Utz to buy chip supplier for $41M in move to cut costs and grow its brands

Source: fooddive.com

Dive Brief:

  • Utz Brands is buying Festida Foods, a manufacturer of tortilla chips, corn chips and pellet snacks, for $41 million, the company said in a statement. Festida is the largest manufacturer of tortilla chips for Utz’s On The Border tortilla chip brand. 
  • Utz said the acquisition of Michigan-based Festida will improve the supply chain for On The Border and increase the company’s ability to expand the geographic presence of the brand and others in its portfolio throughout the Midwest. The deal is expected to close before July.
  • Utz has been on an acquisition binge since it came public last year after merging with blank check company Collier Creek Holdings. The company has made four deals since August.

Dive Insight:

Utz, a manufacturer of chips, cheese balls, pretzels and other snacks, has spent much of its existence as a family-owned business with a major presence on the East Coast. But in the past 12 months, the century-old company has grown its snack offerings and increased where its brands are available.

In September, Utz announced it was buying the H.K. Anderson peanut butter-filled pretzel brand from Conagra Brands for less than $10 million. Two months later, Utz said it was purchasing Truco Enterprises, a manufacturer of On The Border tortilla chips, salsa and queso, from Insignia Capital Group for $480 million. Then in January, Utz announced it was acquiring assets related to Chicago snack brand Vitner’s from Snak-King for $25 million.

The purchase of On The Border was particularly notable because it strengthened Utz’s national footprint, with the majority of On The Border’s sales in emerging geographies, while giving the snack maker a bigger presence in mass and club retail channels. Now, Utz is building on that deal with the purchase of Festida.

While not a brand itself, Festida is a major supplier to On The Border. By having production for the fast-growing tortilla chip in house, Utz has more leverage to grow the brand and expand Festida’s production capacity to its other brands. This will be particularly useful in helping Utz carry out its expansion efforts in the Midwest. 

Festida no doubt has a pulse on chip demand and trends in Michigan where it is located, in addition to neighboring states. Utz will now be able to benefit from Festida’s manufacturing expertise, capacity and warehousing to grow its presence in the region.

“This strategic combination will help accelerate growth and expand margins over the long term,” said Dylan Lissette, CEO of Utz.

While Utz has quickly added new brands, the company is aware that it needs to grow and nurture those already in its portfolio.

Unlike PepsiCo’s Frito-Lay — maker of Doritos, Sun Chips and Lay’s — Utz doesn’t have the same name recognition across the U.S. Simply growing a brand in a region where it may not be as well known, or bringing it to a new geography altogether, provides a logical way to grow revenue. At the same time, a broader portfolio of brands creates synergies when it comes to sourcing ingredients, production, shipping and working with retailers. Festida is an example where synergies and vertical integration can pay off.

Utz, which reports first-quarter earnings on Thursday, boosted revenue in 2020 to $964 million, an increase from $768 million in the prior year. As Utz continues to mature as a public company, it will be under pressure to continue to grow sales. Purchases like Festida, while not as glamorous as the acquisition of a new brand, are an important and strategeically valuable way to do that.