The FTC’s complaint indicates that internal documents from both Smucker and Conagra reveal that the two cooking oil brands “compete intensely” for retail sales. One of Smucker’s motivations for acquiring the Wesson oil brand is to circumvent price competition. According to the agency, “Smucker’s own internal documents acknowledge that eliminating price competition between Crisco and Wesson is a central part of its rationale for the acquisition. The transaction would enable Smucker to increase prices to retailers, ultimately leading to higher costs for U.S. consumers.”
The deal, which was announced in May of the previous year, is expected to benefit Smucker in multiple ways. The company anticipates that the acquisition will generate approximately $230 million in annual net sales and offer a $45-million tax advantage. Mark Smucker also mentioned that this acquisition would allow the company to leverage its existing supply chain more efficiently, leading to significant cost savings that could drive future growth and innovation opportunities.
For Conagra, this arrangement provides a chance to divest a brand it obtained in 1990 during its $1.34 billion acquisition of the Beatrice Company and its subsidiary, Hunt-Wesson, from KKR & Co. Furthermore, under the agreement with Smucker, Conagra will continue producing Wesson products for one year before transitioning production to Smucker’s edible oils manufacturing facility in Cincinnati.
If the companies opt for a trial and the FTC wins, they will face several decisions. Conagra could consider selling the Wesson brand to another company. As reported by the Omaha World Herald, CEO Sean Connolly seems determined to transform the Chicago-based firm from a producer of low-margin staples into a manufacturer of higher-profit items like salsas and all-natural, organic pot pies, as well as chicken and pork entrees. While it’s uncertain who would acquire the brand, it’s improbable that it would be another large CPG company seeking faster-growing and more profitable brands, similar to Conagra.
The FTC highlighted that canola and vegetable oils are relatively inexpensive and versatile, making the market for both branded and store brands quite robust. However, other brands like Mazola and LouAna hold a smaller market share compared to Wesson and Crisco. Additionally, the agency noted that cooking oils derived from corn, peanuts, olives, and other sources tend to be more costly and less adaptable.
Cargill is introducing a hybrid high-oleic canola oil for commercial customers, claiming it contains 4.5% or less saturated fat. Nevertheless, the FTC pointed out that new entrants into the market would not be able to scale up quickly enough to mitigate the anti-competitive effects of the Conagra/Smucker merger.
In conclusion, as the market evolves, the implications of the acquisition are significant, especially in light of the potential for increased prices and diminished competition. Moreover, with the growing focus on health and wellness, the incorporation of ingredients like calcium citrate malate USP in food products may gain traction, further impacting consumer preferences and market dynamics.