PepsiCo and Strauss Group, Israel’s second-largest food and beverage company, are to form a joint venture partnership that will produce and sell fresh dips and spreads in key markets outside of North America. The two companies have operated a successful North American joint venture since 2007 under the Sabra brand. In North America, Sabra is the number one brand of hummus and the leader in the chilled dips and spreads category.

PepsiCo and Strauss will leverage their existing infrastructures and invest in manufacturing plants, technologies and employees to set up local operations on a country or regional level. Each partner will own 50% of the new joint venture business. Financial terms were not disclosed.

With nearly 50% category share in North America, Sabra’s products include hummus, fresh salsa and egg plant dips. Sabra’s 2010 revenues totaled $159m, up nearly 45% from the prior year.

The new joint venture follows recent efforts by both PepsiCo and Strauss to promote health and wellness throughout their product portfolios. In October 2010, PepsiCo formed its Global Nutrition Group to accelerate product development in the areas of fruits and vegetables, whole grains, dairy and functional nutrition. PepsiCo has set a goal of tripling its annual revenues from nutritious and functional foods from approximately $10b in 2010 to $30b by 2020.

Strauss Group operates 19 production sites in 20 countries. In the last seven years the group has consistently achieved growth, generating around $1.83b in turnover at the end of 2010, of which 46% came from international activities. Strauss Group comprises of four core business units: Strauss Israel, Strauss Coffee, Strauss North America and Strauss Water. The group is a leading player in coffee markets in Central and Eastern Europe, Brazil and Israel for Roast & Ground (R&G) coffee and other coffee related products and services.

69% of senior executives at UK-based food and beverage producers expect M&A activity to increase in the next 12 months, according to a report by Grant Thornton UK LLP which indicates that the sector has recovered early from recession. 20% (10 of the 50 respondents) said that they were planning to broker a merger or acquisition in that period.

By 13th August 2010, only 13 M&A transactions with a total value of £113m had been recorded involving food and beverage targets. The deal value was low compared to 2009, when this sector accounted for 27 deals with a total value of £14.3b. However, the 2009 result was inflated by Kraft’s £13.7b takeover of Cadbury (adding Cadbury’s net debt to the purchase price).

“Food and beverage producers had to digest sharp increases in input prices in 2007 and 2008, leaving the survivors in good shape to bear the recession. Most producers are already targeting growth, while 43% of our respondents are still cutting costs,” comments Trefor Griffith, corporate finance director at Grant Thornton.

In terms of growth strategies for the next 12 months, 46% of respondents are considering expansion into new markets, compared to 66% who are considering new product launches.

“It is remarkable that not a single respondent to the food sector survey highlighted competition from foreign firms as a significant challenge and less than half of them said that the weakness of Sterling was bad for business. Successful British exports include ready meals to France, Indian sauces to Spain, cheeses to Japan and breakfast cereals to China,” he explains.

22% of respondents saw greater domestic competition as one of the biggest challenges facing their business. This compares to 32% who named reduced consumer spending (or spending on premium goods) as the biggest challenge.

In terms of prospects, 52% said that the increasing emphasis on health and wellness presented a significant opportunity. 25% identified the fair trade and free range markets as providing significant opportunities, while 23% said the same about green consumer and local produce.

Global dairy markets recovered somewhat unevenly in the first half of 2010. Commodity prices declined in the early months, stabilised in March and improved throughout the second quarter. Markets now appear to have peaked and are expected to trend lower in the second half, according to Glanbia, the Irish and international nutritional ingredients and cheese group.

While volatility continues to be a feature of global dairy markets, the full year 2010 forecast is for pricing to be broadly in line with five year averages but in most instances below the market peak of 2008. While weak milk supply was a dominant feature in the first half, milk production is beginning to increase in the main producing regions and is expected to continue to do so for the rest of the year and into 2011, easing supply constraints. Demand is stable, with Asian demand a key sustaining factor globally.

Dairy farm incomes have recovered somewhat this year, although it may be sometime before farm balance sheets are fully repaired following negative returns in 2009.  

Growth in performance/sports nutrition, protein fortification and ongoing mainstream bars and beverages new product development are driving strong global demand for whey. This growth is underpinned by structural market drivers such as health and wellness (increasing link between diet and exercise, weight management, active ageing), global demographic changes (increasing Asian demand) and consumer awareness (healthier and more nutritious foods).