When to hold ’em, when to fold ’em and the acquisition movement

Foundation Partners why I partnered

Last week I read this article from the Minneapolis Star Tribune focused on the Fortune 500 company, General Mills.  General Mills is a Minneapolis based company – and has been for a long time – which leads to much media coverage for them in the state of Minnesota.  The article pertained to the fact that General Mills has had a rebound in stock price and the article credits it to the company’s “pivot” in strategy at just the right time.

What struck me about the article is that it could pertain to the funeral business.  The article criticizes the large acquisition firms in the consumer staple business such as Kraft Heinz.  While that combined company acquiring other companies and then squeezing profits out by cutting costs was once in vogue, here is what the article says about that strategy now.  “Today the narrative of the food industry is being reset.  Big food makers need to compete with small innovators who are racing to satisfy consumer tastes and habits that are expanding in new directions.. . . . takeover artists . . . . have fallen from Wall Street darlings to cautionary tales.”

The article also states, “. . the company (Kraft Heinz) has endured so many cost cuts that it was unable to quickly adapt product to consumers demanding more organic and other natural foods.”

Phil Kafarakis, president of the Specialty Food Association added, “Everyone forgot about the sacred innovation that consumers care about.”

After reading that, I thought about the funeral industry.  The industry continues to consolidate via an acquisition mode whereby relative high multiples are being paid for heritage funeral businesses that seem to me to have very good cash flow but little to speak of in innovation that will catch those “consumer tastes and habits that are expanding in new directions.”  It appears to me that some of those acquisition companies in our profession are doing little to capture what very well may be the new consumer who prefers alkaline hydrolysis, direct cremation with no ceremony, and other more environmental friendly services.

While Kraft Heinz is busy paying interest on debt from heritage type acquisitions, the article states that General Mills has been able to use its capital to acquire more organic and natural foods as well as going out of the box and acquiring a dog food company, Blue Buffalo.

The Kraft Heinz merger was put together by Brazilian run 3G Capital and its co-founder Jorge Paulo Lemann.  3G now acknowledges, according to the article,  that “their model didn’t work for an industry being reshaped by consumers.”

As the death care industry goes through what might be generational changes in how we care for our dead (reshaping by consumers) this could be a cautionary tale for the funeral home acquisition companies.  To that point, Lemann stated, “We are scrambling.  We bought brands and we thought they would last forever. . .We simply managed what was there a little bit more efficiently and now we have to totally adjust to new demands.”

There have been some big acquisitions in the death care industry lately. . . .will those brands last forever. . . or will they become money pit dinosaurs whose large investments will hinder their parent companies from being innovative when necessary?  Only time will tell.

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