The just-food interview - Quorn Foods CEO Kevin Brennan - part two
Quorn wants to double its markets within five to ten years
Domestically, UK-based meat-free group Quorn has seen sales climb but the company - and CEO Kevin Brennan - wants to also continue to build its business beyond British shores. In part two of the latest just-food interview, Brennan analyses the company's overseas performance and prospects.
Quorn Foods, the UK-based meat-free group, is enjoying a period of robust sales growth in the UK - but the business, owned by Exponent Private Equity, has international ambitions.
In 2012, the last full year for which figures are available, the UK accounted for 72% of Quorn's revenue. In 2013, Quorn's UK sales were up 11%, suggesting its domestic market continued to account for a similar chunk of the business last year.
Quorn CEO Kevin Brennan says the company was "delighted" with its domestic performance in what he calls a "flat volume grocery market" in the UK.
However, Quorn has carved out positions in select key overseas markets, including Australia, the US and the Nordic region.
And speaking to Brennan this week at Quorn's HQ in north-east England, it is clear he and the company has set their sights on further building its international business, for all the growth at home.
"The opportunity is global. The category now exists - as in you could to go into a typical grocery store and find it - in about 40 countries. We're in 12 to 13," Brennan tells just-food. "And those markets are everywhere - southern America, most of Europe, a fair amount of Asia. And they're all growing."
In the months after Exponent acquired Quorn from Premier Foods plc in 2010, Brennan had described the US and Australia as the international markets with the biggest potential. The US was already the largest overseas market for Quorn, while the company had just entered Australia.
Three years on, Brennan says Quorn's performance in the two markets has been good, although the company encountered some challenges in the US last year. Sales in the US fell, although Brennan insists the drop was not due to any concerns across the Atlantic over the safety of the product.
In 2011, US consumer group Center for Science in the Public Interest, pointing to cases of illness, made announcements urging the US Food and Drug Administration to revoke its 'Generally Recognized as Safe', or GRAS, designation for the mycoprotein used to make Quorn.
However, Brennan says Quorn has "dealt" with those concerns. "We have given all of our data to independent experts. They have come back and said it's an incredibly safe product - 'as safe as a potato' was one of the lines. People can get a reaction to any protein. Our [rate] is one in 150,000 people," Brennan says.
The drop in US sales last came as competition intensified, he explains. "We had a tough year [in the US] last year. We had two very good years, continued to grow and got expanded into [retailer] Target Corp. Early last year, Wal-Mart called us and asked if they could stock the product. They took us into 300 stores and in December they took us to 1,000 stores."
However, he adds: "ConAgra Foods launched a very low-cost, very poor-quality product which didn't help the category, called Lightlife," Brennan says. "It was already in chilled but they brought it to the frozen sector. It was almost US$2 cheaper than our product. And then a chunk of private label came in. It just made our pricing too high. We've just been going through a price reset to fix that and it takes time."
Brennan has confidence in Quorn's prospects in the US. "That was a disappointment but actually out of it we put our own team in over there. We had had a distributor [but] we just opened an office this month in Chicago. The retailers are very big fans of Quorn, they can see the opportunity, a lot of the trade are talking about our non-GMO status being an opportunity, we're not in chilled and we're in not in foodservice, so there is a lot of white space. Sales were down but it's not dampened our enthusiasm. We should have a very good year this year."
Australia, identified alongside the US as a key market for Quorn, has grown "very strongly" since the business entered the country, Brennan says. Through a tie-up with J.R. Simplot's local arm, Quorn is growing at "20-30%", he reveals. "We've set the budget this year at 20% and we'll be disappointed if we hit only 20%. We're going really well in Australia and the category has got plenty of headroom to grow."
Quorn's tie-up with Simplot in Australia led the company to reassess its business in the Nordic region, where, Brennan admits, sales had "flatlined". Two years ago, Quorn signed a distribution deal for the region with Findus Group and Brennan now puts the Nordic markets alongside Australia and the US as countries that are "core markets with great growth potential".
Quorn entered South Africa, its latest market, four months ago, underlining the company's international ambitions. However, Brennan is at pains to say Quorn wants to expand overseas with care and not go around planting flags.
"Our approach is we want to build the brand by market. We could probably export to two-thirds of the markets if we found the distributor and shipped it," Brennan says. "We'd like to build it like Australia and do it properly rather than get into as many markets as we can."
That said, Brennan does reveal some medium-term ambitions. "The last couple of years we have done a lot of work to fix and improve what we inherited with our in-market representation. Over time, we'd expect to be in double the countries we are in. In five to ten years, we should be in double the number of markets we are now in," he says. "There is absolutely no question we have the best product in the world, we are uniquely dedicated to the category, where most others are sub-sets of companies and the category is growing around the world. We would be missing a big opportunity not to go after that."
Furthermore, Brennan does want to see Quorn's overseas business accounting for more than the 28% of sales it did in 2012. However, he says with a chuckle, he hopes the company's performance in the UK will make that a tough task. "Over time, you'd want to see international being a bigger proportion but my objective is for that to be a really difficult objective," he says. "With the UK growing strongly, that means we'd have to be of strong double-digit growth internationally to start eating into that share."
With UK sales up 11% last year (up 13% in volumes terms), Brennan says Quorn is a "real stand-out brand" in the country, which begs the question: what plans does Exponent, which acquired the business in 2010, have for its ownership, given the assumption the standard length of private-equity backing is three to five years?
"At the moment, we are very focused on sustainably growing the business. Us and Exponent remain confident that, at some point when they want to sell it, this isn't a business that should be difficult to sell. If there's growth in the UK and international, well, there's not many of those out there. It sits on really strong trends of sustainability and health," Brennan says. "We're still very much in the build-the-business phase. The private-equity cycle on food tends to be longer now but the more we're building up that rate of growth, the more attractive it will be."
The Quorn chief asserts "in this game you take it year by year" but, when pushed, suggests there would likely be firm interest from trade buyers in the business when it does go up for sale.
"There's probably more secondary buy-outs than you'd have expected in the food sector. We haven't really thought about it other than you'd expect a lot of trade interest because of our long-term potential. That's something to sit down with investment bankers on and plot a plan," he says. Exponent gets regular enquiries; it's never been short of people interested in it."
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