Dive Brief:
- TreeHouse Foods is spending $100 million to purchase a Northlake, Texas, coffee facility and non-direct store delivery coffee business from Farmer Brothers Company. The transaction is expected to close within the next 60 days.
- The facility, built in 2017, brings roasting, grinding, flavoring and blending capabilities to TreeHouse Foods, which will complement its existing single-serve pod and ready-to-drink coffee businesses, the private-label food maker said.
- Along with adding brands, food and beverage makers have been acquiring factories and production capacity to help them expand existing product offerings and meet future increases in demand.
Dive Insight:
While TreeHouse has spent the last year slimming down its business, notably through the nearly $1 billion sale of much of its meal preparation business, the private label food maker hasn’t lost track of the importance of building and strengthening its existing operations.
To grow TreeHouse’s remaining operations, CEO Steve Oakland told analysts in February the company is looking to purchase manufacturing capacity rather than new brands.
“I think acquisition for us would be capability driven, not necessarily new businesses, not adjacencies, those things that we’ve done in the past,” Oakland said. “We think we’re in a great group of categories. We just need to be able to sell more, the demand is there.”
Manufacturing assets have not always been such an important M&A target, but as challenges in the pandemic era have put a squeeze on costs, supplies and labor, they have become invaluable. Many companies are looking to buy manufacturing facilities to add to their capacity, since building them new can be expensive and take years.
By purchasing the coffee plant from Farmer Brothers, Oakland said in a statement TreeHouse will add new capabilities, creating a company that is a “more vertically integrated coffee manufacturer able to further penetrate this high growth, high margin category.”
The purchase will give TreeHouse more control over the entire coffee-making process, which could increase its margins in the category. It also gives the Illinois-based company a deeper presence in a fast-growing segment.
Coffee consumption is at a two-decade high, according to data released in 2022 by the National Coffee Association. Americans consume nearly half a billion cups of the beverage each day, making it the most popular drink ahead of water, tea and juice. It’s also getting more popular with younger adults. NCA reported that 51% of young adults between 18 and 24 drink coffee, representing an increase of 11% since July 2021.
TreeHouse is just the latest CPG company to turn to M&A to help increase production.
Hershey announced in April it was buying two popcorn operations from a co-manufacturer to help the company increase production capacity and flexibility for its fast-growing SkinnyPop brand. And when the snacking giant purchased Dot’s Homestyle Pretzels in 2021, a key part of the acquisition was three manufacturing locations used to make the salty snack for Dot’s and other customers.
Other companies have used this strategy as well. Last year, B&G Foods acquired the frozen vegetable manufacturing operations of Growers Express. The manufacturer, producer, packager and seller of frozen vegetables made products under the Green Giant brand.
In 2021, Utz Brands purchased the largest manufacturer of tortilla chips for its On The Border brand.
