Amid a packed few days of big news last week, one of the most intriguing developments was the acquisition, by yoghurt giant Yeo Valley, of its smaller rival The Collective.
The deal, the value of which was not disclosed, combines two ethically focused premium dairy businesses, and two that already know each other well – with Yeo Valley Production (which owns the Yeo Valley Organic brand) currently contract manufacturing some 80% of The Collective’s range.
Which raises the question: why did it happen in the first place?
Like fellow yoghurt brand Biotiful Gut Health, The Collective has long been seen as an attractive proposition for potential acquisition by dealmakers, with Houlihan Lokey MD Garyth Stone telling The Grocer last summer that the pair were one of the few shining lights in a massively consolidated dairy category “largely done” for M&A.
But despite its steady growth over the past decade, not to mention its distinctive branding and strong taste credentials, The Collective had recently plateaued somewhat, suggests one City source with knowledge of the business.
“It’s a strong brand that has been well managed for years but of late has needed a bit of love and attention,” they say. “The trajectory hasn’t been what they would have hoped.”
The UK’s biggest yoghurt brands
Retail sales data supports this theory, with NIQ data for The Grocer’s Top Products survey [52 w/e 18 September] placing The Collective as the yoghurt (excl drinking yoghurt) category’s 12th biggest brand, with sales largely flat last year at £36m, and volumes falling by 9.9%.
Looking back a few years, the brand is actually taking in some £4m less than it did in 2021 (when the cost of living crisis started kicking in), according to our Top Products data, which also shows the dominance of the the major players in this category.
Read more: Yeo Valley Production snaps up The Collective yoghurt brand
Müller’s market-leading Corner brand raked in sales of £187.1m last year, followed by Danone’s Activia at £181.8m and Yeo Valley Organic at £148.9m. The rest of the top 10 is owned by global big hitters such as Müller, Onken, Yoplait, Danone and Fage.
As a result, “the dairy space is hard when relatively small as there are so many major players”, adds a second City source. “It is harder being a challenger brand, full stop, in recent years.”
But despite the obvious challenge of being a challenger, The Collective has not been short of ambition.
The Collective’s growth ambitions
Last year, in the wake of a deepening of its relationship with Tesco and slew of NPD, the brand’s marketing director Tor Hunt-Taylor spoke of a £56m opportunity for the brand via its new, adult-focused functional yoghurt pouches, while moves into no-added sugar kids’ yoghurt pots (called Super Spoonies) are also seen as key to its strategic growth ambitions.
With such a strong NPD pipeline, therefore, bringing the brand under the Yeo Valley umbrella could give it the kind of leg up that would probably not have been possible under its exit-seeking former private equity owners, suggests the second City source.
“The fact Yeo already contract manufactured The Collective means they know it really well and can push it out at a different scale quickly,” they add.
The deal also has clear benefits for Yeo Valley, which has acquired the likes of soup brand Tideford in the years since it offloaded its dairies business to Arla in 2018 and expressed ambitions to grow further.
The purchase “perfectly” brought together “two businesses driven by their values”, said Yeo Valley last week, citing its “focus on making natural healthy food from the most sustainable and ethical farming practices” and The Collective’s “social and environmental commitments”, plus its status as a B Corp.
Read more: The Collective unveils raft of NPD in healthy snacking push
“Together, the two organisations will help to deliver on Yeo Valley Production’s purpose to nurture and nourish both people and planet,” the supplier added – with MD Rob Sexton adding the partnership would “drive growth of delicious British dairy”.
The purchase also “gives Yeo a way into the premium/gourmet end of the category as most brands are considered everyday occasions at the moment”, says the second City source. It will also help “accelerate the Suckies kids range and give Yeo better in-roads to that end of the sector than its Little Yeos sub-brand”, they add.
Plus, The Collective’s move into adult yoghurts, while still “early days”, gives Yeo “an opportunity to explore that side of the market in the UK”, the source suggests – pointing to how successful such yoghurt options are on the Continent.
Value-driven business
The Collective was last week keen to stress the sale to Yeo Valley would not affect the way it does business in the near term, with the business continuing to be run from London, rather than Yeo Valley’s HQ near Bristol – while Hunt-Taylor has been promoted to the role of general manager.
However, the future of CEO Sarah Smart, who took over in 2020 having run the brand’s New Zealand business, is less clear, though she says she will stay on during a transition period.
“The close alignment of the businesses’ values and visions to deliver natural, healthy, great-tasting and sustainable food that is better for people and planet, makes Yeo Valley the perfect home for the next stage of The Collective’s growth,” she says.
And dealmakers seem to agree, with the first City source describing the deal as “a game-changer for The Collective”, with Yeo having the financial clout and expertise to “provide a step-change in growth to help it break into top 10 brands in the category”.
For Yeo, it also provides “good product diversification and a ‘cool’ brand for the portfolio that is different to the trusted family brands it currently sells”, they say. “It will bring a new type of consumer to the group.”
How this partnership plays out could well shake up what has been a largely predictable yoghurt category, and could finally help The Collective hit the big time.
No comments yet