The goal of a healthy, or at least healthier, diet is a constant topic in the media and in private life. In countless studies, scientists have come to the conclusion that consumers should avoid foods that are high in sugar and fat – such as fast food, soft drinks, sweets and savoury snacks. These are often high in calories and low in nutrients, which can lead to obesity, and make people susceptible to diseases such as diabetes.

So it initially seems a bit out of date, and not very promising for the future, when the US confectionery group Mars, offers around 36 billion dollars for Kellanova, instead of giving its portfolio a more balanced structure. Mars makes the majority of its sales with chocolate bars (including Mars, Milky Way, Twix), whereas Kellanova is a manufacturer of crisps (Pringles) and muesli with added sugar (Kelloggs'), and is also based in the United States.

The contradiction between negative expert opinions on confectionery and a supposed change in eating habits in many countries, and the Mars mega-deal is easy to explain: Although nutrition experts unanimously advise significantly lower consumption of foods with a high sugar and fat content, consumers are not too bothered by this. Sales may hardly be increasing, but they are not decreasing either.

Even in Germany – a country where consumers attach greater importance to healthy eating than in many other parts of the world – sales of sweets and snacks rose slightly by 0.3% to 1.81 billion kilograms last year compared to 2022, according to market researcher Nielsen IQ. This stable sales volume is surprising given the constant media fire directed against chocolate, crisps and peanuts.

In contrast to the almost unchanged sales volumes, revenues from confectionery and snack products increased by 12.7% year-on-year in 2023, according to Nielsen IQ. This reflected the sharp price increases by manufacturers, who passed on their cost increases for raw materials, energy, transport/logistics and packaging to retailers, who then raised their selling prices to end consumers.

Although prices for raw materials have risen across a wide range of industries in recent years, there have been differences. For example, the price of cocoa has risen far more sharply than the prices of sugar, salt or palm oil, due to weather-related production losses in West Africa. The Ivory Coast alone accounts for around 40% of global cocoa production; the region overall accounts for almost two thirds.

For a company like Mars, which has a strong focus on chocolate products, this was a disadvantage compared to suppliers of savoury snacks, for example. In this respect, Mars is certainly diversifying its product portfolio with the takeover of Kellanova – just not into a product range that meets with the approval of nutrition experts. A merger with Kellanova – which is unlikely to encounter any antitrust problems – will also strengthen Mars' negotiating position with retail groups.

With the acquisition, Mars is taking a leap forward following organic growth which, particularly in terms of sales volumes, has recently left much to be desired. The company, whose shares are held by the descendants of the company founders, is reaching pricing limits, with many consumers no longer willing to pay up. This is a phenomenon that affects almost all brand manufacturers in the food industry. There is hardly any volume growth any more. As a result, food suppliers are trying to score points with innovations as well as acquisitions. However, pulling a new product out of the hat in a saturated food market that quickly becomes a cash cow is – to put it mildly – rather ambitious.

According to its own figures, family-owned Mars generated sales of more than 45 billion dollars last year; Kellanova, which was only spun off from the Kellogg Group in 2023, generated 13.1 billion dollars. David Palmer from analysts Evercore expects the takeover to double Mars' snack sales to 36 billion dollars in the medium to long term.

Mars is by no means the only major confectionery supplier to continue to focus on its core business. In October 2023, the US subsidiary of Ferrero Group took over the confectionery producer Jelly Belly; the undisclosed purchase price is reported to have been 3 billion dollars. Hershey, which is based in the State of Pennsylvania and is a leader in its home market, also continues to focus on confectionery.

Mondelez International, which emerged from the split-up of the old Kraft Foods in 2012 and has since continued its business outside North America – while the North American food business was absorbed into the new Kraft Foods – has also shown no significant ambitions to enter businesses outside of confectionery. In fact, the attempt to take over competitor Hershey in 2016 only failed due to resistance from the major shareholder, the Hershey Trust Company.

Nestlé, one of the major players in the confectionery market, is taking a different approach: although the world's largest food group is still one of Mars' biggest competitors with brands such as Choco Crossies, Lion, Nuts and Smarties as well as Kitkat and Rolo – both of which are marketed by competitor Hershey in the USA – the Swiss company has been divesting assets from the confectionery sector for almost two decades.

The last major takeover of a business that, from today's point of view, would cause health apostles to take offence, took place in 2010. At that time, Nestlé bought the frozen pizza business of the US food company Kraft Foods (since 2012: Mondelēz International) for 3.7 billion dollars, making Nestlé (including Wagner pizza) the global market leader in this segment. In contrast, the Swiss divested their US confectionery business in 2018, selling to the Italian company Ferrero for 2.8 billion dollars. At the end of 2019, Nestlé sold its US ice cream division to the food manufacturer Froneri for 4 billion dollars; according to published figures, this business had generated sales of 1.8 billion dollars in 2018.

Even if Nestlé is convinced of its strategy, the management at Lake Geneva is not really happy. There are certainly many reasons why the CEO, the German-American Mark Schneider, who was highly praised not so long ago, recently stepped down. One reason is probably that the reorganisation of the portfolio did not produce the results that the Board of Directors, under the leadership of Schneider's predecessor, Paul Bulcke, had expected.

Peter Brabeck-Letmathe, CEO of Nestlé from 1997 to 2008, already focussed on health, nutrition and wellness – in other words, the group was to develop away from sweets and towards becoming a provider of healthier food. Brabeck's successor Bulcke, who was responsible for the Group's operating business from 2008 to the end of 2016, continued this strategy with a few exceptions – such as the purchase of Kraft Foods' frozen pizza business in 2010. During Bulcke's time, new divisions such as Nestlé Professional (2009) and Nestlé Health Sciences (2011) were created; the latter pursues medical objectives in product development. In 2012, the infant formula business (Wyeth Nutrition) was acquired from the US pharmaceutical company Pfizer for almost 12 billion dollars.

Alongside coffee, pet food and plant-based products (vegetarian/vegan food), infant formula was one of the sectors that received particular attention after CEO Schneider took office at the beginning of 2017 because it promised strong growth.

The Group's constant reports of success and progress in the four sectors mentioned above, which Nestlé wants to emphasise more strongly, should not obscure the fact that the acquisitions of recent years in these areas were at best consolidations, but did not result in a significant jump in sales. The only exception: the acquisition of the licence rights to Starbucks products outside the US coffee house chain's shops in 2018 for 7.15 billion dollars. Industry experts also criticised the fact that the prices of the acquisitions generally had high multiples, and that in some cases the acquired companies offered products that were currently in vogue, but whose long-term potential was and still is unclear.

However, as the successes in the focussed segments in recent years have not been as great as expected, the question of whether Nestlé will return to former core segments such as sweets will now arise after the change from Schneider to company veteran Laurent Freixe. In the first half of 2024, however, the Confectionery division only accounted for 8.5% of Group sales of 45.05 billion Swiss francs (-2.7%) with 3.85 billion Swiss francs (+4.1%). Organic growth, which is one of Nestlé's most closely watched financial indicators, and has recently disappointed market participants on several occasions, was 2.1% across the Group in the first half of the year. Confectionery achieved by far the highest figure of all product groups at 7%. However, the margin on a comparable basis was below average at 14.3% (previous year: 14.5%); the return for the Group was 17.4% (17.1%).

It is unlikely that the margin in Nestlé's confectionery segment or that of its competitors will improve in the near future. The food companies, especially the brand manufacturers, are currently in a difficult situation. In recent years, they have raised their prices sharply, citing cost increases. This has led to strong turnover growth – despite slightly declining sales volumes on average. However, by the second half of 2023 at the latest, it became clear that prices had reached levels at which a large number of consumers were switching to cheaper products, such as private labels or no-name goods. This prompted many suppliers to change their strategy, because once a customer is lost, it is difficult to win them back – even if prices subsequently remain stable or are even lowered again.

The industry is now focussing on increasing sales volumes again. To this end, noticeably more money is being invested in advertising and other sales-promoting campaigns, while prices are only rising moderately on average – which does not bode well for margins.

Following the downward trend in sales volumes in previous years, sales volumes rose again in many cases in the first half of 2024. However, the increases are manageable and do not have nearly as positive an effect on turnover as the earlier price increases. As a result, revenue across the industry has recently been rather disappointing.

Recently, new weight loss drugs have also fuelled concerns about declining demand for sweets and snacks, as drugs such as Wegovy and Ozempic – both from Novo Nordisk – curb the appetite and also the desire for high-calorie and fatty foods.

Nevertheless, the confectionery business appears to be fairly crisis-proof in view of the highly uncertain outlook for the global economy. The war in Ukraine continues, the risk of an escalation of the conflict in the Middle East has not been averted, and a recession seems possible in many industrialised countries. Chocolate bars and crisps are likely to be among the things that consumers will afford even in such a negative environment – especially as unhealthy food is often cheaper than healthy food.