Boulder eyes UK growth

Boulder eyes UK growth

US health and wellness firm Boulder Brands has acquired a small UK-based gluten-free company, Davies Bakery. The US gluten-free specialist has ambitions to expand the UK business well beyond Davies' current scale. However, Katy Askew suggests, Boulder is likely to come up against stiff competition in the increasingly crowded space of the UK gluten-free sector.

Boulder Brands has entered into an agreement to acquired Davies Bakery for GBP2.5m (US$3.9m). Davies is a relatively small-scale manufacturer that produces a number of gluten-free baked goods, under retailer brands as well as its Yes You Can brand. In 2012, Davies achieved sales of GBP1.3m, Boulder revealed yesterday (2 May).

Speaking during a conference call following the M&A announcement, Boulder CEO Steve Hughes said that the transaction would not have a significant near-term impact on Boulder sales or profits. However, he expressed optimism that the US firm will be able to leverage Davies UK presence - in particular its manufacturing facilities and customer relationships - to rapidly develop Boulder's own Udi's brand in the market.

"While this acquisition is not material on size, we're very excited about the potential taking the Udi's brand to the UK," Hughes said. "We [will] utilize Davies state of the art gluten-free manufacturing facility and expertise in UK market."

Boulder revealed that it plans to launch between five and seven Udi's grocery items and five-to-seven Udi's bakery items in the UK over the next year.

Davies will retain its current management and the launch of Boulder's brand should provide the business with higher volumes, Huges said.

"It's a great management team, the fella who is going to run the business for us is the fifth generation baker, state of the art facility, all that facility needs is volume and we hope they get a good test on Udi's for the next 12 months."

For the time being at least, Huges ruled out the UK launch of Boulder's other natural brands, Glutino and Earth Balance. Instead, Boulder plans to focus on establishing Udi's as a lead branded player in the UK gluten-free segment.

"We really think initially there, we ought to put all our energy against one brand and Udi's with the social marketing model we think we can market it very efficiently," Huges said.

It is easy to see why the UK market for gluten-free products would whet Boulder's appetite.

Gluten-free is one of the most dynamic categories in the UK food sector. It accounts for the majority of sales in the country's free-from market, which itself is witnessing rapid growth. Kantar Worldpanel data suggests that UK free-from sales rose 25% in 2012, climbing to GBP288m (US$446.6m). Kantar adds that sales of gluten- and wheat-free foods rose by around 23% in the year, climbing to around GBP136m.

However, while the sector is benefiting from a considerable growth phase, it has also become a lot more crowded of late.

Category leader Genius has been steadily building its presence for a number of years and now commands a 48% share of the market. Growth has been driven by a continuous churn of NPD and, more recently, M&A with the acquisition of Findsbury Food Group's free-from business. As Genius CEO Roz Cuschieri told just-food in a recent interview, this ambitious company has no intention of relinquishing the lead in its domestic market.  

Meanwhile, conventional baker Warburtons has laid down the gauntlet and is pushing the rapid development of its free-from business. As free-from director Chris Hook told just-food, the group aims to become the UK's largest free-from baker with its Newburn Bakehouse brand. Currently the baker's free-from sales total GBP5.7m, but Warburtons intends to double this figure during 2013. Hook detailed how Warburtons plans to deliver on this ambitious plan in an interview with just-food earlier this year. 

Add to the mix gluten-free bakery brand is Mrs Crimbles - whose annual revenue of around GBP15m per annum dwarfs that of Davies. With a range including cakes, biscuits and crackers, Mrs Crimbles was one of the first to be actively promoted on a gluten-free platform.

At the same time, the likes of German-based free-from expert Dr Schär are looking to expand the gluten-free category, driving incremental growth through product launches that deliver convenient meal solutions. Dr Schär is not alone in this ambition: in 2012, Red House Foods extended its Georgia's Choice gluten-free brand with frozen Chicken Bites and Chicken Grills.

And this is not only an area attracting the attention of niche players: Heinz launched a range of gluten free pasta and sauces earlier this year.

Given the increasing attention that gluten-free is drawing, with heightened competition in an increasingly crowded space, it seems clear that expanding Boulder's bakery and grocery business in the UK is unlikely to be a cake-walk.

However, the US firm remains confident - and with good reason. The company has a wealth of gluten-free experience in the US, where it produces a wide array of products. Indeed, in its latest quarterly update, released yesterday, Boulder confirmed that expansion of its gluten-free business was the key driving force behind sales and profit growth during the period.

Revenue for the first quarter increased 34.5% to $106.7m, compared with revenue of $79.3m in first-quarter 2012.The growth came from Udi's, as well as from the company's two other brands in its "natural" segment - Glutino and Earth Balance.

The company is also developing a successful track-record of transferring its high-growth Udi's brand to other markets, having rapidly grown its business in Canada. In the UK, Boulder will attempt to follow a similar growth pattern as the expansion path it set out in Canada since its 2010 launch of the Udi brand, Huges explained on the conference call.

"With Udi's success in Canada, we have grown quickly to US$10m in sales since launch in late 2010. We believe the Udi's brand will be very successful in the UK market," Hughes predicted. In Canada, he predicted that the group could grow this figure by as much as 100% by 2014.

Boulder clearly has high hopes that Davies will provide it with the foothold to replicate this success in the UK. Nevertheless, the firm will be coming up against some stiff competition in the market.

For further analysis of the gluten-free market in the UK and other international markets, click here to view just-food's latest four-part management briefing.