In the spotlight: Boparan continues M&A march with Vion buy
Boparan well-placed to turn around Vion's UK business
Boparan Holdings, the parent company of 2 Sisters Food Group, has continued its drive to rapidly expand its footprint with the announcement that it has acquired the remaining Vion meat businesses in the UK. Katy Askew takes a look at how ambitious 2 Sisters hopes to succeed in a market where Vion struggled.
Netherlands-based Vion has been frustrated in its battle to turn a profit in the UK market and, when the group announced it was going to quit the country late last year, it cited excess supply and "extremely challenging" trading conditions.
The meat sector in the UK has been marked by intense competition for retail contracts, weak consumer sentiment and lacklustre demand. These factors have combined to result in downward pressure on pricing for meat products.
According to Sukhdev Joha, reader of management strategy at Royal Hollaway University of London, the UK's supermarkets have a "trader mentality" toward their procurement of various meat products, which are used as a loss-leader to drive footfall. According to Joha, this results in fluctuating demand, which in turn limits capacity utilisation in the sector and damages profit margins.
"If you are operating at 80-90% capacity utilisation you make money, much below this and you are working to cover your costs... It is in the last 15-20% of production capacity that profits are made," Joha explains.
However, Vion's problems in the UK went beyond wider market issues. The firm has struggled since its 2008 acquisition of Grampian Country Food Group, a company that one city analyst told just-food was a "basket case" when Vion took over its operations.
Compared to many of its peers, the group's 38 meat processing sites across the country are under-invested and inefficient. And, while Vion was a significant meat supplier to UK retail customers, it failed to invest in innovation and product development at the same pace as its competitors, such as Hilton Foods and Cranswick. As a consequence, Vion trailed its peers in adjusting its product mix towards value-added products.
This week's announcement that the holding company that owns 2 Sisters Food Group, Boparan, will acquire Vion's UK assets - excluding the group's pork arm that was spun-off in an MBO last December - signals that the business will likely be overhauled in a bid to improve profitability.
Indeed, announcing the deal, 2 Sisters chief executive Ranjit Singh reveals that the group's "immediate focus" will be "to improve performance, as we have successfully done with our previous acquisitions".
2 Sisters has a successful history of expansion through M&A and a proven ability to integrate diverse businesses on a profitable basis.
The group, which began life in 1993 as a frozen retail cutting operation, has expanded through a progression of acquisitions to become one of Europe's largest privately-owned food manufacturers. It has been active in the process of consolidation of the UK food sector, which has gathered pace in recent years. Deals have included the high-profile transformation buy of Northern Foods, followed by the more recent purchase of Brooks Avana from Premier Foods.
The acquisition will broaden 2 Sisters' presence in the meat aisle. The firm, which was already a major supplier of poultry products, will benefit from a larger share of the UK poultry market and the additional capacity that the former-Vion facilities offer will enable it to meet growing demand from its poultry customers, 2 Sisters said. It will also broaden its offering to include red meat products and lamb.
The company will take on 11 plants, seven of which process poultry and four of which process beef and lamb.
By further extending its portfolio, 2 Sisters will likely hope to leverage its existing customer relationships to grow sales, while simultaneously boosting its appeal to retail customers. The firm will also look to reverse Vion's uninspiring record of product development by capitalising on the competencies of its processed foods businesses.
The acquisition also comes at what could potentially prove a decisive moment for the UK meat sector. The horsemeat scandal that has swept Europe - where beef was substituted with horsemeat in a number of prepared products - has resulted in a sudden jump in demand for UK-produced food products that strongly communicate provenance and tracability.
Responding to the scare, the UK's largest retailer Tesco announced an overhaul of its supply chain that includes "bringing meat production home". And it seems - for the time being at least - retailers and consumers have accepted that UK-produced meat products will come at a higher price, potentially easing some margin pressure for the sector.
It is clear that 2 Sisters will hope to take advantage of this significant trend.
"At 2 Sisters, we put the customer at the heart of everything we do and in line with our customers' strategies, these businesses will help us to shorten the supply chain for consumers and meet growing demand for British sourced food," Singh says.
"This acquisition will safeguard a key supply chain for high quality British poultry and meat, offering reassurance to farmers in England, Scotland and Wales and upholding the quality and provenance that UK customers and consumers deserve," he emphasises.
Indeed, the acquisition has been roundly welcomed by retailers. Tesco CEO Philip Clarke says that the news "helps keep meat production in the UK at a critical time". The Co-operative Group's chief executive of food retail Steve Murrells adds: "It's very important to have manufacturers who can work with us and deliver what consumers expect" in terms of provenance and tracability.
According to Shore Capital analyst Clive Black, 2 Sisters' disciplined approach to manufacturing means it could be well-placed to take advantage of the sudden focus from the country's retail sector on procuring UK meat products.
"We sense that the acquisition brings a disciplined owner to these factory units. As such, this may be deemed a broadly constructive outcome in aggregate. Following on from the ‘horse-gate' scandal, we have noted the plethora of commitments by retailers with respect to shorter and more simple supply chains and the desire to procure more meat from the UK," he suggests.
Black adds that the deal could also prove a positive force for the broader category: "The more concentrated processing base, allied to British retailers' broader and emerging meat procurement priorities may well be a source of cautious optimism for British agriculture and the leading reputable players supplying the supermarkets."
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