Nestlé and PAI Partners’ JV tries new recipe for ‘unloved’ pizza segment

'Frozen pizza is an attractive category,' said PAI’s Frédéric Stévenin. 'It’s a cheap way for people to get access to a quality meal.'

Frédéric Stévenin, PAI Partners

Innovation will be a key driver of growth for the carveout of Nestlé’s frozen pizza business, PAI Partners managing partner Frédéric Stévenin told PE Hub Europe.

Paris-based PAI (via its PAI Mid-Market Fund) and Swiss conglomerate Nestlé announced in late April that they are forming a joint venture based on Nestlé’s frozen pizza business in Europe. The new business, which does not yet have a name, will be headquartered in Germany and will operate two manufacturing facilities, one in Nonnweiler, Germany, and the other in Benevento, Italy. PAI and Nestlé will have equal non-controlling stakes with equal voting rights.

“Frozen pizza is an attractive category,” said Stévenin. “It’s a cheap way for people to get access to a quality meal.”

It is also a category that, according to Stévenin, has been “a bit unloved”, particularly in Europe, leaving the segment without a lot of capital expenditure to optimise factories or drive innovation. “To some extent, the whole industry is going through a significant change,” Stévenin explained. “Labour costs are driving change in manufacturing, especially in robotics. Private equity is good at driving that transformation.”

Nestlé’s frozen pizza brand Buitoni Fraîch’Up made headlines in March 2022 following the detection of E. coli bacteria in the dough. The outbreak is suspected to have caused the death of two children and poisoned 50 other people, several newspapers reported, including Le Monde. Nestlé presented a plan at the end of March 2022 to permanently cease manufacturing and sales by the Société des Produits Alimentaires de Caudry site in northern France. A Nestlé spokesperson stated that the closure process is ongoing.

The new joint venture will produce and market pizzas under the Buitoni brand, the spokesperson said, adding that the JV will be run independently, but quality and safety of products is of the highest priority for the partners.

A source close to the transaction said that Nestlé’s closure of its French frozen pizza business was not related to the joint venture with PAI.

Under the joint venture, product innovations will focus on toppings, new shapes and packaging concepts. “There is sizeable growth in what we call the sharing concept, similar to multi-packs in UK snacks,” said Stévenin.

Deals in the food sector seem to be picking up speed in 2023, while food inflation is hitting record highs. “Looking at the deals we’ve seen recently, there haven’t been deals in consumer durables, which is impacted by the current prices,” said Stévenin. “But you’ve seen people buying into the stability of the sector.”

Food’s position as a consumer staple is another reason Paris-based PAI believes in the sector. “In certain circumstances, consumers will trade down in food,” Stévenin explained. “They will move from a premium brand to a less premium brand, but they will still consume.”

“Food as a sector is exposed to inflation but has the means of passing the prices to the consumer, with some lag.”

Carving a slice

PAI became aware of Nestlé’s pizza business through its Froneri deal, a business also born from a joint venture with the Swiss food and beverage company. Nestlé and PAI combined forces in 2016, putting together the two companies’ ice cream activities throughout Europe and other countries. “The beauty of a corporate partnership is the aligned interest; inevitably sometimes you face challenges, but you sit down together and find a solution,” said Stévenin. “It’s a win-win.”

For Nestlé, this new partnership allows the company to refocus its portfolio in Europe without exiting the category of frozen pizzas entirely.

Not all carve-outs are the same, however. The complexity of a carve-out deal depends on how autonomous the business already is from the large corporate. “In this case, pizza is very integrated within Nestlé,” said Stévenin. “It will take some time.”

Add-ons are expected. PAI has identified several attractive companies in pizza across Europe and has plans for consolidation in the market. “In a category like pizza, bringing branded and private-label propositions under the same roof, for retailers and consumers, is an attractive way to create a better business,” Stévenin explained.

“We will look at markets where pizza consumption is mostly frozen, rather than chilled, where we can leverage scale,” he added.

Stévenin highlighted a “key factor” that frozen pizza has over chilled foods: agility. “Frozen pizza can be shipped quite easily across distances,” he said. “It has a long shelf life. If you build capacity and knowledge in the right place, you can effectively expand the business.”