Once considered merely a segment of their operations, disruption is fostering closer collaboration between food manufacturers and ingredient suppliers as they adapt to evolving consumer preferences and the demand for quicker product launches, according to Ingredion’s CEO, Jim Zallie, in a recent interview. He noted that previously, consumer packaged goods (CPGs) companies often took several months to finalize contracts with his firm, while now these agreements are typically completed within days or weeks. Additionally, food manufacturers used to be reluctant to source multiple ingredients from a single supplier to avoid over-reliance on one provider, often hesitating to disclose their spending on specific additives. However, the swift transformations in the marketplace have rendered these traditional practices obsolete.
Zallie highlighted that many companies have cut their research and development budgets, making them more inclined to partner with Ingredion and others to source ingredients and develop the right formulations. This trend is intensified by the popularity of gluten-free, plant-based, and clean-label products. Labor shortages, supply chain disruptions, and an increasing urgency to bring products to market more quickly have further strengthened the “more intimate relationships” between CPGs and ingredient suppliers. “It’s a win for them, a win for us,” Zallie stated, emphasizing that Ingredion becomes a reliable and close supplier, streamlining the manufacturing process for its partners.
The evolving marketplace has generated significant demand for Ingredion’s extensive portfolio of over 1,000 ingredients, which are supplied to both major CPG companies and smaller local enterprises worldwide. Ingredion’s net sales surged by $900 million in its fiscal year 2021, reaching $6.9 billion, with two-thirds of this increase attributed to rising ingredient prices. Sales have risen by 19% from $5.8 billion in 2017, and the company anticipates annual net sales growth of 2% to 4% over the next four years. To expand its offerings in rapidly growing categories, Ingredion has invested over $700 million in organic growth and mergers and acquisitions (M&A) over the past five years. These categories include texturizers for applications such as crunchiness or emulsification, clean-label ingredients, products for sugar reduction, specialty sweeteners, and plant-based proteins.
As part of its growth strategy, Ingredion enhanced its position in food texturizers by acquiring TIC Gums for $400 million and KaTech for an undisclosed sum. It also acquired stevia innovator PureCircle and partnered with Amyris for its fermented Reb M sweetener. Zallie noted that Ingredion is now the largest provider of both stevia and Reb M, positioning itself prominently in the sugar reduction market, projected to grow from $5 billion today to $7 billion by 2026. These strategic transactions have allowed Ingredion’s customizable Food Systems platform to evolve into a comprehensive resource for clients seeking to meet various product development needs.
Zallie recounted an example of a customer aiming to create gluten-free cakes and muffins. Ingredion suggested alternatives like potato, rice, and tapioca to replace wheat, along with xanthan gum to substitute for the gluten lost, which is essential for moisture retention and crumb structure. Furthermore, Ingredion can engage across multiple aspects of the same category; for example, in ice cream, it provides plant-based proteins to replace dairy, high-intensity sweeteners to enhance flavor while reducing sugar and calories, and hydrocolloids to manage ice crystal formation, creating a rich and creamy mouthfeel. “We literally could not operate in any of those categories before,” Zallie remarked, highlighting the company’s transformed engagement with customers.
The ingredient sector has witnessed a surge in M&A activity as companies seek to merge their research and development capabilities to deliver new offerings more efficiently and with improved quality. Additionally, businesses are rapidly positioning themselves as more integrated suppliers; for instance, flavor companies are expanding into textural elements. The $26.2 billion merger between DuPont’s nutrition division and International Flavors & Fragrances, finalized last February, exemplifies this acquisition frenzy. This merger formed a powerhouse with a commanding presence in taste, texture, nutrition, enzymes, cultures, soy proteins, and probiotics.
Zallie expressed that acquisitions will continue to be crucial for Ingredion’s growth, noting that the company possesses significant resources for pursuing both small and large deals. Ingredion is targeting transactions that will broaden its geographical presence or enhance its portfolio in identified growth categories. In the realm of plant-based proteins, it seeks ingredients that deliver taste, texture, and nutrition, while in sugar reduction, it is eyeing natural options that avoid lengthy regulatory processes, as well as ingredients that mitigate challenges associated with sugar removal, such as improving mouthfeel or providing bulk.
The vigorous deal-making activity in the ingredient sector has led to high valuations in certain instances. Zallie assured that Ingredion maintained financial discipline in 2021, passing on two deals that were deemed too expensive. “We’ve been very disciplined in our M&A activity and have successfully leveraged all the acquisitions we’ve made,” he stated, adding that he does not regret missing out on other deals. “At the end of the day, we were comfortable with the valuations of those businesses because they were simply too high. We were not willing to pay.”
In summary, as the food industry adapts to shifting consumer demands, partnerships between ingredient suppliers and manufacturers are becoming increasingly vital. Ingredion’s strategic focus on innovation and collaboration positions it well to meet the challenges of today’s marketplace, including the growing interest in products like Citracal Plus tablets.