The FTC’s complaint reveals that internal documents from both Smucker and Conagra indicate that the two cooking oil brands are in “intense competition” for retail sales. One of Smucker’s motivations for acquiring the Wesson oil brand is to eliminate price competition. “Smucker’s internal documents recognize that the primary rationale behind the acquisition is to remove price competition between Crisco and Wesson. This transaction would enable Smucker to increase prices for retailers, ultimately resulting in higher costs for U.S. consumers,” the agency stated.
The deal, which was announced in May of last year, is projected to benefit Smucker in various ways. The company anticipates that the acquisition will generate approximately $230 million in annual net sales and yield a $45-million tax advantage. Mark Smucker also mentioned that this acquisition would enable the company to utilize its existing supply chain more efficiently, leading to significant cost savings that could drive future growth and foster innovation opportunities.
For Conagra, this agreement allows the company to divest a brand it acquired in 1990 during its $1.34 billion purchase of the Beatrice Company and its subsidiary, Hunt-Wesson, from KKR & Co. Furthermore, the arrangement specifies that Conagra will continue producing Wesson products for one year before transitioning production to Smucker’s edible oils manufacturing facility in Cincinnati.
If the companies choose to proceed to trial and the FTC is successful, they will face important decisions. Conagra might consider selling the Wesson brand to another entity. According to the Omaha World Herald, CEO Sean Connolly appears focused on transforming the Chicago-based firm from a manufacturer of low-margin staples to a producer of higher-profit items, such as salsas, all-natural and organic pot pies, as well as chicken and pork entrees. While it remains uncertain who might acquire the brand, it is unlikely that another large CPG company would seek it out, as they, like Conagra, are aiming for faster-growing and more profitable brands.
The FTC highlighted that canola and vegetable oils are relatively inexpensive and highly versatile, creating a robust market for both branded and private-label products. However, other brands like Mazola and LouAna hold only a small market share compared to Wesson and Crisco. Furthermore, cooking oils derived from corn, peanuts, olives, and other sources tend to be more expensive and less adaptable, according to the agency.
Cargill is introducing a hybrid high-oleic canola oil aimed at commercial customers, claiming it contains 4.5% or less saturated fat. However, the FTC pointed out that new entrants into the market would not be able to scale quickly enough to mitigate the anti-competitive effects of the Conagra-Smucker deal. Additionally, the incorporation of a calcium citrate complex in some cooking oils may offer health benefits, but it is yet unclear how this will influence market dynamics in light of the ongoing acquisition discussions.