Amazon/Whole Foods Takes Bite Out of U.S. Branded Packaged Food Makers - Bernstein

The ripples from Amazon's (NASDAQ: AMZN) proposal to acquire Whole Foods (NYSE: WFM) continue to be felt in various sectors. In a note on the topic today, Bernstein analyst Alexia Howard said it should not be just food retailers that are worried, but food makers too. Howard said the deal has "profound implications" for U.S. Branded Packaged Food companies. One positive is the tie-up could force someone into the hands of Kraft Heinz (NYSE: KHC).

The analyst said the most direct impact to Packaged Food would be from the possibility that Amazon uses Whole Food's popular 365 private label brand as the center of its food grocery offering. Howard admits many in the industry believed any
'Amazon' branded foods would be shunned by consumers. However, 365 is "highly credible with consumers." While Whole Foods previously said they would not expand 365 distribution beyond their stores, with Amazon in control "the game has clearly changed."

The news also means Wal-Mart (NYSE: WMT) "is likely to be goaded into redoubling its private label efforts in order to fend off this latest move by Amazon."

Howard said the biggest casualties are likely to be branded players with mid-tier brands including the likes of ConAgra (NYSE: CAG), but the fallout is "likely to hit the leading branded U.S. Food players hard."

One caveat the analyst noted is the deal could accelerate the consolidation in the sector. "At the margin, if this move makes the current U.S. branded food players more likely to sell out to Kraft-Heinz, or catalyzes a reduction in stock prices that makes Kraft-Heinz more willing to engage with them, then this could be a good signal for Kraft-Heinz's acquisition prospects overall," she said.

Howard said private label players like Treehouse Foods (NYSE: THS) and SunOpta (NASDAQ: STKL) with exposure to 365 will likely benefit from volume but they are not immune to pricing pressures.

"Overall, this announcement simply serves to underline our bearish view of heavily-processed packaged food names in the U.S.," the analyst concluded.

Related Stocks:

ConAgra Brands (NYSE: CAG)
Campbell Soup (NYSE: CPB)
Dean Foods (NYSE: DF)
General Mills (NYSE: GIS)
Hain Celestial (NASDAQ: HAIN)
Hershey Foods (NYSE: HSY)
Kellogg (NYSE: K)
Kraft Heinz (NASDAQ: KHC)
Mondelez Int'l (NASDAQ: MDLZ)
McCormick & Co. (NYSE: MKC)
J. M. Smucker (NYSE: SJM)

You May Also Be Interested In

• B.Riley Resumes Taboola (TBLA) at Buy
• Stifel Keeps $260 PT on Boeing (BA), 'we see the report as encouraging'
• Smart for Life (SMFL) Appoints David Trosin to its Board