By capitalising on the seemingly insatiable demand for chilled ethnic food products Cleveland-based SK Chilled Foods has expanded at a phenomenal rate over the past four years and fully expects to maintain this momentum through organic growth and acquisition.

SK Chilled Foods specialises in supplying own label chilled ethnic meals and snacks. Its product range encompasses Indian, Chinese and Mexican cuisine and extends from bhajees and spring rolls, through breaded and battered products to snack meals such as fajitas and enchiladas. The company lists four of the UK's major multiple retailers amongst its customers, but although its expertise is firmly in retailer own label products, it is steadily developing a presence in the food service market.

Dramatic Progress

Formed twelve years ago to produce bhajees and samosas for a regional wholesale chilled food distributor, SK Chilled Foods has made the most dramatic progress since 1995, during which time it has significantly broadened its product portfolio and established national coverage, while annual turnover has jumped from £2.5 million to about £20 million today and 600 people are presently employed.

Of the original founders, Les and Gary Bell remain directors of the company and Grahame Armitage continues as sales director, with now a much strengthened team in support. the company's development has gained added impetus from a capital injection by US investors, operating through UK holding company Authentic Speciality Foods.

Current managing director John Evans joined the company in August 1995 from Hazlewood Foods, where he was operations director of the Grocery Division. Under his direction, the company quickly diversified into battered and breaded products and also into ready meals, while capacity has been substantially increased. Growth has been both organic and through acquisition. "It is important to achieve critical mass quickly," he points out. "Our new investment has allowed us to achieve that and we have gone on to add more of the back-up facilities our customers like to see."

SK Chilled Foods' business activity now centres on four areas - onion-based products (eg bhajees); pastry (spring rolls, wan tons, samosas); battered and breaded products (mushrooms, skins and wedges); and snack meals (fajitas, enchiladas etc) - which each account for about a quarter of sales. The company claims 22% of its chosen market sector - hand held premium ethnic food snacks. Chief competitors include Katsouris, Northern Foods and Oscar Meyer.

Manufacturing Base

SK Chilled Foods operates three processing plants. The Riverside and South Bank facilities are both located in Middlesbrough and were acquired within the past two years, while the original factory is situated about 15 miles away in Skelton, a village on the fringes of the North Yorkshire Moors. Including production and warehousing facilities the site at Skelton now covers 30,000 sq ft, dwarfing the small 500 sq ft unit where the company first commenced production, trading under the name of Savoury Kitchen.

The factory at South Bank has just been extended from 10,000 sq ft to 30,000 sq ft. The 20,000 sq ft Riverside facility was gained following the acquisition last May of Indian and Chinese food manufacturer Muskaan from the receiver.

Specialisation

The three factory format has allowed SK Chilled Foods to improve cost effectiveness through economies of scale and by specialising production. Skelton now focuses on Chinese snacks, Indian snacks are produced at Riverside, while the expanded South Bank site concentrates on breaded and battered products as well as Mexican snacks, such as chilli beef tacos and tortilla wraps. The idea is to create 'centres of excellence'.

"I believe that the own label market is very much about operational matters - it is about service, quality and cost - and you need a very strong operational base to make that a success," comments John Evans. "We have consistently grown the business through investment. Indeed, we are investing ahead of the profits we are making."

Capital expenditure of over £2 million is planned during the next three years as SK Chilled Foods seeks to further develop its operational platform. The company is also on the look out for suitable acquisitions.

SK Chilled Foods also places a great emphasis on new product development, which is the driving force behind the current rapid growth in the chilled foods market. Recent introductions have included Mexican products, and the company has also identified Chinese ready meals as an area of potential growth.

The dynamic food manufacturer has eyed export markets but John Evans realises that to fully exploit the trend by continental retailers to develop chilled ready meals requires the establishment of an overseas base.

Partnership Approach

As a specialist own label supplier, SK Chilled Foods works closely with its customers. The Cleveland-based ethnic food producer keeps apace of changing consumer preferences and developing market trends by using data supplied by specialist marketing consultancy company InterAct, and this information is also helpful in the provision of category management services to customers. With category management now a central element of own label food manufacturing, SK Chilled Foods is structuring its sales and marketing department in order to allocate dedicated teams to its major customers.

Further Expansion

Having expanded at a startling rate over the past four years, SK Chilled Foods is gearing up to grasp further opportunities within the chilled ethnic foods market. "Within the next twelve months we will have the capacity in place to be able to double our turnover," says John Evans. "We will be putting a lot of effort into our snack meal area which is now growing ahead of our more traditional Indian and Chinese products. Home meal replacement, which is moving towards a take-away concept, is the area that we are focusing on."

In addition to continuing to produce chilled products for retailers, SK Chilled Foods is also looking to develop frozen food products in the rapidly growing food service market.

Fragmented Market

Because the chilled ready meals market is fragmented - only Northern Foods and Hazlewood Foods hold market shares of over 10% - conditions are still conducive for smaller players to grow substantially. However, industry consolidation is inevitable and this is starting to accelerate, as witnessed by the recent acquisition of United Biscuits' frozen and chilled foods business by HJ Heinz, and Unigate's purchase of Terranova.

Through its rapid growth over the past four years, SK Chilled Foods has manoeuvred itself into a good position to avail of opportunities arising from this concentration process. "With our current expertise in chilled foods, we have the ability to at least double our business. There is also the opportunity to expand into food service," says the SK Chilled Foods managing director. "If we can continue to make a success of our business, which I am sure we will, then we also have the opportunity of acquiring to achieve major company status. With Authentic Speciality Foods' support we have an exciting future. Keeping our ability to be flexible for our customers while we grow gives us an important advantage in this area."