Chicken of the Sea owner, Thai Union, leverages economies of scale in Bumble Bee transaction.
Thai Union Frozen Products, announced that it would acquire Bumble Bee, the second-largest tuna company in the U.S., for $1. 5 billion. Although Thai Union is the number one global producer of canned tuna, this acquisition will help boost Thai Union’s presence in the U.S.
Thai Union currently owns Chicken of the Sea, the number three player in the U.S. market behind Bumble Bee and top player Starkist. The acquisition demonstrates a trend of consolidation in the seafood market. On the one hand, retailers continue to consolidate and demand more – better rates and product – from their suppliers, while consumers continue to see tuna as a commodity. Leveraging economies of scale is the best way for a player like Thai Union to grow. With the transaction, Than Union expects to increase its gross margin from 15% to 17%.
When Capstone worked with Chicken of the Sea, we explored ways to help the company grow. We discovered the company’s expertise was not in tuna, but rather in logistics and packaging and facilitated the acquisition of Empress International, a frozen shrimp company. Having the expertise to catch, ship, and pack tuna and other products is essential to profits, especially in a low margin business. In 2013 alone, 47% of Thai Union’s $3.6 billion in revenue came from tuna.
Thai Union fully intends to leverage economies of scale in global markets as well. Earlier this year Thai Union acquired seafood company King Oscar in Norway and smoked salmon supplier MerAlliance in France. I believe these acquisitions are just the beginning as Thai Union seeks to fulfill its goal of reaching $8 billion in revenue by 2020.
