UPDATE: Looks like Tyson Foods has upped the ante.
Chicken-producer Pilgrim’s Pride has made a bid for sausage supremo, Hillshire Brands, and is offering $45 per share, or, what it says is a transaction valued at $6.4 billion.
Would you like the chicken, or, the pork? That’s the question Pilgrim’s Pride wants to ask.
“When you call on a retail client, you want to give them as broad a choice of products as possible,” says John Stanton, a professor of food marketing at St. Joseph’s University. Stanton says for Pilgrim Pride’s, mainly a poultry producer, the plan to buy a company that sells pork, Hillshire farms, makes sense.
“You want to say, ‘You don’t need to talk to sausage people, you don’t need to talk to pork people,’ because when you talk to me I can sell you all your poultry and all your pork products you want,” he says.
But Rob Campagnino, director of consumer research for Sector and Sovereign, notes that chicken and pork are both commodities, which means their prices are not very flexible.
“So the price of chicken goes up and down, but that’s solely determined by the cost to produce it,” he says.
So, Campagnino notes Pilgrim Pride’s bid isn’t just about gaining the ability to sell more kinds of protein. Instead it’s about moving beyond commodities, and getting into brands like Jimmy Dean sausages which is owned by Hillshire Farms.
“What you can do with something like Jimmy Dean is you can innovate,” he says, You can raise prices, and when you raise these prices they’re price increases that aren’t necessarily driven solely by changes in what it costs you to make it.”
Consolidating the two companies, would also offer some savings, but says Campagnino, that’s not the meat of the deal.
By Shea Huffman/Marketplace