The news: The wave of consolidation in the consumer packaged goods (CPG) sector is continuing with Italian candymaker Ferrero’s $3.1 billion bid to acquire cereal manufacturer WK Kellogg.

The deal will give the maker of Nutella and Ferrero Rocher a foothold in staple grocery categories, as well as deepen its North America presence—a particular area of focus for the company.

The rationale: Ferrero’s purchase of WK Kellogg marks a strategic shift. While its previous North America acquisitions—of Blue Bunny ice cream maker Wells Enterprises in 2022, and Nestlé’s chocolate business in 2018—were focused squarely on growing its share of the confectionery market, changing consumption habits are pushing the company to diversify.

With US consumers cutting back on snacks for both cost and health reasons, adding brands like Kashi and Special K to its portfolio will help Ferrero better navigate both those trends.

The big picture: While the acquisition helps Ferrero broaden its appeal to customers, it’s not without risk. WK Kellogg cut its outlook in May, citing both the impact of tariffs on operating costs as well as softening demand due to uncertainty. It now expects full-year sales to fall between 2% to 3% this year, as well as a $2 million to $4 million hit from tariffs.

Overall, CPGs face an extremely challenging environment—one that will only get tougher as new duties come into play and the Trump administration’s “Big Beautiful Bill” squeezes consumer spending power.

• President Donald Trump’s threatened 50% tariffs on Brazilian imports would cause coffee and orange juice prices to spike more than they already have—and could pose a particular problem for Ferrero, given that it relies on Brazil as a source of sugar cane.
• Steel and aluminum tariffs are also proving costly—for both CPGs and consumers. Conagra pointed to the duties as a major contributor to the over $200 million in tariff costs it expects to incur this year, while a trade association warned that 50% tariffs on imported steel could increase canned food prices between 9% and 15%.
• 22.3 million families could soon find their SNAP benefits reduced or eliminated due to the spending bill, according to a report by the Urban Institute—which will shrink their grocery baskets and hasten the shift to private labels.

Our take: With grocery spending strained and costs rising, most CPG companies are taking one of two tracks. Some, like Ferrero and PepsiCo, are making strategic acquisitions to broaden their portfolios and keep up with shifting trends. Others, like Conagra and General Mills, are shedding assets to reduce expenses and focus on the categories with the greatest growth potential.

Regardless of which track they take, CPGs have to make sure they are meeting consumers’ need for value to avoid losing more ground to private labels.

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