Ferrero’s sweet new target: Your breakfast cereal

Ferrero is best known for Nutella and Ferrero Rocher chocolates. (Courtesy: Reuters photo)

Ferrero, the Italian candy maker best known for Nutella and Ferrero Rocher chocolates, is set to acquire WK Kellogg in a deal valued at around $3 billion, according to people familiar with the talks. The transaction could be signed later this week if negotiations stay on track since it would represent Ferrero's latest attempt to extend its wings within the American food business, the Wall Street Journal reported.

A match made in heaven

The transaction would join two veteran players in the global food industry. WK Kellogg, founded by Will Keith Kellogg in the early 20th century, pioneered the contemporary breakfast period with the discovery of Corn Flakes in 1894. The company now owns household cereal brands like Froot Loops, Frosted Flakes, and Rice Krispies. It has an estimated current market capitalization of approximately $1.5 billion and over $500 million of outstanding debt.

Ferrero, founded some 80 years ago in Italy, has grown from a regional chocolatier to the third-largest confectionery chocolate manufacturer in the world. With Kinder, Baby Ruth, Butterfinger, and Tic Tac under its umbrella, Ferrero has built a portfolio that stretches across over 170 nations. The company's most recent financial year saw revenues growth nearly 9% to €18.4 billion (around $21.5 billion), spurred by strong sales in Italy and the US.

Diversification outside the sweets category

Ferrero's acquisition of WK Kellogg is sensible as part of a strategic initiative to diversify outside sweets. The firm has been quietly expanding its US footprint with a series of acquisitions, including a $2.8 billion purchase of Nestlé's US chocolate portfolio and the recent purchase of Wells Enterprises, owner of Blue Bunny and other ice cream brands.

The WK Kellogg acquisition would bring Ferrero into the breakfast shelf, allowing it to reach a new segment of the American pantry. It also suggests a broader trend with big food players expanding across categories of goods as changing consumer tastes.

Shifting consumer behaviours

The move is well-timed as Americans reconsider their breakfast options. Consumers are increasingly wary of sugary breakfast cereals and artificial additives, leading to a shift towards more natural, healthier options. WK Kellogg has faced criticism for its use of food colourings, especially after a call by Robert F. Kennedy Jr., the nation's current highest-ranking health administrator, for the government to clamp down on artificial additives in children's food.

The evolving landscape has led to consolidation or transformation for many veteran brands. WK Kellogg itself was spun off from global giant Kellogg Company two years ago, forming a standalone entity focused on North American cereals. The rest of the business, renamed Kellanova, was acquired by Mars for $30 billion in a megabuy last year.

A hectic space of snack deals

Ferrero's latest move comes on the heels of a consolidation wave in the packaged food space. PepsiCo just bought Siete Foods, a tortilla-chip manufacturer that specializes in clean-label offerings. Hostess Brands, the maker of Twinkies, and Hershey bought LesserEvil, a "better-for-you" popcorn manufacturer.

If the WK Kellogg buyout is completed, Ferrero will be gaining another vertical for its growing empire—one that stretches to morning routines of millions of American households. For a company that has been founded on rich snacks, it may now be primed to become a staple on breakfast tables daily.