Confectionery: Interview: UK firm Bon Bon Buddies turns to brands, overseas to drive growth
Howarth wants Bon Bon Buddies' new brands to account for fifth of business in five years
Amid challenges at home, UK confectioner Bon Bon Buddies is looking for new avenues of growth.
The Wales-based firm was found two decades ago by Chris Howarth, who remains its managing director.
Howarth has built a business supplying licenced confectionery in the UK, Europe and further afield, as recent deals in the Middle East highlight. In the last year, Bon Bon Buddies has added to its portfolio of Disney and Barbie products with a stable of its own, branded ranges, most recently with the namesake The Bon Bon Buddies, a "pocket-money" kids confectionery line.
And it is overseas markets and a move into branded confectionery that Bon Bon Buddies hopes can boost the business's growth.
In the year to the end of April 2013, Bon Bon Buddies' turnover hit GBP37.2m (US$61.9m), down from the GBP39.5m generated a year earlier.
Sales from operations now "discontinued" in the 2011/12 year were not recorded in 2012/13 but, even so, turnover from what Bon Bon Buddies calls its "core operations" dipped from GBP37.9m.
It was expansion outside the UK that helped boost the company's top line, with domestic sales down 6%.
Some 60% of Bon Bon Buddies' sales are made outside the UK. The company has subsidiaries in France, Germany, the Nordic region and Poland covering the EU and helping it move into the Middle East, where it has just entered Saudi Arabia.
Bon Bon Buddies has ambitions to continue to build its international business, although Howarth and his colleagues are careful in how it grows; in the 2012/13 period it stopped direct operations in Spain due to the challenging trading conditions in the market. Its accounts also show moves to decrease its "non-prime" sales - those "made at below standard margin" - and increase "prime" sales have paid off, with the company's profits rising year-on-year.
Bon Bon Buddies reported a net profit for the year to the end of April of GBP479,000. It says the "key measurement of effectiveness of its operations" is EBITDAE (EBITDA also minus an E that stands for exceptional items), which rose from GBP220,000 to GBP1.5m.
Speaking to just-food at the ISM confectionery exhibitition in Cologne in January, Howarth says the listing in Saudi Arabia makes the market its seventh in the Middle East. However, the company has set its sights further afield.
"We want to enter an emerging market in the next three years," Howarth says. "We're working on a couple at the moment. We want to have another footprint outside Europe and the Middle East within three years. When I say footprint, I mean footprint of a reasonable scale."
China, India and Pakistan on a shortlist of targets, Howarth reveals. Around 55% of Bon Bon Buddies' products are sourced from China, which could suggest that market heads the list.
Howarth insists entering the market would be "extremely challenging" and outlines the problems that face companies operating in China around issues like intellectual property. However, he is quick to point to the country's potential.
"I was talking to one of our Chinese suppliers yesterday. His business has grown from zero to US$10m in two years. His US business is $20m and it has taken him 15 years to do that. But he has had major, major problems of people ripping his range of. Some of his products are quite sophisticated but his competitors have absolutely ripped him off," Howarth says. "But the volumes he is doing in China are mind-boggling."
As well as IP, another potential issue in China could be product quality. Bon Bon Buddies sources products including sugar candy, "plastic moulded novelties" and gift items from China. Such arrangements, Howarth says, demand a lot of time and resources investigating suppliers - and trust. However, he says there have only been "very, very few occasions" when the company has had its fingers burnt.
"We work for long-term partnerships. There's a number of companies in the confectionery industry that are producing in one place, they then get the products two cents cheaper and they move. We're not like that," he explains. "For the licence range, we have to get it approved by Disney on the ethical side, it's a big investment in time and cost that in no way do we want to be flipping. In China, the structures of the businesses are such that they tend to be owner-manager businesses. You tend to meet the owner of the business and you have a relationship."
Back home, Bon Bon Buddies is working on growing its new owned ranges, which Howarth hopes will grow to become 20% of the business within five years.
However, the spotlight is growing on sectors like confectionery in areas like nutrition and marketing. Working in the sector for two decades, Howarth is more than aware of such issues, particularly with a portfolio that sells products under brands like Disney and Barbie, as well as football teams like Paris St Germain.
Howarth insists the way Bon Bon Buddies' products are developed means "consumption can be managed by parents". And he argues the recent scrutiny on sugar, which has caused much discussion within the sector, could lead to unintended consequences.
"We have to be careful. We're in the business of selling treats for kids and we should keep that in perspective," Howarth says. "Also, there have been a number of drivers in the industry to find other solutions for sugar and then you could be into other additives that are more harmful. My view is that formulation should be kept as simple and original as possible."
Another part of the business Bon Bon Buddies is looking to expand is its role as a distributor for other confectioners. At present, Bon Bon Buddies is a distributor for German confectioner Alfred Ritter GmbH & Co. and Austrian candy firm Pez in the UK. It also handles Pez's products in Poland, where it acts as a distributor for Irish firm The Jelly Bean Factory. "We are continuously looking to expand it," Howarth says. "They must not conflict with our core product and they must be a point of difference to what we have. Then it is adding value to our complete business."
Sales in the UK may have been under pressure but Bon Bon Buddies is looking at ways to build a business in a challenging market.
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