The Future of the Confectionery Market in the US, to 2016
This report examines change in the market by looking at historic and future growth patterns including the effects of consumers’ behaviour on total volumes, values, brands selected, and types of product chosen.
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This week got off to a start with a bang when UK meat group Cranswick announced to the market it has entered into an agreement to acquire Kingston Foods.
Kingston is a manufacturer of premium cooked and roasted meats. Through the acquisition, Cranswick said it will strengthen its cooked meat production capabilities, further diversify its product range in a growing market and broaden its customer base.
The deal is a great fit for Cranswick and an excellent example of the strategy the CEO-elect Adam Couch detailed to just-food last week.
Couch said Cranswick is seeking smaller "targeted" and bolt-on acquisitions to expand the business. In particular, Couch revealed the group is looking at M&A that will "develop our capabilities in area of the market that we wouldn't necessarily have the expertise in - that we wouldn't feel comfortable in growing from a standing start."
While Cranswick does offer cooked meats - primarily pre-packed and deli products for retail customers - the acquisition of Kingston expands the company's foothold in the category and offers greater exposure to foodservice customers. Kingston's primary customer base is quick serve restaurants and, as such, the deal could is a good step towards Cranswick’s goal of increasing its revenue from foodservice channels by around GBP100m to GBP160m.
According to Shore Capital analyst Darren Shirley, the acquisition is likely to be “modestly earnings enhancing” in its first full-year. The most recent accounts published by Kingston in January 2011 showed group sales of GBP11.6m (US$18.2m) and EBIT of GBP0.5m, implying an EBIT margin of 4.3%.
“We believe recent growth has been strong, both from a sales and profits perspective, and the deal is expected to be modestly earnings enhancing in year one,” Shirley suggests.
ShoreCap nudged up its CPTP target to GBP48m following the news, insisting that Cranswick's “longstanding track record of sales, profit and dividend growth, a well invested, industry leading manufacturing infrastructure, strong cash generation and healthy balance sheet” mean it is well-positioned to deliver further growth in the coming year.
Another group to recently demonstrate the benefits of pursuing small, targeted, bolt-on acquisitions is Greencore. The Irish convenience firm announced last week it has acquired HC Schau for US$17.3m, plus performance bonus.
The firm produces sandwiches, sushi and entrees sold through retail, convenience and foodservice customers. During 2011, Schau booked revenues of $32m, Greencore revealed.
While the deal is relatively small for Greencore, CFO Alan Williams told just-food it was significant because it expands the group's presence down the east coast of the US and into the mid-west.
“This [acquisition] completes our ability to service the whole of the east coast plus also covering the Mid-West,” Williams revealed.
In the US, Greencore now has the capacity to service $350m-worth of business, Williams said. Currently, Greencore is generating business of around $240m and the company expects to generate new business to fill excess capacity as demand for food-to-go served through convenience stores increases.
In other M&A news, two long-anticipated disposals were also confirmed last week when Dairy Crest and Nestle each pruned their businesses and offloaded brands to private equity investors.
On Friday (29 June) Nestle announced it has sold its Australian ice cream business, Peters, to Pacific Equity Partners in a deal that has been valued at around A$330m (US$343.2m). Nestle said the disposal was part of the company's plans to focus its portfolio following a review of its range of businesses in Australia.
Likewise, a review of Dairy Crest's business in March prompted the firm to put its French spreads unit, St Hubert, on the block as it looks to increase its focus on the UK market. The dairy group revealed it has reached an agreement to offload the unit to Montagu Private Equity for EUR430m (US$540.1m).
Proceeds will be used to reduce debt and fund synergistic acquisitions in the UK.
Dairy Crest is a power-player in the UK's spreads, liquid milk and cheese categories and owns a number of top-tier brands, including Cathedral City, Clover and Country Life.
As such, the control of additional brands in these categories could only add to the considerable bargaining power Dairy Crest brings to the table in negotiations with the country's supermarkets.
It is widely expected the firm will look to expand in the cheese or spreads categories, reflecting Dairy Crest's profit mix. It is also possible the group could move to grow in related sectors, reducing the risk of sales cannibalisation and increasing its reach as a broad-based dairy business. The likes of Yeo Valley and Premier Foods' Ambrosia brand have already been cited as potential takeover targets.
So, with cash in its pocket and an enviable balance sheet after the St Hubert disposal, we will be watching this space for news that Dairy Crest is growing its UK branded portfolio.
For branded food makers, getting the price positioning is crucial to success. Price too low and you are devaluing your brand and failing to get maximum returns; price too high and consumers are likely to turn to cheaper alternatives, particularly in these hard-pressed times.
Promotions have therefore taken an ever greater role in increasing consumer appeal. Tomorrow, just-food will be hosting a webinar to discuss a new report from FMCG analysis firm SymphonyIRI on the role of trade promotions amid the current tough trading conditions in Europe.
Rod Street, executive vice president of Symphony IRI, will outline the key developments and trends in the areas of pricing and promotions, including data from six key European markets.
Click here to register for the webinar, which will take a detailed look at pricing and promotional strategies and include an interactive Q&A session.
Until next time...