Why Skittles, Cheez-Its and other snacks could get more expensive with this $36 billion merger

By Bill Peters

'Like so many other industries, the fewer big food makers, the hungrier their CEOs get for record profits at the expense of everyday consumers,' Accountable.US says

As the supermarket industry and its shoppers wait for news on the fate of Kroger Co.'s plans to combine with Albertsons Cos. Inc., an advocacy group says another merger risks making snacks like Cheez-Its, Snickers bars and Pop Tarts more expensive.

The left-leaning consumer advocacy group Accountable.US, in a new report, said that merger between Mars Inc. and Kellanova would create yet another massive player in the food industry, restricting competition and giving the combined company more leeway to charge consumers more at the grocery checkout.

"The latest takeover by Mars Inc. represents further consolidation of an already small club of big food makers," Liz Zelnick, director of the group's economic security and corporate power program, said in a statement.

"And like so many other industries, the fewer big food makers, the hungrier their CEOs get for record profits at the expense of everyday consumers," she continued.

Mars declined to comment. Kellanova (K) did not immediately respond to requests for comment.

Even as price increases ease, higher food prices have been one of the main issues driving consumer anxieties. They have been central to the debate about the direction of the economy in an election year, and a broader discussion over whether or not companies took too much advantage of supply disruptions to keep prices and profits higher.

Privately-held Mars Inc. - which owns snack brands like Skittles and Snickers, as well as pet-food brands like Iams and veterinary hospital chains like VCA and Banfield - agreed in August to buy Kellanova, formerly known as Kellogg, for $35.9 billion. Kellanova - which owns brands like Cheez-Its, Pringles, Pop Tarts and Eggo waffles - split off its North American cereal business last year into WK Kellogg Co. (KLG).

The Accountable report, citing a report from Food Dive, said that Mars was set to become the third-biggest snack-food company, behind PepsiCo. (PEP) and Oreo-maker Mondelez International Inc. (MDLZ). Other advocates, the report said, had urged the Federal Trade Commission to block the deal.

"As of 2024, Kellanova is one of the three largest cracker and cookie companies, and along with General Mills and Mars make up a staggering 60% of snack bar U.S. sales," the report said. "Meanwhile, the three companies, including Mars, make up 80% of candy sales."

Food prices spiked in 2022, after Russia's invasion of Ukraine threatened to cut off of a massive portion of the world's crop supply. Since then, some of the biggest food producers kept those prices higher to cover their own rising costs, gauge shoppers' willingness to pay more, and guard or strengthen their bottom line.

Grocery stores generally run on narrow margins. But some big food producers have, at times, propped up sales by raising prices while selling less actual food, or kept prices the same while offering less per package.

Since people need to eat, some food-industry executives since 2022 have said they were in a position to keep charging customers more. However, signs of resistance have emerged. Executives at Walmart Inc. have said they've attracted more higher-income shoppers looking for cheaper options, as they seek cover from inflation.

Kellanova Chief Executive Steven Cahillane, during the company's earnings call in August, said that after charging more to handle its own costs, consumers were "getting more used to these prices."

"It doesn't mean they're not still under pressure," he said. He added that the company needed to make sure "we're hitting the right price points, the right pack sizes, the right promotions at the right time in the month."

The Accountable report also said that a Mars executive said smaller package sizes helped it hold on to "certain price points," adding that Mars shrunk some candy bar sizes in the U.K., even as prices didn't fall in tandem.

Kroger (KR) and Albertsons (ACI) have argued that joining forces - a move that could give them more muscle to negotiate lower prices with their food suppliers - would lead to lower prices for shoppers. And they said the combined company could use its size to better compete with the likes of Walmart (WMT).

However, the FTC in February sued to block the $24.6 billion deal, first struck in 2022. The agency argued that the merger would hinder competition and, in turn, push prices higher.

A court has yet to rule on whether that merger can go through. But during a hearing, as Bloomberg reported, a Kroger executive said the company, at least temporarily, raised prices on milk and eggs more than necessary to cover its costs.

Kroger, in response, said that account was based on a "cherry-picked" email. And it said it had "decades-long business model to lower prices for customers by reducing its margins."

Shares of Kellanova were up fractionally on Thursday. The stock is up 59.2% over the past 12 months.

-Bill Peters

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10-03-24 1803ET

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