Hormel sells maker of Muscle Milk brand to PepsiCo for undisclosed sum

20 Feb 2019 --- Global food company Hormel Foods (Hormel) has sold its CytoSport business to US food and beverage giant PepsiCo for an undisclosed sum, as PepsiCo looks to expand its portfolio of healthier food and beverages. The transaction, which includes the sports and wellness brand Muscle Milk, is subject to customary closing conditions, including regulatory approvals, and is expected to be finalized in 30-60 days.

This is PepsiCo’s first major acquisition under new CEO Ramon Laguarta. Under Laguarta’s predecessor, Indra Nooyi, PepsiCo bought SodaStream International Ltd. and baked fruit and vegetable snackmaker Bare Foods Co. before Laguarta took the reins from Nooyi in October 2018.

Initially bought by Hormel in 2014 for US$450 million, CytoSport produces a range of protein and wellness products – including bars, shakes and protein powders – under the Muscle Milk and Evolve brands. Both brands are marketed as healthy, natural products to active consumers – a segment of the market that’s experienced growth.

A PepsiCo spokesperson tells FoodIngredientsFirst: “We look forward to welcoming CytoSport to the PepsiCo family. This transaction is yet another example of ways we are building a consumer-centric portfolio of brands that offer a breadth of options across convenient foods and beverages. It is also consistent with our tuck-in acquisition strategy and we look forward to working with the CytoSport team following Closing to continue to strengthen these brands and capture new growth opportunities.”

Protein continues to find application across food and beverage categories and is definitely on the top of consumers’ minds. A 2018 Innova Market Insights consumer survey revealed that nearly 50 percent of UK consumers are influenced by protein content when buying food and beverages, making it an attractive way for formulators to grab consumers’ attention. Furthermore, sports nutrition has always had a strong focus on protein content. This has grown higher in recent years as this interest has moved into the mainstream. It is apparent across the food and drinks market as a whole, with 6.5 percent of all food and drinks launches recorded by Innova Market Insights in 2017 using “high in,” “source of” or “added” protein positionings, rising to nearly 12 percent in the US.

“PepsiCo has deep expertise and experience in the sports nutrition category and has been a long-standing distribution partner for CytoSport and the Muscle Milk brand, which puts them in a strong position to grow this dynamic business,” says Jim Snee, Chairman of the Board, President and CEO at Hormel Foods. 

“We look forward to working with PepsiCo to ensure a smooth transition for our team members, suppliers, customers and consumers,” he adds. 

The maker of Spam and Skippy peanut butter, Hormel Foods, announced the sale of its CytoSport unit in a statement released on Tuesday, 19 February. Hormel stated that more information on the deal would be released during the company’s earnings call later this week. 

The purchase shows that PepsiCo is continuing to diversify its portfolio as US consumers opt for fewer soft drinks and more goods that are perceived as healthier and lower in sugar. 

In October 2018, PepsiCo acquired Health Warrior, a US-based nutrition company that makes plant-based products. According to the company, the transaction further expands PepsiCo’s nutrition portfolio and marks the first investment led by the PepsiCo HIVE, a new entity within PepsiCo designed to grow emerging brands.

The acquisition marked PepsiCo's first investment that will dock into The PepsiCo HIVE, the company’s innovation arm, a newly-created entity within the company focused on growing emerging, smaller brands. 

The acquisition of Health Warrior came during a time when consumer gravitation towards plant-based diets spurs NPD in multiple product categories. Growing consumer interest in health, sustainability and ethics are driving plant-derived ingredients and products into high popularity. Innova Market Insights has reported that plant-based product claims increased by 62 percent globally (CAGR, 2013-2017) with growth occurring on platforms such as plant proteins, active botanicals, sweeteners, herbs and seasonings and coloring foodstuffs.

FoodIngredientsFirst has also reached out to Hormel for further details.