Why KP Snacks is finally buying into peanut butter

Not many will have batted an eyelid when news landed last week that the UK’s leading peanut supplier KP snacks had branched out into the adjacent nut butter category with the acquisition of Whole Earth.

Although the puzzler might be why the group took so long to get in on the act in the first place, especially given the category has now come off the boil from its peak a few years ago.

KP’s owner Intersnack is an important cog in the peanut butter supply chain, making vast quantities of own-label for European retailers, co-packing for brands such as Pip & Nut and also selling its own brands with the likes of Estrella in Sweden and Ultje in Germany.

Financial details of the Whole Earth deal remain undisclosed, but an industry source reckons it would have been something of a bargain given Ecotone sold the brand as part of an uncompetitive process, while the French group continues to focus on fixing its leveraged balance sheet.

“Peanut butter appears to be a key M&A target product sector for Intersnack,” says Steve Gladwell, senior associate at consultancy Food Strategy Associates.

“It expands Intersnack’s coverage of European markets for peanut butter with the number-one brand in the UK and also provides a brand that can have pan-European scale, building on Whole Earth’s existing sales in France, Spain and Italy.”

The deal also solves a potential volume headache for Intersnack, which needs to rebuild some lost capacity after Hain Celestial-owned Sun-Pat moved its business to another roaster, according to another industry source.

That’s unlikely to be good news for Duerr’s, England’s oldest family-owned jam maker. As well as producing jam, Duerr’s also manufactures nut butter for brands, including Whole Earth.

If – or when – Intersnack decides to bring Whole Earth in-house, there is likely to be a significant roasting shortfall in the UK market.

Nut butter experienced a boom time over recent years as consumers changed how they viewed the product. Once seen as something they simply spread on toast, it’s now perceived as a high protein, healthy and versatile snack eaten over many occasions throughout the day – whether that’s drizzled on yoghurt as post-run recovery fuel or eaten directly from the jar with a spoon.

Premium brands such as Pip & Nut further raised the category’s reputation by removing unnecessary additives and unsustainable ingredients such as palm oil. Manilife also contributed to the premiuimisation of the category, playing up the handcrafted, gourmet positioning of its jars (its first-ever ’nuts so fancy’ marketing campaign last month showcased a peanut butter ‘like no other’).

Financial pressures

The two challengers continue to grow rapidly, with Pip & Nut now the second biggest brand in the space.

However, nut butter as a category is now under pressure, with volumes down another 1% in the past year [NielsenIQ 52 w/e 5 October 2024] as prices continued rising to offset spiking commodity costs.

Market leader Whole Earth is in decline, with a 12% drop in volumes pushing retail sales down 7% to £28.4m – while Sun-Pat is also in freefall. Both brands are being smashed by cheaper private label.

A presentation by Pip & Nut founder Pip Murray, given at last week’s Houlihan Lokey consumer conference, boasted her brand had propped up the category since 2016. Without Pip & Nut, the category would move from a 5.4% growth in units sold over the past eight years to a 3.3% fall, Nielsen data showed.

While Pip & Nut has done a remarkable category-building job it can’t, as a challenger brand with a tight marketing budget, be expected to carry the fortunes of nut butter all by itself.

With revenues of £625m-plus, KP certainly has the firepower to shoulder a significant amount of the burden and get the category – and its number-one brand – firing on all cylinders again.

The group clearly hasn’t snapped up Whole Earth to stand still, so it’s fair to assume it will line up its resources and the marketing machine behind enticing more shoppers to the category while pushing back the advance of private-label. KP also has form in turning around fortunes of ailing brands, whipping Tyrrells back into shape after Intersnack bought the crisps maker from The Hershey Company in 2018.

Other brands in the category will hope a rising tide lifts all boats.

While high-end competitors Pip & Nut and Manilife may feel insulated from an emboldened Whole Earth, Meridian (which was the category captain at one stage) and Sun-Pat both look vulnerable.

Spayne Lindsay partner Paul Satchell, who advised on the sale of Meridian to SHS Group in 2018, adds: “It’s not necessarily a bad thing to have a competitor with the drive and resource to help build the category. It can benefit all players. But it can bring its challenges if there is more limited growth, and it ends up being about competing for brand share. If they can work with Pip & Nut and others to grow the category, it is good news for everyone.”

And there is still plenty for everyone to go after in the UK, with nut butter penetration standing at 43% in 2024 [NielsenIQ 52 w/e 5 October 2024].

A lot will depend on how aggressively KP goes after winning back share lost to own label. Unexpectedly large price cuts or promotions would clearly hurt all brands.

Rivals will wait anxiously for KP’s first move, but a major player showing an interest in an under-invested category stuck in the doldrums is the shake-up nut butter needed.