By Saabira Chaudhuri
LONDON--Two of the world's biggest packaged-food giants, Nestlé SA and Unilever PLC, disclosed separate, small deals to buy the sort of homegrown, natural brands that have been eating the industry's lunch.
Switzerland-based Nestlé said Thursday it agreed to buy California-based Sweet Earth Foods, the maker of plant-based meat substitutes like "Benevolent Bacon" and "Harmless Ham." Anglo-Dutch rival Unilever said it was buying Pukka Herbs Ltd., a British-based organic herbal tea maker.
Though both deals are small and terms weren't disclosed, they represent the latest in a series of steps Nestlé, Unilever and other big companies in the sector are making to catch up with fast-changing consumer tastes.
The global packaged-food industry is facing fierce competition from a burgeoning number of small, but high-growth food and beverage brands. These brands have struck a chord with consumers looking for locally produced or more healthy, natural choices.
Amid this shift, sales from traditional players have flagged, spurring consolidation, cost cutting and restructuring.
Unilever fended off an unsolicited takeover by Kraft Heinz Co. earlier this year. Activist investor Dan Loeb's Third Point hedge fund in June disclosed a major stake in Nestlé, calling for changes in strategy to improve shareholder returns. In response, the two consumer-goods firms have focused on cost cutting and promises to boost dividends, while going on the hunt for nimbler food and beverage brands with the potential to accelerate growth.
Nestlé's deal to buy Sweet Earth comes less than three months after it bought a stake in subscription-meals company Freshly, which sells healthy, prepared meals to consumers across the U.S.
Moss Landing, Calif.-based Sweet Earth bills itself as a natural, ethical, environmentally conscious company that substitutes plant proteins for animal ones in meals like curries, stir fries, breakfast wraps, burgers and pasta. Founded in 2011, Sweet Earth is available in more than 10,000 stores in the U.S. It is stocked at independent natural grocers, as well as bigger chains like Amazon.com Inc.'s Whole Foods, Target Corp., Kroger Co. and Wal-Mart Stores Inc.
"We're experiencing a consumer shift toward plant-based proteins," said Paul Grimwood, chief executive of Nestlé's U.S. arm. Plant-based food, as a sector, is growing at double-digit percentages rates, Nestlé said.
Nestlé didn't disclose the brand's current sales, but said it expects the sector to reach $5.3 billion in sales by 2020. Nestlé's annual sales last year came in at about $94 billion.
Unilever, meanwhile, said Thursday it bought Pukka, which generated GBP30 million ($39 million) in sales in its last fiscal year. Despite the small revenue base, Pukka grew about 30% a year over the past three years, Unilever said. Unilever posted sales of $63 billion last year.
Unilever--the world's biggest tea maker with brands like Lipton, PG Tips and Brooke Bond--has been working to shift its portfolio toward higher-growth tea types like green and herbal tea and away from black tea, sales of which are slowing. The latter segment makes up about 80% of its tea sales by value.
The company in 2013 bought premium Australian tea business T2. It has since opened T2-branded stores around the world. Last year, it launched matcha teas--a type of green tea--under its mass-market Lipton tea brand.
Write to Saabira Chaudhuri at [email protected]