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No Elephants Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Feb-23-13 02:24 AM
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Buffett deal for Heinz a wake-up call to food industry
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Buffett deal for Heinz a wake-up call to food industry
By Martinne Geller

BOCA RATON, Florida | Fri Feb 22, 2013 7:26pm EST

(Reuters) - The $23 billion buyout of H.J. Heinz (HNZ.N) by Warren Buffett and private equity put food executives on notice: start showing better results or risk being left behind.

The deal, and the ripples it creates in the sector, was the buzz of the consumer industry's annual get-together in Florida this week, sponsored by the Consumer Analyst Group of New York.

In private discussions overlooking a yacht-filled marina or in the hallway between the Nespresso table and the Coca-Cola Freestyle machine, the consensus among executives, analysts and investors was clear: gear up for a new era of belt-tightening, if not more acquisitions and divestitures, in the sector.

"This is the first large deal in years by a financial buyer that calls out the lackluster fundamentals in the U.S. packaged food space," said Robert Dickerson, an analyst with boutique firm Consumer Edge Research.

Industry veterans are already beset by anemic sales growth and margin pressure, thanks to weak economies in Europe and the United States, changing consumer demographics, volatile commodity costs and competition from lower-cost rivals.

Sounds as though a lot of good for consumers should come of this, right? Lower prices and better products = value= more sales=better results, right?

Then, why did my gut sink the second I read the first paragraph?

Because "Build a better mouse trap and the world will beat a path to your door" is so Victorian, not the way to go these days. Cutting production costs, selling crap, but increasing advertising is the way.

And $20 billion is very tempting. Tempting enough for a lot of food companies to show a lot of bare shoulder to folks like Buffett. And baring shoulder to investors leads to cries of "I must have you. Be mine!' And that leads to mergers and acquistions. And mergers and acquistions lead to breeding. Breeding onopolies, that is. And monopolies lead to high prices.

And if you think monopolies make your electric, gas and cable bills too high, wait till you see how your food bills go up.

"Maybe not today, not tomorrow, but soon, and for the rest of your life."

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