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A big congratulations to Tangerine, Noble and Halewood; the top three of six Food & Drink firms in the Sunday Times 100 British private companies with the fastest growing profits.
It’s interesting that only six companies featured on this list, as Food & Drink represents the largest part of UK manufacturing. This begs the question:
Why are there not more private food & drink companies in the Top 100?
Key trends to growth were the ability to reduce costs, buy up the competition, innovation and international growth. Which would rule in the Food & Drink industry, operating as it does with some of the most mature retailers who are pretty adept at leveraging such strategies.
So why are they not achieving growth?
With companies like Premier carving out brands, UK Private Businesses have a great opportunity to buy up iconic names and consolidate their competitive landscape. Equally today’s market – where former titans of Food & Drink are disposing of brands – presents an opportunity for wider international distribution. Next year I truly hope to see more British Food & Drink companies on this list!
I would be keen to know why you think there are not more Food & Drink Companies on this list and what the industry can do about it!
Jo Sands is Head of Food & Drink for Interim Partners.
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Forget last year’s riots, I think we are in the middle of a mass revolt! What has broken the proverbial camel’s back? A tax on pasties of course!
It’s the final straw and with celebrities piling in – most recently Heston Blumenthal, as well as a petition gaining pace from major bakery chain Greggs – is it a matter of time before this tax is demolished before it began?
The reason for our discontent comes down to some basic ethics and principles broken by our current government.
In order to be successful in life, Napoleon is quoted as saying, “An army marches on its stomach”. Procuring enough food to support an army in the field is a paramount concern for all commanders!
So why at a time of economic crisis, when those with modest to middle incomes are experiencing income erosion more than most, are Cameron and Osborne adding to the pain by taxing the food staple of generations: the hot pasty?!
Is Osbourne so disconnected from the rest of society that he has forgotten that in order to pull yourself from adversity you need to feed your army?!
Has he forgotten that the Cornish pasty was originated as portable lunches for tin miners, fishermen and farmers to take to work?
Today the original value of a portable lunch hasn’t diminished, for most working people an affordable hot meal that covers the major food groups of protein, vegetables and fat at lunchtime keeps them going through the rest of the day.
Are they forgetting that they are punishing the people who have been hit hardest in this recession, not only the customers but also the SMEs? By enforcing this tax they will force many small bakeries out of business!
Bewildering and as outrageous as this tax is, I think it may be one step too far for George. As the nursery rhyme goes;
Georgie Porgie pudding and pie,
Kissed the girls and made them cry
When the boys came out to play,
Georgie Porgie ran away.
Your thoughts would be welcome…
Jo Sands is Head of Food & Drink at Interim Partners
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It seems that there is a lot of love to share at the moment, with Trade buyers and Private Equity alike looking to court businesses and build market share.
This is with a back drop of an extremely tough couple of years in Mergers & Acquisitions. According to the recent OC&C merger market analysis on UK Food & Drink Manufacturers’ M&A activity, 2010 almost flatlined with only four deals valued over £20m!
The good news is that Food & Drink companies big and small are turning to M&A to boost top line growth and gain market share and use as leverage with retailers – this is set to continue in 2012.
2011 started to mark a change with a number of transactions – such as Boparan 2Sisters and Northern Foods, Brookes Avana, Hain Celestial and Daniels, First Milk Group and Kingdom, Princes and Premier Canning, Baxter’s and Frey Bentos, Young’s Seafood and Cumbrian Seafood. Which leads me to a number of questions:
What impact do you think consolidation will have for Food & Drink Manufacturing in the UK?
Match-making?
Looking at recent transactions and future deals there appears to be two main courting tactics:
Love at first sight – targeting the obvious match with businesses operating in the same vertical category such as sandwiches to build category depth.
Opposites attract – targeting businesses that in isolation are not an obvious match but partnered with have the potential to become category powerhouses by building breadth (soups, salads, sandwiches, fruit pots) in a core category such as Food to Go.
What other acquisition strategies do you think make sense in this market?
Why marry now?
As food & drink manufacturers fight for survival (against a wave of commodity cost increases from the supply side and retailers squeezing margin from the customer side), it has never been tougher for manufacturers to hold onto margin and remain profitable. Growth needs to be realised at speed and this means buying out the competition or being bought out – consolidation in market means power in size, market share, shelf space and lobbying power. If anything is going to make the retailers nervous it will be consolidation, as fewer suppliers means weaker negotiating position. So if done properly the benefits are immense!
Love match?
Post-acquisition benefits include economies of scale and supply chain efficiencies – offering an immediate benefit against rising commodity costs. Eliminating the competition and gaining market share can also result in dominant shelf space and a position of strength with retailers – how will they respond as the supply market shrinks?
Heart break?
Many post-acquisition businesses soon find the honeymoon period is over! Certain love-blind facts hidden during the courting process become irritating habits to overcome, or even deep personality flaws that could wreck the long term future of the relationship. What resources will businesses need for a successful integration?
Match made?
As with any relationship there is a distinct phase when good due diligence can be unravelled if the integration is not planned out and delivered in good time. All too often the most important element when planning the integration is overlooked: culture. As two cultures collide the unforeseen obstacles can seem insurmountable, using inexperienced or culturally bias internal resource to implement change.
Interim Programme leads can work best in this environment as they offer independence, neutrality and most importantly experience to cut through the cultural, process and system differences. Used to over-arch the process from pre-acquisition (i.e. operational due diligence) to post-acquisition integration and leadership, Interims can provide that helicopter view and clear pathway for the integration.
They are experienced in managing people from different cultures, managing businesses through change successfully, providing Counsel and ear-marking potential pitfalls/opportunities – an invaluable resource through a period of adjustment.
The Food & Drink market is picking up on the value of Interim Managers, with the thinking moving from a useful tool for gap cover to using Interims as agents for change – i.e. Project/Programme leads, Turnaround Directors and International Development specialists. As they start to reap the real value that Interim Managers can add to a business going through change, do you think 2012 will be the year for the career interim in Food & Drink?
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The new year began precariously for UK Food & Drink manufacturing; as with the global economy many companies are teetering between signs of recovery and omens of collapse!
Being so risk adverse can create paralysis, but others are maintaining or even increasing profit through consolidation and cost management. This sheds light on a market that surely does not represent true sustainable growth. Now more than ever is the time for fresh ideas, invention and innovation - we must tackle austerity with audacious ideas that represent real business opportunities and tackle fundamental problems in the market!
Tesco alluded to this with the announcement on Friday that festive cheer ran out, with results taking a tumble following their lacklustre review of Christmas trade. Chief Executive Philip Clarke admitted Tesco was “disappointed” with its domestic performance over the seasonal period:
“There is much more we can do to further improve our shopping trip for customers and we are determined to move faster.”
For most people the new year is a time for reflection, prediction and action and the same is true of major multiples such as Tesco. The recession has had an impact on UK consumers’ shopping budget which – now seriously pinched – has become more discerning. Traditionally the retailer response has been to pass on the pain and squeeze manufacturers’ margins.
However, is Phillip Clarke’s statement a nod to change in 2012? Will manufacturers this year have a chance to change the balance of power?
If so, how ?
In the last few year retailers – by squeezing margins – have forced manufacturers to focus on good cost management and supply chain efficiencies to recover bottom line margin. Market consolidation was another approach – buying up market share and creating stronger leverage with retailers.
However, does this represent true market growth in the same way as organic growth or innovation or new product launches? Perhaps the retailers’ continuous downward pressure has sent manufacturers into a New Product Development black hole or has it had the opposite effect?
I believe the winners of 2012 will be those businesses that can invent, innovate and launch effectively. As we can see with Philip Clarke’s statement retailers want to embrace change and improve the shopper trip experience, so not only is it about new product – the focus will also be on innovative in-store activation!
The key trends of 2011 will continue in 2012, with three areas of business activity in Food & Drink:
1. Consolidation will continue as businesses build market share and power to battle the retailers on price and distribution.
2. Cost Management – on-going review of cost and efficiencies to recover margin erosion. Looking at the total value chain as a response to increasing raw material costs and decreasing margins with the retailers. Businesses will also be looking at how they can re-engineer processes/product to innovate in the market, so a combination of cost management and NPD will support a more strategic approach and joint planning with the retailer.
3. Innovation – my call to action for 2012. We must have fresh ideas, new ways of working and new products if, as a market, we are going to truly grow.
So how as an industry can we bend the boundaries, change the way we work and launch new and exciting products, gain power back from the retailers and connect with the consumers????
Manufacturers need to be more daring and as they say; ‘out of adversity comes opportunity’ !!
Jo Sands is Head of Food & Drink at Interim Partners
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Most of us will have taken pleasure and delight in consuming about as much chocolate as one grown individual could muster over this gloriously sunny Easter holiday, but how much is chocolate worth to you? What are you willing to pay for this pleasure and for some daily necessity?
I don’t know what you found, but my clutch of Easter Eggs cost exactly the same at the check out as they did last year. Surprising I thought as I happily handed over the cash, as the news has been full of chocolate or more precisely its derivative cocoa.
Cocoa crops have been hit by bad weather, beetles and increasing world consumption over the last few years and this year, serious political unrest in the Ivory Coast and a ban of cocoa export resulted in a further cocoa price hike. Cocoa producing regions plus other raw commodity generating areas are often in socio and politically unstable areas and this year problems in Africa and the Middle East acts as siren that raw material prices are exceptionally vulnerable long term.
Expensive cocoa eats into manufacturers margins as does commodity increases in sugar, milk, nuts, packaging and oil all common ingredients in our every day delight, so a natural conclusion would be that we the consumer will foot the bill.
In this climate though retailers are generally pushing price increases back so you find some manufacturers are changing how they use cocoa in recipes using less cocoa butter and more cocoa compound as it is cheaper, some will absorb the price into the supply chain, but how long can this be sustainable before the product is no longer recognisable or the manufacturer collapses?
What else can we do to offset the climate of commodity increases? What core skill sets can the Interim community offer our manufacturers to: hedge price fluctuations, preserve margin or gain price increases with retailers.
Is now the time to draw a line in the sand with the retailers and secure price increases that are a fair reflection of what is now the true cost of producing our beloved chocolate?
Let me know your thoughts.
Jo Sands Head of Food & Drink, Interim Partners
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