Blog: Dean BestOn alert as Dubai's debts highlight fragility of recovery

Dean Best | 30 November 2009

"We're happy enough with how we're doing - but we're on alert to see how stable the consumer environment remains."

Even for Patrick Coveney, chief executive of private-label group Greencore, a business that has made great strides in the last 12 months, now is not the time to get swept away by thoughts that we are now on the road to a firm and long-lasting recovery.

Coveney spoke to just-food last week in the wake of Greencore's annual results, which showed the company's underlying profits were up almost 8%. As a convenience food business, the last year has proved a tricky one for Greencore, with demand for a lunchtime sandwich or an evening ready meal weakening as cash-strapped consumers looked to save money by cooking from scratch.

However, Greencore has seen business steadily improve since the spring and, while Coveney acknowledged it would be unwise to "turn one swallow into a summer", he said there were signs that demand for ready meals was starting to recover in the UK.

Moreover, with Greencore also ready to step up its presence in the US, the outlook for the business is looking rosy.

Nevertheless, the food business remains, as Coveney put it, "a brute of an industry" and although the sector has not had the problems that others have endured in 2009, the Greencore boss' caution on the economy is wise.

In recent days, concerns over debt levels in Dubai - which has interests across the world and is, for example, the world's number three port operator - have spooked the markets and emphasised just how fragile the recovery remains.

With headlines stating that the likes of France and Germany have moved out of recession, it is easy to think the worst is definitely over. But, with the economic growth seen in recent quarters coming from a low base and being fuelled by fiscal stimulus packages that cannot go on forever, questions need to be asked about demand in the short- to-medium term. Tax increases look inevitable and what then will happen to consumer demand?

For some, including HJ Heinz boss Bill Johnson, shoppers already remain committed to chasing the best offers. "Consumers are focused on value, which they are increasingly defining as price," Johnson told analysts last week as the US food giant issued its half-year numbers, with weakness in North American and European sales hitting profits.

Heinz's response is to up its marketing spend by up to a quarter in the next six months. The increase in marketing dollars will undoubtedly hit margins, suggesting that all in the food sector - from the boardroom to the trading floors - will need to remain patient (and alert) as we enter 2010.


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