'There is much innovation in this space, so this is a step in the right direction for Lavazza': Euromonitor
Lavazza to acquire Mars’ coffee business
The Lavazza Group was founded in 1895 and posted nearly $1.7bn in revenue in 2015. It reported that this new deal will allow it to “consolidate its direct coverage of all coffee market segments, with a particular focus on the away-from-home business as part of a direct consumer interaction approach.”
In the acquisition Lavazza will get Mars Drinks brands like the single-serve Flavia machine and the Klix freestanding vending machine business, two leading brands in the Office Coffee Service (OCS) space. Mars Drinks specializes in coffee machines and systems for the workplace.
Antonio Baravalle, CEO of the Lavazza Group, said: “This acquisition fits perfectly within our international expansion strategy, the objective of strengthening key markets, as well as the pursuit of having an even closer relationship with end consumers. Indeed, this acquisition strengthens the Lavazza Group’s position in the OCS and vending segments, which offer considerable opportunities for growth and development.”
The deal covers Mars’ coffee businesses in North America, Germany, the UK, France, Canada and Japan, including its related systems and production facilities in the UK and US.
Mars’ drinks business has a workforce of around 900 people.
Strategy for long-term success
US food giant Mars, whose portfolio includes confectionery brands M&Ms, Snickers, Twix, Milky Way and Dove, says it is the ‘right time’ for change.
Grant F. Reid, CEO of Mars Inc., said: “Mars Drinks has been an important part of our business for many years, and while it’s always hard to say goodbye to great brands, valued associates and friends, we believe now is the right time for a change. We are confident this decision will better enable long-term success for the drinks business with Lavazza.”
The two companies did not disclose financial details relating to the deal, but Mars Drinks revealed that it generated about $350m in revenue in 2017. Reuters reported the deal to be valued around $650m, including debts.
Lavazza: the world's third largest coffee player
Lavazza is the third largest coffee player in the world with 2.5% of the global market, according to market research provider Euromonitor International.
Lavazza's previous acquisitions in the coffee sector include Carte Noire and ESP in France; Merrild in Denmark; Kicking Horse Coffee in Canada; NIMS in Italy and Blue Pod Coffee in Australia. Euromonitor senior analyst Alexandre Loeur observes that consolidation and competition across the coffee category has been heating up - not least with Coca-Cola's recent acquisition of Costa Coffee.
"Acquiring Mars drinks, which focuses on selling vending machines to offices, allows Lavazza to diversify from retail into the b-2-b office space where they already have a presence following the buy-out of French joint venture Espresso Service Proximité (ESP)," he said.
"The non-retail sector is particularly buoyant for coffee sales in developed markets, with much innovation appearing in this space, so this is a step in the right direction for Lavazza. The next move to take advantage of young consumers’ growing appetite for out-of-home consumption of hot drinks would be acquisition of or expansion into the coffee shop space in the same way competitors such as Coca-Cola and Nestle are doing.
"The acquisition of Mars’ drinks is part of a broader strategy of internationalisation in their retail formats, including the acquisition of French brand Carte Noire and Danish roaster Merrild in 2015. Lavazza has also beefed up its organic portfolio with Canadian brand Kicking Horse and expanded into coffee pods with the acquisition of Nims, an Italian company specialising in direct sales of coffee pod and machines, as well as Australia’s Blue Pod Coffee."