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Kraft Heinz’s Bernardo Hees is the latest CEO to announce his exit from a food company, as the industry goes through unprecedented turnover and challenges.
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The parade of departures includes Kellogg’s John Bryant, Mondelez International‘s Irene Rosenfeld and Campbell Soup‘s Denise Morrison. When Morrison left last May, she capped a streak of 15 CEO departures since the beginning of 2016.
The longest-tenured food company CEO is Joe Sanderson, the third-generation leader of poultry company Sanderson Farms.
Irwin Simon, the founder and chief of Hain Celestial Group, had been the second-longest tenured CEO when he left in June. Simon, who held the top job at the natural foods company since 1993, stepped down as the company came under activist pressure.
Now, Sean Connolly, Conagra’s CEO, holds that title. He joined the company in 2015.
The CEO merry-go-round underscores the challenges iconic food brands are facing. These grocery store staples are struggling to create growth in the face of upstart rivals, rapidly changing consumer trends and their own slower-paced cultures. If they want to buy growth, there are limited and expensive options.
These executives are also victims of their predecessors’ successes. The scale that once gave CEOs power at the grocery store and yielded cost savings now makes it harder to casually shift away from legacy businesses. Campbell could cut down on soup production and Kellogg its cereal business, but both would still have the fixed costs associated with these businesses.
It is, therefore, a challenge for a CEO to gather support from a company to shift its focus from namesake moneymakers to bet on growth. That’s even in the face of packaged food company sales slowing last year to 1.2%, according to Euromonitor.
“You need patience, trial and error,” said Martin Roper, former CEO of Boston Beer, “and investors, analysts and even journalists don’t have that patience.”
Only private companies such as Mars are allowed the runway to experiment with bets such as its recent stake in bar-maker Kind, which valued the brand at at least $3 billion.
Desperate for growth, companies have looked to deals, but there are only a few brands both growing and large enough to move the needle.
As such, the multiples of bigger deals have leaped in valuation. The multiple for deals valued at more than $1 billion jumped from 13 times EBITDA in 2016 to 20 times EBITDA in 2017, according to Dealogic. The multiple on deals valued below $500 million edged slightly down from 20 times to 19 times.
CEOs are therefore facing a “damned if you do, damned if you don’t” dilemma. Don’t do a big deal, and watch your sales growth wither. Do a big deal, and put yourself in the lion’s den of investor scrutiny.
Those lofty valuations, which often bring companies into new categories, can create culture clashes, too.
“There are many examples in which companies are perceived to have overpaid and the brand becomes nuclear internally. No one wants to be associated with it, and its fate is sealed,” said Chris Harned, a New York City-based partner with food and beverage firm Arbor Investments.
After a number of faltered bets on big deals to find growth, the focus for Big Food has turned to divestitures and pruning their portfolio.
Kellogg recently sold its Keebler, Famous Amos and fruit snacks businesses to Nutella-owner Ferrero for $1.3 billion.
Campbell announced the sale of its fresh food business earlier this year. It continues to try to sell its Arnott’s cookie and crackers brands.