The food business blog from Dean Best
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Dairy consolidation will happen - but between whom?
07 Sep 2007 16:04
So yet more consolidation looks likely in the European dairy sector.
German dairy group Nordmilch is keen on teaming up with its peers, particularly in cheese. The company joins a lengthening list of dairy firms either seeking partnerships or those that have already jumped into bed together.
A couple of weeks ago, cheese producers Emmi and Ambrosi joined forces in France, where Sodiaal has also teamed up with Entremont Alliance and formed a cheese venture with Bongrain.
Dairy processors are joining forces in the wake of reform of the EU dairy sector – which has helped to push up prices – and rising dairy costs globally.
The dairy sector remains fragmented; according to Euromonitor, the world’s top 12 dairy companies account for just over a fifth of global retail milk sales.
Some industry watchers, including Tetra Pak CEO Dennis Jönsson, believe consolidation in the dairy sector will happen. The signs are it is already beginning to take shape.
Just where do you think dairy consolidation will happen? And who will be involved?
Breaking down the numbers...
06 Sep 2007 15:57
A raft of financial results have been announced in the last 24 hours – with dairy group Friesland Foods and US food group Campbell Soup Co. taking centre stage.
On the face of it, Friesland Foods, the Dutch dairy group, published a set of robust figures, proving that the soaring cost of dairy commodities is of benefit to some in the industry.
As well as producing a raft of consumer brands, Friesland Foods supplies dairy ingredients to food processors and, as the cost of ingredients like milk powder has risen, so have the prices Friesland charges from its customers.
Nevertheless, Friesland Foods sounded something of a warning on the rest of the year. It refused to give an earnings forecast for the second half of 2007, blaming uncertainty over the full impact rising dairy costs could have on its customers. Indeed, if dairy prices remain buoyant, Friesland volumes could take a hit. (Insert your own “cheesed off” gag here).
For Campbell, its results highlight the good sense of making a move into the emerging but challenging markets of Russia and China now. The US firm booked healthy annual profits and sales, giving the company cash to really push on its quest to conquer the world’s two largest soup markets.
One notable element of Campbell’s results was the continued good performance of Godiva, the upmarket chocolate business the company could soon put on the block.
Godiva’s sustained growth in markets like Asia is by no means a slight on Campbell’s insistence that the business doesn’t fit its strategy. That’s for the company to decide. However, the success of Godiva serves to underline what a sweet acquisition the business could be for the likes of Nestlé or Lindt.
Innovation means tension
05 Sep 2007 01:03
Innovation is key to the success of any food manufacturing and retail business. It’s an issue that must consume many of your working hours.
Big or small, it pays to be ahead of the game when it comes to NPD and investment into niche segments or emerging markets.
And that rings true whether you’re a small player or whether you’re a company the size of Unilever, one of Europe’s top five food producers by revenue. The Anglo-Dutch conglomerate, home to brands like Magnum ice cream and Knorr soup, has been criticised in recent years for its unwieldy business structure. Management by country and by region has left Unilever open to accusations that its profit margins have been lower than its industry peers – and that the company has been too slow in tapping into ever evolving consumer demand.
However, as just-food found out yesterday (4 September), Unilever is working hard to get innovation front of mind across the business. The company is constantly launching new products on the market to meet consumer demand for healthier products.
Nevertheless, as you all know, the perennial problem is how to manage innovation across your business. Do you draw up innovation projects centrally or do you operate more locally to meet the needs of consumers in individual markets? The danger of operating locally is adding cost to your business. The danger of centralisation is not being close enough to react to evolving consumer demand.
For Unilever, there is a need to “find the right balance”, according to Emmo Meijer, senior vice president for food R&D at the company. And, in any case, that tension, Meijer says, is a good thing.
“There’s always tension in the innovation process,” Meijer told just-food at Unilever’s food R&D HQ in Vlaardingen, just outside the Dutch port of Rotterdam. There’s nothing wrong with that – it keeps people sharp. If there’s no tension in the innovation process, then you’re doing something wrong.”
There’ll be more on our interview with Unilever’s Meijer in the days ahead but we’re interested to know how you manage your innovation “process”. What challenges are you facing right now?
just-food goes Dutch...
03 Sep 2007 20:05
just-food has gone Dutch this week. We’re visiting the Netherlands to find out what is dominating the thoughts of the food manufacturing and retail sectors in the country.
As with much of Europe at the moment, rising production costs is the hot topic in the Netherlands. Industry executives point to the usual factors – growing demand in Asia, increased biofuel production in the US, the vagaries of the weather – for increasing commodity costs.
One Dutch industry executive believes the recent escalation in commodity costs is “unprecedented” and that, ultimately, consumers will face higher shopping bills. “There has been a huge change in raw material costs; you have no choice but to try to increase prices for your customers – otherwise you die,” the executive told just-food, adding: “Consumers will face higher prices.”
Of course, rising commodity costs isn’t bad news for everyone. While the likes of Cadbury Schweppes, Hershey and Kraft Foods have recently bemoaned mounting dairy bills, dairy companies have been rubbing their hands.
Netherlands-based Friesland Foods is one such example. Over the last year, the global diary supply has tightened, pushing up prices and Friesland Foods, one of the world’s leading dairy companies, has been well placed to benefit. Friesland Foods, which supplies a number of food processors and retailers, can command higher prices from its customers, a situation that, according to the company, is long overdue.
“We believe that consumer prices have been too low in Western Europe. The power of supermarkets in recent years have left farmers in a weak position,” a Friesland Foods spokesman told just-food at the company HQ in Meppel, eastern Netherlands. Friesland Foods announces its annual results on Thursday (6 September), a set of numbers that should make interesting reading.
Postscript: We have heard – and expect to hear – a lot about the growing popularity of functional foods among consumers in the Netherlands and Western Europe this week. Consumers, we’re told, are majoring on “health and wellness” – it’s not just a trend dreamt up by marketing managers. Perhaps someone needs to tell one of the just-food operatives on this trip. His first meal of the day was a kebab – although he did try to make up for it later in the day with a probiotic drink. Some ripe fodder for the marketing men, it seems…
EU farm chief comments on food prices hard to digest
31 Aug 2007 17:11
The latest comments from EU farm chief Mariann Fischer Boel on rising food prices are puzzling to say the least.
The EU Agriculture Commissioner spoke out against the threat of rising food bills in the EU and warned retailers to act “responsibly” when setting prices.
Fair enough, the Commissioner wants to protect the consumer being hammered in the pocket but what, in effect, could the EU do, should retailers want to raise prices (within reason)?
In any case, at least as far as evidence in the UK suggests, supermarkets are currently loathe to increase prices for fear of losing customers. The likes of Tesco and Asda have spent the summer locked in something of a price war amid fears that consumers’ spending power is being eroded by rising bills and interest rates.
What’s more, Fischer Boel notes the pressure soaring commodity costs is having on farmers and food processors but bizarrely doesn’t reflect on the impact the EU’s own policy has had on the current situation.
The EU’s decision to scrap export subsidies on dairy products has led to the likes of Arla Foods pushing up the price it pays to its farmers to ensure supply, thereby contributing to the increased cost of milk and milk powder faced by food processors.
With global prices for dairy commodities already high due, among other things, to the drought in Australia and weather conditions, the EU’s move puts further pressure on food manufacturers reliant on dairy products.
Secondly, Fischer Boel’s stance on biofuels has provoked raised eyebrows. Fischer Boel played down the impact increased biofuel production is having on rising corn costs, for instance. “Biofuels play a marginal role at most in the EU context,” she said.
However, biofuels are widely seen as a key factor driving up food production costs. It’s a view not just held by food processors staring at a falling supply of corn; a number of analysts also point to growing demand for biofuels as a key factor in the rising cost of corn.
Fischer Boel may say that biofuels have an insignificant impact on food prices “in the EU context” but with the European Commission setting a target for biofuels to cover 10% of EU fuel demand – while also drafting legislation that could force member states to increase biofuel production and consumption – the EU’s passion for biofuels will soon be hitting the bottom line of food processors.
And, consequently, pressure on retailers to raise the price they pay suppliers – and perhaps to raise prices on supermarket shelves – will grow.
Power to the, er, shareholder!
30 Aug 2007 14:21
Shareholder power got another shot in the arm today (30 August) with the news that Carrefour is to sell off part of its property portfolio.
The French retail giant owns a bank of retail assets worth around EUR20bn (US$27bn) and rumours of their future has grown since an activist investors took a 9% stake in Carrefour earlier this year.
The investors, investment vehicle Colony Capital, were understood to be keen for Carrefour to sell off its property and return the cash to shareholders. No-one quite knew for certain what Colony’s intentions were but the fund had previous. Colony was seen to be instrumental in encouraging another of its interests, French hotel group Accor, into offloading sections of its property portfolio.
Fast forward to today and we see Carrefour, hitherto reluctant to sell its property, announcing plans to list the business that houses the assets. Whether Colony put pressure on Carrefour is unclear but there is no doubt that shareholders will be the beneficiaries from the IPO.
A number of retailers have come under pressure to return cash to shareholders by selling off property, not least UK grocer Sainsbury’s.
And, as takeover speculation continues to swirl around Sainsbury’s, today’s news from across the Channel will n o doubt make interesting reading for certain investors.
Whole Foods just as hard-nosed as the rest
28 Aug 2007 11:52
While Whole Foods is busy gobbling up shares in rival US retailer Wild Oats, interest in what has proved a captivating takeover battle will turn to the changing landscape of natural and organic retailing in the country.
Whole Foods succeeded in convincing the US courts that its acquisition of Wild Oats wouldn’t hurt competition in the sector. The company stressed that as organic and natural foods have become more popular, major retailers, such as Wal-Mart, Safeway and Kroger, have expanded their own ranges.
Looking at store numbers, Whole Foods has a strong argument – the firm currently has 197 stores, and Wild Oats has 109. Wal-Mart, by comparison, has 1,900 superstores alone.
However, to characterise Whole Foods as a brave independent doing battle with the mighty grocery chains would be wrong. Whole Foods could just as easily be cast in the role of hard-nosed market leader that targeted its most dangerous competitor and moved in for the kill.
During the legal battle with the Federal Trade Commission, it emerged that Whole Foods plans to shut some 30 Wild Oats stores immediately after the deal closes, and also forecasts that revenues at Whole Foods outlets near to where Wild Oats had been trading would almost double.
There have also been suggestions that Whole Foods had put pressure on suppliers who were also dealing with Wal-Mart.
Whole Foods might be smaller than some of the big food retail giants. But, any notion that it is somehow more "cuddly" - possibly stemming from the healthy and environmentally-friendly nature of its products - should be treated with caution.
When CSR and the need for new business meet
23 Aug 2007 23:10
A postcard from southern Sweden where just-food is visiting packaging giant Tetra Pak:
Tetra Pak is arguably one of the most iconic names in the food and beverage industry. From its origins in the early 20th century, Tetra Pak has grown to become synonymous with innovation in food processing and packaging.
In the early part of this century, however, with sales maturing in its traditional markets, Tetra Pak is seeing its most significant growth coming from emerging markets.
Operating in such under-developed markets generates myriad social and economic challenges but, for those companies who succeed, there is the promise of vast rewards in the future.
And it’s in markets like Kenya, China and Thailand that Tetra Pak is looking to marry its corporate and social responsibility obligations with its ability to lay the foundations for future growth for the company.
Today (23 August), the company spoke out about its initiatives in the developing world. The company has, for example, invested millions of pounds in setting up school milk programmes in Kenya and Thailand in an attempt to improve child nutrition.
Initiatives like this are part of Tetra Pak’s commitment to work towards the UN’s Millennium Development Goals, which strive to reduce poverty and improve the living standards of millions of people in the developing world.
Tetra Pak’s actions are laudable. The company’s investment in school milk programmes is helping to cut the dependence of some countries on food imports; local agricultural sectors are being developed; and kids are getting healthier. In Nigeria, used milk cartons are even being used as roof tiles.
Nevertheless, underlying all this is the development of future markets for the company. Such initiatives have created a “milk-drinking generation in Kenya”, said Ulla Holm, global director of Tetra Pak’s Food for Development programme. “It’s a way of developing business in developing markets.”
For a company whose very origins are based in innovation, Tetra Pak seems to have found an inventive way of meeting the needs of consumers in developing countries while creating new markets for its famous packaging.
Digestion IS important - just ask the girls
21 Aug 2007 16:15
In the corporate stampede towards meeting the consumer’s “need” for “healthier” products, hundreds, if not thousands of products, have been launched around in the world in recent months.
With every launch comes the associated press release, often with what appears to be a series of outlandish claims backed by the latest so-called “survey” of consumer attitudes.
And today (21 August), it seemed that General Mills had fallen into that trap with the announcement of the launch of Yo-Plus, a probiotic yogurt, in the US.
General Mills declared Yo-Plus would meet growing demand among US women for a way to better regulate digestion. And how did the company know that? Through the ubiquitous survey.
“A national survey,” General Mills claimed, “revealed that nearly 50% of women are extremely concerned with their digestive health and discuss the issue frequently.”
Really? Is that what women talk about now? “Digestive issues?” Doesn’t seem likely.
But alas, a quick survey around the just-food office, proved (once again) how little I know about the female of the species.
“Women claim to feel bloated a lot – probably more so than men because women are more conscious of their looks and weight – so women would be keen to try anything that would make them feel lighter and less bloated,” one said.
Perhaps, sometimes, us journalists can be a little too sceptical.
Troubled waters leads to UK veg shake-up
20 Aug 2007 16:13
The recent floods in the UK look to have been the final straw for the owners of one of the country’s leading vegetable groups.
Christian Salvesen, a London-listed company with interests in sectors ranging from aviation logistics to building materials, has decided to offload its vegetable processing business, Christian Salvesen Foods.
The decision comes just months after the company warned of a “pea crop disaster” in the UK due to the severe wet weather in the country this year.
The happy owner of the Salvesen business, Belgium-based Pinguin, had also been vocal in its warnings on the impact of the wet weather on the UK vegetable sector.
Earlier this month, Pinguin boss Herwig Dejonghe claimed that it was a matter of "national interest" for UK retailers to help the sector ride out the recent severe floods in the country.
However, it seems that economic realism has outweighed the somewhat romantic notion that UK retailers, themselves embroiled in something of a price war, would raise the price of a packet of peas to boost the revenues of their vegetable suppliers.
Pinguin knew it had a better chance of flourishing after the floods if it acquired the scale to become the key supplier of frozen veg to UK retailers, rather than simply hoping for the help of the supermarkets.
As for Salvesen? No doubt the company will be relieved it can focus on the somewhat firmer foundations of bricks and mortar.