The Yogurt Wars Heat Up and YOPLAIT Appears One Step Behind . . . AGAIN

The US yogurt wars are heating up again and about to become even more intense...and Yoplait appears to be one step behind again.

For years the US yogurt market was dominated by Yoplait and Dannon. However, five years ago the US market was fundamentally changed with the emergence of Chobani, which helped usher in the Greek yogurt revolution.

As Greek yogurt mainstreamed growing from 4% of the US yogurt market in 2008 to nearly 45% in 2012, Chobani was transformed a small challenger brands into a $1 billion power-player that is giving Yoplait and Dannon a run for their money.

Dannon reacted with the 2011 launch of its Greek yogurt sub-brand Oikos. Oikos growth has been tremendous, surpassing over $400 million 2012, which is a ~45% growth from its first year sales. Not only was Dannon able to leverage the brand to grow the overall Greek Yogurt segment, but also start winning back some share from Chobani by advertising its superior taste behind a claim that Oikos is preferred 2 to 1 over the leading brand.

On the other hand, more than 2 years later Yoplait is still trying to figure out how to win in Greek yogurt.  Yoplait's initial entry into Greek Yogurt was a bust...as was its first relaunch attempt in 2011. Now Yoplait, which is owned by General Mills, is hoping to make up for lost ground by relaunching its Yoplait Greek yogurt again, this time behind a new formula, packaging and advertising. In it's new TV ads, Yoplait declares that "it's time healthy gets a dose of happy" and carry the tag line "it's time to lick the lid again."

The insight Yoplait is basing its bet on is that American consumers will prefer a less sour Greek yogurt and fruit pre-blended into the yogurt, as opposed to being on the bottom of the container.  I personally, don't buy that this positioning will be enough to catch up to Chobani and Dannon, but it will likely be sufficient to remain relevant in the category.

Meanwhile, as Yoplait focuses on and invests in getting its base Greek yogurt offering right, the yogurt market is about to take its next major transformation - adult yogurts with flavor enhancing add-in. 

• First Pepsi's Quaker unit launched Muller (a new joint venture with a European based yogurt company) that features an extensive line of flavor add-ins.  Expect major marketing pushes behind this product over the next several months

• Chobani's answer was to launch  "Flip" and "Bite" sub-lines.

• Now Dannon is jumping into the game via its recent acquisition of YoCrunch, the market leader in yogurt mix-ins.  YoCrunch features 27 different varieties of mix-ins (though most are geared at kids).  Not only does the YoCrunch acquisition give Dannon instant market share in this segment, but more importantly instant access to critical packaging capabilities that will eventually allow Dannon to bring this innovation to their Dannon brands.

While Yoplait does have a mix-in granola offering...

...its already a step or two behind and is going to have to quickly invest in major innovation to keep its offering competitive. But in all likelihood, Yoplait will be spending the the next few years playing catch up again.  Proof a market leader can never stop innovating or it risks being surpassed.

Pepsi acquisition of Mondelez?

Activist shareholder Nelson Peltz has recently gone public about his latest bid to shake-up the consumer package goods industry by pushing PepsiCo Inc to buy Mondelez International Inc for more than $62 billion. As part of his plan, Pepsi would then spin-off its soft drink business to become a global snack food behemoth.

Give Peltz point for thinking big and seeing the power of a tremendous power combination. Pepsico is a $65 billion dollar beverage and food conglomerate with 22 billion dollar brands. It includes it's Pepsi-Cola beverage division, Frito-Lay brands, and Quaker, Tropicana and Gatorade. The Frito-Lay North American business unit is a $13 billion business with a clear #1 share of the snacks category. While Mondelez is a self-described "$35 billion, global snacks powerhouse" sold across 165 countries and 9 billion dollar brands.  It's power brand portfolio primarily covers the biscuits category (e.g., Nabisco, Oreo, Chips AhoyWheat Thins, Triscuit, Ritz) and Chocolate/Candy/Gum (e.g., Cadbury, Toblerone, Trident, Halls). The combination of these two companies is initially a bit mind-boggling.

Potential Benefits:

• Given Frito-Lay already owns the salty-snack aisle, while Mondelez's Nabisco owns the cookie/cracker aisle, the merger would give the new company dominant control of the snack section of your grocery store. This scale would give the company incredible negotiating power with suppliers/retailers and create significant advantages over remaining competitors.  
• The deal could offer huge potential cost savings by combining direct-store-delivery (DSD) networks as well as expanded DSD reach for Nabisco into the convenience store channel
• It also creates large international expansion opportunities for Frito-Lay by leveraging Cadbury's legacy international sales & distribution networks (Kraft purchased Cadbury for nearly $20 billion dollars in 2010 before the company was split into Kraft and Mondelez to leverage these networks to boost its own international expansion) 

Potential Challenges:

• Pepsico is said to be resistant to the idea of spinning-off its beverage business. That said, the Kraft/Mondelez split was also initially surprising, so while this is a challenge, it may not be an immoveable barrier
• Mondelez has under-performed expectations since the Kraft spin-off, weighed down by economic woes in Europe among other factors, and a merger with Pepsi does nothing to help ignite top-line growth. Without steady growth, Mondelez is significantly less appealing
• While the combined snack food behemoth would surely benefit from international expansion into fast growing developing markets, its lack of product diversification could put its core US business at risk to rising health trends in the US and in the rest of the developed world (much like the Pepsi soda business is today)
• There are also likely major cultural challenges in merging Mondelez and Frito-Lay. For example, the two companies have historically had very different brand management frameworks. Mondelez/Kraft has a very well respected general management approach, while Frito-Lay has historically focused their marketers energy more towards advertising. It would be interesting to see where a joint organization would end up. No doubt the cost of merging the two organizations together would be costly and the integration likely taking years to come to full fruition
• You'd have to imagine that a deal this size would at least raise some anti-trust caution flags, given the concentration in the snack food and the DSD structure of the category that essentially makes it nearly very difficult for new competitors to win shelf space

Initially the idea seemed very farfetched, but the more you consider the tremendous scale opportunity from the potential acquisition/merger it actually becomes quite an intriguing possibility that would no doubt remake the CPG landscape. 

That said, even if Peltz is able to convince the boards and shareholders, a lot would still have to go right for the merger to be a success. Take for example the P&G and Gillette merger. While one could argue that the P&G acquisition of Gillette has been a large success, much of the upside P&G initially thought it could easily capture by slapping the Gillette brand on its historic female skin/body care capabilities to win in men's skin/body care still hasn't come to fruition despite several years of trying and hundred of millions of dollars in investment.

It will be interesting to see how the Pepsi/Mondelez situation plays out, if nothing else its fun to think about the potential of the combination.