What the Mars/Kellanova deal means for Africa and the Middle East

Mars has agreed to buy Kellanova in a $36bn deal that will reshape the snacks sector. Kellanova owns brands including Pringles, Cheez-It, Pop-Tarts, NutriGrain and Eggo. The Trendtype team has looked at what the deal means for Africa and the Middle East.

Firstly, this deal isn’t driven by geographic expansion in Africa or factories or competency gaps. It’s about the product portfolio, and primarily product portfolio in mature snacks markets like the US and Europe.

For Kellanova shareholders, the deal is validation that the Kellogg’s/Kellanova split has created value. For Mars, the appeal is the portfolio of brands under Kellanova and the jewel in its crown, snacks brand Pringles.

Does the deal change things in Africa and the Middle East?

Mars and Kellanova both manufacture in South Africa, Egypt and Saudi Arabia. Mars has a gum and sugar confectionery factory in Kenya, which it had hoped would be the export hub for Africa (and hasn’t really turned out like that). Via its joint venture with Tolaram, Kellanova has additional factories in Nigeria and Eswatini.

The Tolaram joint venture is important. It is of huge strategic value for Kellanova. As with Tolaram’s other joint ventures (Colgate Palmolive, Arla) and the new acquisition of Guinness Nigeria, it is probably the difference between manufacturing success and exit (P&G and Kimberly-Clark have both exited recently having gone it alone).

Put simply: if Mars can utilise the Kellanova/Tolaram JV, it can reshape its route to market in West Africa. Better still, the benefit for Mars is opening up a high growth product category (noodles), mass market manufacturing and distribution expertise. One example: Mars’ factory in Kenya doesn’t enable sales in West Africa. Mars could follow Perfetti and make a big play by manufacturing sugar confectionery in Nigeria.

What about PepsiCo and Mondelez?

PepsiCo’s acquisition of Pioneer Foods has transformed its portfolio in Africa, combining PepsiCo’s branding and innovation expertise with Pioneer Foods’ portfolio of mass market foods in southern Africa (and Nigeria). PepsiCo has a successful strategic partnership with Varun Beverages, its bottler in India, Morocco and Southern Africa. That partnership will see PepsiCo snacks manufactured in Morocco and Zimbabwe. PepsiCo also owns snacks brand Sun Chips in Ethiopia.

Mondelez has legacy manufacturing sites in South Africa and Nigeria. It has previously closed a factory in Kenya and like other manufacturers, has sites in Egypt and Saudi Arabia. It also manufactures in Morocco and Bahrain. Perhaps the big question for Mars/Kellanova is whether to follow Mondelez and PepsiCo into Morocco in sweet or savoury snacks.

Overlapping distributors and other changes

Mars and Kellanova have very little distributor overlap in the Middle East and Africa. The only major example is FMCG distributor Transmed. What Mars decides to do next will be interesting: it is rare for FMCG companies to succeed with two exclusive distributors representing the brands in African or Middle Eastern markets. Either a company has one exclusive distributor, there may be some channel exclusivity, or if it is big enough (e.g. Egypt, Nigeria) a manufacturer may divide up a market into territories with non-exclusive distributors.

In other words, if Mars looks to align its distribution strategy for its Africa and Middle Eastern markets, we expect considerable disruption if the Mars or Kellanova portfolio is moved to the more favoured distributor. This, in turn, will open up opportunities to switch for other manufacturers.

Impact on innovation and NPD

Because the major driver of the Kellanova acquisition is its portfolio, innovation and cross-fertilisation is an exciting prospect. The intersection of the Mars food and nutrition portfolio with the Kellanova/Tolaram noodles business could be very interesting. Noodles are a cheap, mass market carbohydrate but are also a platform for flavour and a meal.

Kellanova’s snacks portfolio is barely present in Africa, except Pringles, which is much loved and much copied. There is headroom for growth although the bigger opportunity is arguably cheaper snacks that use more local inputs.

Another growth area is the intersection of Kellanova’s cereals and Mars’ chocolate brands: chocolate bars are popular in Africa (as they are everywhere) but expensive and require refrigerated storage. The bigger opportunity is in chocolate-covered snacks that are both cheaper and more heat resistant.

The future of snacking

Although we’re pretty sure that Africa and the Middle East aren’t the significant driver of the Kellanova deal, a final thought on the future of snacking. The median age across Africa is around 18 years old, the sweet spot for snacks companies. Between 2020 and 2050, the population across Africa’s 54 countries will collectively grow by 1.2bn. In major markets like Nigeria or Kenya, the population will double. The median age across Africa will barely move upwards, even as populations age in the US, Europe, China and even India.

From a value perspective, snacking in most African markets is still low compared to more mature economies. Globally, volume growth of snacks (and confectionery) will be driven by African markets over the next 30 years. Strategic decisions taken today that create manufacturing capacity, enhance distribution and build mass market brands will help determine who succeeds in Africa in the longer term.

PepsiCo gets this. Coca-Cola, which manufactures savoury snacks in Nigeria, also gets it. How Mars uses the Kellanova deal as a platform for mass market innovation and manufacturing in African markets may determine how it competes with PepsiCo in the longer term.