepler Capital Markets said that Nestle was unlikely to make the acquisition. “For Nestle, taking a 50% stake, say for €700 million, is not going to break the bank or make any difference to its earnings in the short term,” Cox said. “However, it may be doing General Mills a favor given it has the U.S. rights to Yoplait.” General Mills will likely do its best to acquire the yogurt maker or at least hang on to its U.S. business. Why it would add the Mountain High brand to a franchise it expected to lose is a baffling prospect.
NBJ Bottom Line
Conventional yogurt is a mature and globally ubiquitous market, but opportunities abound in its natural, organic, lesser-evil and functional spheres. The U.S. dairy market has faced rough going in 2009 and 2010, especially as overproduction and rising commodity prices made mince of profit margins, but yogurt has been the one glaring exception. Organic yogurt was the only category in the organic dairy industry to post positive growth in 2009, climbing 4% over 2008 figures with nearly $40 million in new sales, according to NBJ data. And in a year when U.S. consumer sales of all dairy products were down 6.5%, functional dairy sales actually rose 2% in 2009, predicated on the successes of probiotic-enhanced products like Dannon’s Activia and Yoplait’s YoPlus.
Touting the health benefits of yogurt is key to its growth as a category. Functional offerings show the greatest potential for volume growth as knowledge of the boons of probiotics, fiber and general gut health expands, especially when those products are proffered by mass market mainstays like Yoplait and Dannon, which together account for over half of the U.S. yogurt market. Holding the U.S. distributorship for a global market leader like Yoplait offers General Mills ample avenues for growth in the future; it’s a feather best kept in GM’s own gigantic hat.
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