“It’s a staggeringly austere budget, the cuts are deep and it will hurt.”
The stark words of one analyst last week after Ireland announced its plans to tackle the country’s debt crisis. Ireland’s woes have dominated business headlines around the world over the last fortnight as Dublin grappled with an economy that spun out of control and almost brought financial ruin to a nation once known as the Celtic Tiger.
Wednesday’s (24 November) emergency budget, which was a pre-condition for financial support from the EU and the IMF (the Irish government agreed an EUR85bn bail-out last night) will likely have severe consequences for the country’s citizens. According to some estimates, the average Irish household will have to pay up to GBP3,000 in extra taxes. The austerity measures will see public spending slashed, civil service jobs cut, the minimum wage lowered and taxes rise.
Since the collapse of Lehman sparked the global economic downturn, the food industry has clung to the maxim that we all need to eat. Food, of all industries, should be one of the most recession-resistant, so the theory goes. However, in Ireland, the food sector has suffered (an analysis we published in March 2009 demonstrated just how tough trading had already become for the country’s food manufacturers and retailers) and, after last week’s announcement of four more years of pain for many Irish households, the prospects for the industry in Ireland seem as bleak as ever.
The publication of Ireland’s austerity package came 48 hours after data from Kantar Worldpanel showed that the Irish grocery market had, in the 12 weeks to the end of October, recorded its highest growth since February 2009. Will Dublin’s IMF-backed four-year plan snuff out those sparks of recovery?
Industry association Food and Drink Industry Ireland believes the budget will bring “a lot more clarity” to Ireland’s economy and could provide “more opportunities” for consumer sentiment to improve. However, as one leading economist told just-food last week, looking ahead, the key question is “whether or not consumers have fully anticipated the degree of pain they’ll take”.
Across the pond, our US readers will be heading back to work today after the Thanksgiving celebrations on Thursday and into the weekend. However, on Thursday, just as some were about to tuck into their turkey, senior management at US food group Del Monte Foods were shaking hands on a US$5.3bn takeover offer for the business from a private-equity consortium led by KKR.
KKR, alongside Vestar Capital Partners and Centerview Partners (the latter has also just snapped up US own-label pizza maker Richelieu Foods) have moved to buy Del Monte in what is, according to Reuters estimates, the largest leveraged buy-out in the US this year.
Del Monte, which sells a range of canned fruit and veg products, is also one of the largest players in pet food and is behind only Nestle in the US pet-food sector. Pet snacks and pet foods are among the fastest-growing parts of the FMCG space, and almost 70% of the operating income Del Monte earned in the year to 2 May came from pet products. The fact that those pet products account for under half of Del Monte’s turnover demonstrates the profits that are to be earned in from selling dog biscuits and the like – a likely key consideration for KKR and its partners.
Thanksgiving Day was also the day that the UK’s most famous turkey farmer passed away at the age of 80. Bernard Matthews, who began his namesake business in a one-bedroom flat in the 1950s, died after a long illness.
With some of the negative press the company attracted in the last few years (think avian flu or the furore over turkey twizzlers), it’s easy to forget what this entrepreneur of the food industry achieved. Matthews’ death was front-page news and among the lead items on TV news bulletins in the UK on Friday, an extraordinary feat for a food manufacturing figure. The company’s longevity, despite its setbacks, is a testament to his position on family tables around the country for so many years.