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May 29, 2007

Patak’s buy adds spice to Associated British Foods

Associated British Foods, the UK group behind Kingsmill bread and Twinings tea, has added a bit of zip to its grocery basket with the acquisition of Patak’s, the Indian cuisine business. Dean Best reports.

By Dean Best

Associated British Foods, the UK group behind Kingsmill bread and Twinings tea, has added a bit of zip to its grocery basket with the acquisition of Patak’s, the Indian cuisine business. Dean Best reports.

Patak’s is the company behind the curry pastes, chutneys, pickles and poppadoms devoured by consumers up and down the UK as they eat the country’s favourite dish – curry.

Today (29 May), ABF announced it has won what insiders claim was a competitive race for Patak’s. The future of Patak’s, set up in 1957, had been the subject of speculation since March when the company’s founders decided to take a step back and take stock of the business. And now, industry watchers believe Patak’s sale to ABF could represent that much-coveted “win-win” situation for both parties.

“It’s a good acquisition; ABF has acquired a good brand. The marketplace is growing in terms of ethnicity and Patak’s has a brand authenticity,” industry analyst Darren Shirley told just-food.

Financial details on the deal were not disclosed although analysts have talked of a price of around GBP100-125m (US$198-248m) for Patak’s.

Strategically, it could be argued that Patak’s will help breathe some life into ABF’s grocery business. ABF is one of Europe’s largest food companies in terms of market capitalisation and has a substantial presence in the primary food and ingredients sectors. The company, for instance, accounts for half the UK’s sugar requirement.

However, the company’s grocery arm has suffered somewhat of late. Profits from that part of the ABF empire tumbled almost 24% in the six months to the end of March with ABF citing a “poor performance” from its Allied Bakeries business. Competition in the UK bread market has hit volumes and although ABF reacted quickly with the relaunch of Kingsmill, the addition of Patak’s to the company’s grocery stable will help take the sting out of those difficulties.

Meanwhile, Graham Jones, an analyst at Panmure Gordon, said ABF’s manufacturing and distribution muscle inside and outside the UK will help boost Patak’s presence internationally. Around three-quarters of Patak’s sales are still made in the UK, Jones said. “Patak’s doesn’t have a great deal of assets overseas but ABF has huge grocery operations in the US and Australia so it can give Patak’s some impetus in its core countries.”

When the Pathak family announced the strategic review back in March, it was perhaps a sign that they had taken the business as far as they could and would need a partner to fulfil their international ambitions. ABF aims to combine Patak’s with its existing world foods business, which includes brands like Blue Dragon and Westmill Foods. Patak’s chairman Kirit Pathak will stay with the business and take a similar position as head of the combined world foods business, while his wife Meena will become a director.

Early indications are that there will be little impact on the 650 UK employees at Patak’s although some posts could be shed as ABF looks to integrate the business. However, what is clear is that ABF has secured a well-known, popular Indian cuisine brand with strong positions in the UK retail and foodservice channels, as well as potential overseas.

“Where Patak’s is strong is its authenticity – there are not too many brands like that out there,” Jones said. And with ABF’s significant presence in the US and Australia, Patak’s could add a certain amount of spice to the UK company’s grocery business.

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