Snack Happy: Food companies go nuts with healthy munchies

When Olympus Partners, a major private equity firm based in Stamford, Connecticut, acquired a majority stake in the privately held Jessup, Maryland-based Ann's House of Nuts last week, managers at the buyout firm were placing a big bet on a nut company with little-to-no recognition among ordinary consumers.

Although Ann's had healthy balance sheets, according to those involved in the deal, Olympus also was drawn in by the fact that the nut manufacturer is part of a bright growth segment for the food business: snack food.

Across the U.S. food marketplace, snack sales have been growing for years. Since 2002, salty snack sales have grown almost 42 percent to $15.9 billion last year, according to data from London-based market research company Mintel International Group Ltd. And now numerous companies are trying to capitalize on this expanding market through diversifying product lines and touting the health benefits of their wares.

"There are lots of opportunities to move a product that's-imagine this-a snack product that's actually good for you." said Mark Rittmanic, founder and CEO of the Northbrook-based management consulting company ForteCEO Group, which helped Ann's prepare itself for sale.

Ann's Advantage

The Ann's deal is an illustration of just what expectations for the snack food industry have become. A company that sells mostly nuts and trail mixes under private label names at big-box retailers, Ann's is the biggest private label nut company in the country. Its revenues exceeded $250 million last year.

The perception of nuts as a healthful food is expected to help drive sales in an increasingly health-conscious marketplace.

"Dried fruits and nuts are a product with almost limitless potential," Rittmanic said. "And it's a really exciting product line because it's so healthy and so trend positive."

Because nuts and trail mixes can be packaged in many different configurations and flavored in many different ways, the product line's versatility is another advantage for the company.

"The interesting thing about the [snack food] category is there's lots of room for experimentation and innovation," said Marcia Mogelonsky, a senior analyst at Mintel. "[Consumers] love to experiment [by buying new foods]. We especially love to experiment in categories that aren't going to bankrupt us."

Growing Pains

Kraft Foods Inc., based in Northfield, will officially split-off its Post cereals business on the first day of August. Ralcorp Holdings will then take control of the operations.

But the cereal portion of the Kraft portfolio is not currently losing money. In fact, revenues from Post cereal sales exceeded $1 billion dollars last year.

So why is the food giant shedding a venerated, profitable cereal business more than 100 years old?

One major reason is growth. "Helping to find higher growth, more focused categories is the game plan that Kraft should be following longer term," said Gregg Warren, an analyst with Chicago-based investment research company Morningstar Inc.

Warren noted that Kraft CEO Irene Rosenfeld, who has rededicated the company to growth, should focus instead on foods like "cookies and crackers [and] the biscuit business." These are snack products that are expected to provide a greater boost to earnings in the future.

In fact, Kraft's experienced a 13.3 percent increase in net revenues from snack food sales last year, making snacks both its largest and fastest growing product segment. It is telling that Rosenfeld came to Kraft from heading up Purchase, New York-based rival Pepsico Inc.'s snack giant Frito-Lay.

Healthy and Growing

The snack food industry has taken a turn towards health in recent past. Mogelonsky estimates sales of "healthy" snack products like nuts and trail mixes to be about $6 billion dollars last year, although the definition of "healthful" snacks varies widely. And with the annual U.S. healthful snacks introduction rate above 400 the last two years, revenues figure to improve.

"The healthy, natural snacks [category] is a much faster growing sector of the snack food industry than the industry itself. So we think that's the better segment in which to be operating," said Rob Morris, managing partner of Olympus Partners.

And while snack sales in general have been increasing steadily, sales on potato chips and extruded cheese snacks have been flat since 2002, according to Mogelonsky. This signals a shift in American snacking habits toward healthier fare.

In addition, 73 percent of the public now thinks that snacking can be part of a healthy diet, according to the Natural Marketing Institute, a market research firm based in Harleysville, Penn.

And it's not just new or smaller companies that are getting in on healthful snacks. This year Kraft is introducing at least 20 new snack products, many of which are categorized as contributing to health and wellness.

The Future

Now that the Ann's deal is complete, Olympus may try to place new natural products on retail shelves through Ann's distribution channels and will even look into expanding those channels, according to Morris. The nut business' growth is highly anticipated by its new owners.

Morris says that Olympus averages about a three-to-six year hold for companies in its portfolio. Certainly the good outlook for Ann's would suggest it may be a part of Olympus' holdings for years to come. Expectations are that Ann's can grow and advance in the marketplace.

"[Ann's is] a good company today. It'll be a better company tomorrow," Rittmanic said.

All across the industry, food companies concentrating on snack products are hopefully saying the same thing about themselves.