(Bloomberg) -- Mondelez International Inc. is betting that if you pay more for a classy cookie, you’ll eat more of them.
The company, which makes Oreos and Chips Ahoy -- mass-market baked goods that bear scant resemblance to the products of your mom’s oven -- has agreed to buy Tate’s Bake Shop for about $500 million. The fast-growing company started as a bakery in Southampton, New York, the posh Long Island enclave about 90 miles (145 kilometers) east of Manhattan. It produces thin, buttery specimens of the chocolate-chip variety.
It was the first deal announced under Mondelez Chief Executive Officer Dirk Van de Put, who took over at the snack giant in November. Mondelez and its competitors in the packaged-food industry have struggled to navigate changes in how consumers eat and shop. The Deerfield, Illinois-based company recently emerged from a four-year sales slump and has now posted growth in three straight quarters.
Still, results have lagged in North America, where the company generates about 25 percent of its revenue. With Tate’s, Mondelez will acquire a brand well-known in and around New York City. Tate’s cookies are typically more expensive than mainstream brands, giving Mondelez a new set of premium products. A 7-ounce bag of Tate’s whole wheat dark chocolate cookies was selling for $8.95 on Walmart.com on Monday, while a 14.3-ounce bag of Oreos was $2.98.
Tate’s sales have quadrupled over the past five years, according to Mondelez. The business will continue to operate as a stand-alone unit as the new parent company tries to preserve the brand’s authenticity.
“We want to isolate them from the big-company way of doing things,” Van de Put said in an interview. “We want to respect everything they’ve done.”
Founded by Kathleen King, Tate’s packaged chocolate-chip cookies have been showing up on the shelves of more grocery stores in recent years. The Riverside Co., a private-equity firm, invested in Tate’s in 2014.
Overall, U.S. cookie sales have risen 3.4 percent since 2015, finishing last year at $10.3 billion, according to Euromonitor. Oreo is the largest brand, with about 14 percent of the market. But its sales have dropped the past two years, part of the reason Mondelez wants to tap the fancy cookie market.
Van de Put said Tate’s had been on the company’s “radar for a while.” He said Mondelez will expand distribution of Tate’s and add more products from the Long Island bake shop to grocery-store shelves.
Despite the increasing focus on health and wellness, indulgent products have remained popular with U.S. consumers. But brands that tout natural ingredients have been outperforming industry mainstays.
Tate’s touts its lack of chemical preservatives and “finest and freshest” ingredients, like malted barley flour and brown cane sugar. Oreos, by comparison, have an ingredient list that includes cocoa processed with alkali and high fructose corn syrup, a bugbear for consumers who believe plain old sugar is better for them.
But Tate’s fans may wish to temper their appetites. A single chocolate-chip cookie has 70 calories. The humble Oreo, corn syrup notwithstanding, has only 50.
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