The food business blog from Dean Best
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Mega deal set to shake up US foodservice distribution
10 Dec 2013 15:58
Off our beat but food manufacturers serving the US foodservice sector should note the proposed takeover of US Foods by rival Sysco.
The companies are the two largest foodservice distributors in the US and Sysco said the deal, if approved, will create a business generating annual sales of around US$65bn.
The takeover, if backed by anti-trust regulators (and that, according to some, could be a challenge), will see Sysco pay US private-equity firms KKR and Clayton, Dubilier & Rice a mix of cash and stock for US Foods.
The private-equity firms paid Dutch grocery retail giant Ahold $7.1bn for US Foods in 2007.
Sysco's largest customers include quick service restaurant chains like McDonald's and Wendy's but it has around 425,000 clients across the US.
Both Sysco and US Foods serve a wide range of customers, including restaurants and hotels but also healthcare and educational establishments.
The combined entity is expected to account for around 25% of sales in the national US foodservice sector, potentially presenting Sysco with greater purchasing power when dealing with its suppliers.
Industry watchers are split on whether US regulators will ask Sysco to offload some assets to get the deal through but, even if the company has to sell some bits of its business, the transaction looks set to create a powerful operator in the channel.
Asda, Morrisons wade into Scottish independence debate
09 Dec 2013 15:15
It is 283 days until Scotland decides whether to remain part of the UK and, alongside questions of nationhood and democracy , has emerged a more day-to-day concern - the prices in supermarkets.
Two of the UK's four largest grocers have indicated, should Scots vote for independence, they may look to up prices on shelves.
Andy Clarke, the CEO of Asda, said a vote to break away from the UK could lead to an independent Scotland being less attractive to the business.
"The cost of doing business in different parts of the UK does vary and the powers given to the Scottish parliament in the 2012 Scotland Act and any yes vote in 2014 could result in Scotland being a less attractive investment proposition for businesses and put further pressure on our costs," Clarke reportedly told The Financial Times.
Morrisons, which like Asda has a higher share of Scotland's grocery market than in the whole of the UK, echoed similar concerns. "If the regulatory environment was to increase the burden of the cost structure on business, that would potentially have to be passed on to consumer pricing. Why should the English and Welsh consumer subsidise this increased cost of doing business in Scotland?" Dalton Philips, the chief executive of Morrisons, told the FT.
The latest polls put those who would vote to stay in the UK nine points ahead of those who want independence.
The cost of living is likely to be high among voters' concerns as they approach the poll, which is scheduled for 18 September.
'Cost of living / bills' was the top issue among those asked by Scottish tabloid The Daily Record in February to list the five most important issues they were considering ahead of the vote.
UK retailers have acknowledged consumer trust of the way they do business is low, especially in the wake of the horsemeat contamination saga earlier this year.
However, the comments from Clarke and Philips could hold some weight, particularly among shoppers at Asda and Morrisons, which on average earn less.
Asda's Going Underground in latest click-and-collect move
20 Nov 2013 15:35
Asda is offering travellers on London's Tube network the chance to pick up their shopping at stations, the latest attempt by UK grocers to offer multichannel services where they think customers will most want them.
Wal-Mart's UK arm has in recent months said it would look to make shopping with the company "more convenient" for shoppers and has invested in more click-and-collect points at its stores.
It has also set out plans to offer the service at park-and-ride schemes, train stations and universities, as reported on these pages in June.
Today (20 November), Asda announced it would install collection points in the car parks of six suburban London Underground stations - East Finchley, Epping, Harrow and Wealdstone, High Barnet, Highgate and Stanmore.
Last week, Asda said it wanted to increase its footprint in London and the South East. It set a target of increasing the "physical access" to Asda from 53% now to 70% by 2018. Click-and-collect, it insisted, was "central" to hitting that target.
"Customers in the South East tell us that they want the prices and quality provided by Asda value but they can't access it easily. This tie-up with [Tube operator] TfL solves that," Asda retail director Mark Ibbotson said.
Such initiatives may strike consumers some as a bit off-the-wall but they are sure to attract attention - enough, Asda hopes, to encourage repeat purchase.
Under-fire UK retailer Co-op sees chairman quit
19 Nov 2013 16:01
The Co-operative Group, the UK's fifth-largest grocer, has had its issues in food retail in recent times but those challenges are nothing compared to the headlines its banking business has attracted. And, today, after weekend allegations linking drug dealing to the former chair of the Co-op Bank, the group's chairman handed in his resignation.
Len Wardle is to step down as chairman of The Co-operative Group "with immediate effect". The announcement, made this morning, came 48 hours after lurid newspaper allegations Paul Flowers, the ex-chair of the Co-op's banking arm, had been filmed buying crack cocaine, days after he had been grilled by UK legislators on the near-collapse of that side of the Co-op's business.
In a statement, Wardle said he had led the board that had appointed Flowers and added: "It is right I step down now, ahead of my planned retirement in May next year."
Wardle said the allegations about the behaviour of Flowers - a Methodist minister - have "raised a number of serious questions for both the bank and the group".
Ursula Lidbetter, The Co-op's deputy chair and chief executive of the Lincolnshire Co-operative Society, will take over from Wardle.
"These are very difficult times for The Co-operative Group and the wider movement, but I believe that we can and will come through this period stronger than ever by facing up to our challenges," Lidbetter said.
The Co-op's reputation as a mutual organisation had been dented after the collapse of its high-profile bid to buy over 630 bank branches from Lloyds. The company pulled the offer for the branches in April, citing the economy and regulation on the financial sector. In June, The Co-op announced plans to list part of its banking arm in a bid to plug a GBP1.5bn hole in its finances.
Flowers became chairman of The Co-op Bank in 2010 but stepped down from the role in May as the division's financial problems became clear.
His appearance in front the House of Commons Treasury Select Committee was derided by industry watchers as he struggled with what appeared to be basic facts. However, the claims in The Mail on Sunday raised eyebrows - and raised more questions about corporate governance at The Co-operative Group.
The Co-op is battling pressures from major grocery rivals Tesco, Asda, Sainsbury's and Morrisons in the UK's growing convenience sector, although like its larger competitors, it is also likely feeling the pinch from discounters Aldi and Lidl. The latest Kantar Worldpanel data, out today, showed The Co-op saw its share of the UK grocery market fall again, dipping from 6.5% to 6.3% in the 12 weeks to 10 November.
The Co-op's food arm is looking to improve its performance through a conversion of its stores to a new "fresh format", through product innovation and, down the line, a move online.
It will be a challenge, however, in a market that is as competitive as ever, with its larger retailers all investing in those areas, and with the discounters winning over more shoppers every quarter.
And while The Co-op's food arm and its boss Steve Murrells works on those plans, higher up, the organisation is battling to restore its reputation.
Pension funds flexing muscles in M&A battles
18 Nov 2013 16:01
The sale of UK biscuit firm Burton's Biscuit Co. demonstrates how pension funds should be viewed as a serious player in acquisitions in the consumer goods sector.
The Ontario Teachers' Pension Plan today (18 November) announced it had struck a deal to buy a majority stake in the manufacturer of Jammie Dodgers, Wagon Wheels and Cadbury biscuits for an undisclosed sum.
Like the acquisition price, we will not quite know just how competitive the auction of Burton's was, although, in a statement put out this morning, it was asserted the company attracted "interest from multiple high-quality bidders".
However, when it first started to emerge this spring that Burton's private-equity owners Apollo Global Management and CIBC wanted to sell, industry watchers were quicker to suggest potential trade or private-equity buyers than the likes of OTTP.
Cadbury owner Mondelez International, Pepperidge Farm biscuits owner Campbell Soup Co. and Finland's Raisio, with interests in UK confectionery were touted as potential buyers.
As the summer moved to autumn, private-equity firm Bridgepoint, which had just snapped up Polish biscuit business Dr Gerard, was put forward as a company that should take a look at Burton's.
Indeed, as the sale process moved into its final stages, Fox's Biscuits owner 2 Sisters Food Group and PE firms Apax Partners and CapVest were said to have bid for Burton's. But they were also joined in reports by OTTP, which today announced it had succeeded in agreeing a deal.
"With its portfolio of iconic brands, Burton’s is set to lead the premium biscuit market for some time to come and use product innovation to appeal to consumers looking for delicious treats and snacks inside and outside the home," Jo Taylor, the head of OTTP's London office, said.
Funds like OTTP have risen in international prominence in recent years. The fund owns stakes in a number of infrastructure assets in Europe and, in 2010, bought Camelot, which has the licence to run the UK National Lottery.
Earlier this year, The Canada Pension Plan Investment Board and Kainos Capital acquired food and drink assets including MSG Nutrients, salad supplier Earthbound Farms and Advanced Refreshment from PE firm HM Capital.
OTTP has held shares in food companies in the past - think Canada's Maple Leaf Foods - and the deal for Burton's marks its return to the space. It also further underlines how pension funds could increasingly vie with trade and PE firms for food assets up for sale.
Sainsbury's looks to an "own-label Christmas"
13 Nov 2013 16:00
Sainsbury's today (13 November) reported another set of solid results, with its private-label food a factor in higher half-year sales and profits. And chief executive Justin King, talking to reporters this afternoon, said own label will be a key battleground in the coming festive period.
The UK grocer said pre-tax profits for the 28 weeks to 28 September were up 9% and reported its highest share of the UK grocery market for a decade.
The retailer said own-label sales were growing "at over twice the rate" of branded goods. Its By Sainsbury's standard own-label range saw sales increase 6% year-on-year; sales of its more premium Taste the Difference range were up at a "double-digit" rate. Sainsbury's said annual sales of Taste the Difference had reached GBP1bn.
Sainsbury's entry-level Basics range was a fly in the ointment, with sales falling. The retailer is moving to relaunch the range and insisted its recent performance was more a reflection of the recent work on By Sainsbury's than the impact of moves from competitors on their own cut-price own label.
However, Sainsbury's is proud of its own-label ranges - they are, of course, a key part of its battle against Tesco's price comparison scheme - and King said Christmas would be a time when private labels would come to the fore.
"We think it will be an own-label Christmas," King said. "The savvy shopper wants quality but doesn't want to spend any more than is necessary."
And that prediction is, King indicated, based on Sainsbury's view of consumer confidence in the UK.
King acknowledged economic data, including yesterday's news of slowing inflation, was "undoubtedly good news" but he cautioned against drawing conclusions about changes in consumer behaviour.
"The reality for consumers is they're not seeing more money in their pocket," he said. "Consumers are under more pressure than they were 12 months ago."
However, let's round off on a more cheery note. Sainsbury's is set to launch its Christmas ad - and it is rather good.
The retailer has worked with director Kevin Macdonald - the man behind the film Life in a Day - to create an ad based on real footage from over 100 UK families.
A three-and-a-half minute version will air tonight in the UK before a 50-minute film will launch at a London cinema later this month.
Click here to watch the trailer. It will get even the most Scrooge-like among you in a festive mood.
Mondelez investors to benefit from Starbucks' compo pay-out
13 Nov 2013 15:13
Starbucks has been ordered to pay Kraft Foods US$2.7bn in compensation for ending a deal that saw the manufacturer distribute the coffee chain's retail products - a move that is set to benefit the shareholders of Mondelez International.
In 2010, Starbucks ended a 12-year agreement that had seen Kraft ship the company's packaged coffee to US grocery outlets.
Starbucks claimed its "brand equity" had been "eroded"; Kraft insisted it had grown sales from less than US$50m in 1998 to around $500m.
Kraft filed for arbitration and yesterday it was announced Starbucks would have to pay over $2.7bn.
The arbitration was filed before Kraft's 2011 split that formed US-focused Kraft Foods Group and global snacks giant Mondelez International. As part of the contracts behind the split, the $2.7bn will go to Mondelez, which owns coffee brands including Carte Noire.
Mondelez said it intended to use the net proceeds to buy back some of its shares - boosting a share repurchase scheme worth $6bn.
Perhaps, then, the Starbucks cash could help Mondelez in any attempts temper some of the criticism of its performance and strategy from activist investor Nelson Peltz.
The spectre of horsemeat returns to the UK
01 Nov 2013 14:08
It hasn't disappeared. Horsemeat has again been found in products on sale in the UK, according to the country's Food Standards Agency.
Tins of sliced beef on sale at UK discounters Home Bargains and Quality Save have been found to contain horse DNA, the FSA said yesterday (31 October).
The beef was made in Romania in January, the agency said. The 320g packs, described on the label as 'Food Hall Sliced Beef in Rich Gravy', has been removed from sale.
The affected products were identified after "routine testing" by officials in Lincolnshire, the FSA said. The level of horse DNA was put at between one and five per cent.
TJ Morris Ltd, the company behind the Home Bargains chain, said it was "disappointed" with the presence of horsemeat in a product on sale at all its 280 stores.
A spokesperson said: "The FSA's findings relate to just one batch of the product, which was produced in January 2013 – before horsemeat was found in a number of UK products. We have since had other batches of the same product tested, which were found to contain no traces of horsemeat.
"We work closely with our suppliers to ensure that our quality control is of the highest standard and extremely thorough. We are already liaising with this supplier to ensure that an even more robust process is in place moving forward."
TJ Morris supplies Quality Save's, which has 21 outlets in the north west and Yorkshire. Quality Save director Ric Rudkin told just-food: "We echo TJ Morris' comments. We are working closely with them to ensure they have the procedures in place to prevent a repeat of this."
Nick Martin, senior vice president at European software company Trace One, which works with retailers and manufacturers in areas including food safety, said contamination is an issue the industry continuously has to battle.
"This latest news from the FSA of horsemeat being discovered in canned beef from a Romanian manufacturer shows the effect of the horsemeat scandal is ongoing and wider reaching than originally anticipated," Martin said.
"While Home Bargains and Quality Save stores have acted swiftly, ensuring that all relevant goods are removed from the shelves, contamination of food products is an issue that retailers and their suppliers will never be free from. The reality is that retailers cannot monitor every possible ingredient at every stage of its journey. In order to ensure the sanctity of the products on their shelves retailers must be able to undertake fast, comprehensive recalls of goods that may have been affected, thereby safeguarding their reputation and limiting consumer damage."
Unilever marks Knorr's birthday
17 Oct 2013 10:44
After last week's Anuga, just-food returns to Germany for a two-day trip held by Unilever to mark the 175th 'birthday' of Knorr - the consumer goods giant's biggest brand.
Unilever's food portfolio has been under scrutiny in recent quarters, not least earlier this month when the company announced something of a sales warning for the third quarter. The warning was driven by a slowdown in emerging markets - where the bulk of Unilever's sales are in non-food - but also by the continued challenge of finding growth in developed markets, where Unilever's food arm does most of its business.
However, Knorr has been a bright spot in the Unilever food basket; sales in the second quarter were up nearly 5%.
While the majority of Unilever's business in emerging markets is in home and personal care products, Knorr does have a sizeable presence in developing economies. Worldwide, EUR4bn worth of Knorr products are sold each year - and around half is in emerging markets. Unilever says the "growth engines" for the brand are in Africa and Latin America.
just-food is currently hurtling along the autobahn in Bavaria to a visit a farm that supplies Knorr, where Unilever plans to outline the sustainable practices at the family-run supplier.
Later, CEO Paul Polman and Antoine de Saint Affrique, head of food at Unilever, plan to hold a briefing on the company's plans for Knorr.
ANUGA 2013: UK companies' reaction to government export push
10 Oct 2013 19:41
The UK government this week launched an "action plan" to help boost the country's food and drink exports, a move largely welcomed by British exhibitors at industry trade show Anuga.
Since Food From Britain, the government agency set up to promote the country's food exports was closed in 2009, the debate has raged over how the UK should push its wares overseas.
The current coalition government has often emphasised how important the UK's food manufacturing sector is to the country's recovery - and how vital success in export markets is to both the industry's and the nation's economic performance.
Some UK food manufacturers have praised the Government's efforts to help exporters, notably the assistance that another agency, UK Trade & Investment, can provide within markets. Others have glanced nervously at the likes of Ireland, Germany and Spain - and competitors further afield like Canada - and the work they are doing to boost their industries on the world stage, notably key emerging markets like China. Such nervousness has perhaps grown after a year of flat exports in 2012.
On Sunday (6 October), the UK government launched what it called the "food and drink international action plan", which it claims could provide a GBP500m boost to the economy.
"There are huge opportunities for British food companies to export all over the world and I'm determined to help our firms exploit them," Owen Paterson, UK Secretary of State for Environment, Food and Rural Affairs, said.
The plan includes the creation of "one team" across government and industry to drive exports and a "single, strong UK brand identity", the Government said.
UK exhibitors at the Anuga trade show in Cologne seemed to welcome the move. Eblex, the organisation that represents beef and lamb farmers in England, was involved in drawing up the plan and held a roundtable that Paterson attended on Saturday to discuss the measures.
Jean-Pierre Garnier, export manager at Eblex, said government help was vital for UK businesses looking to break into new markets, as has been shown in the recent new trade deal in the sector between Britain and Russia.
"We could not, for example, gain market access to Russia, that's what they government has to do and it has got to be done at a very high level. Their input is not only the time and the resources behind, it is as well to open the door," he said. "When you see the Irish, for example, they would not send one minister, they would send a whole pack of them."
Adam Sopher, co-founder and director of UK snack maker Joe & Seph's Popcorn, said the move "made sense". He said: "All it is is about putting all the right people into all the right places at the same time and giving them the opportunity to meet."
He praised the work of UKTI, which had helped him set up at meetings at the show, the first major international event for Joe & Seph's.
Nina Slattery, founder of another UK snack business, New York Delhi, is a supporter of UKTI and said the support of the agency and the new plan was "fantastic".
She did, however, suggest the Government could do more to help UK businesses break into China.
"What I'd like is maybe more to be done with China because the opportunities are vast. The frustration with me is that there is nervousness in entering the market because some can be unscrupulous," she said. "Having said that, our attitude is also yes, nine out of ten might actually want to take a bag, copy it, and do a watered down version of what we do. However, we are chasing that one that wants the real McCoy because there is an absolutely unsatiable desire to have premium top-end brands in China. They want the European brands and they know British ones are iconic.
Over at Karro Food Group, the UK-based pork business set up earlier this year after an MBO of Vion's UK pork assets, the moves are welcomed. Nevertheless, Karro commercial director Ian Hughes also noted the importance industry associations can still play in opening new markets.
"The government promoting British food abroad is a great thing and it's great for us as a relatively new business but quite a large business," he says.
"We have a product, in terms of its consistent specification, which delivers for quite a lot of the world markets that are very particular about what they get. We have a trade body - BPEX - that is active in those markets and that actually probably for us is a better route forward. I think we need that connectivity with the final user. If we understand that final user, we can tailor that product to the final user."