Coveney: We did good job in managing through horsemeat crisis

Coveney: We did good job in managing through horsemeat crisis

Convenience food group Greencore has experienced an eventful few years. In 2011, the Ireland-based manufacturer was beaten to the acquisition of the UK's Northern Foods. This year, Greencore was caught up in the horsemeat contamination saga that rocked the European food industry. However, the company has continued to expand in the UK and in the US. In part one of the just-food interview, Michelle Russell speaks to chief executive Patrick Coveney about the challenges of operating in a difficult UK market.

Greencore is a major player in convenience food in the UK, supplying the country's major grocers with products from sauces and ready meals to sandwiches and puddings.

Chief executive Patrick Coveney, who took the top job at Greencore in 2008, is well placed to discuss the opportunities ahead for the company but also the challenges it has faced - not least the horsemeat scandal that shook the food sector in the UK and across Europe earlier this year.

Greencore was caught up in the saga when, in February, UK retailer Asda recalled fresh bolognese sauce manufactured by the company. The recall raised eyebrows as, until that point, the products found to contain horse DNA were all frozen lines.

Speaking to just-food in Dublin this autumn, Coveney talks candidly about Greencore featuring in what became known as horsegate.

"When we were originally drawn into this on 15 February, my first reaction was one of genuine surprise. Both because of the short shelf-life nature of what we do, and also because of the technical supply chain scrutiny that we have, I was genuinely shocked that one of our customers had come up with a positive test for the presence of horsemeat in our product," he says.

However, he adds: "Our hypothesis was: 'Obviously this is a science-backed test and it's accurate so we have contamination in our supply chain, so let's investigate how that happened and let's assess the risk for other parts of our group'."

The scandal rocked the industry and provided a major wake-up call for manufacturers and retailers about their supply chains, bringing the relationships between actors all along the chain into focus. To try to reassure consumers stunned by the affair, UK regulators instructed retailers and their suppliers to test all their products.

"Our levels of technical scrutiny and our supply chain processes and all the subsequent testing results we did were very reassuring," he says. "While we were surprised and very disappointed, we were reassured by the customer support we got and we were reassured that it looked like an isolated incident. We ended up concluding in early March that our supply chain had never been contaminated in the first place. That was the specific incident as it related to Greencore."

More broadly, however, Coveney says there were some "important lessons" for the food industry in the wake of the saga, one of which was looking at how complex the supply chain had become.

Coveney says there should, for example, be an "ongoing science-driven testing process" for species verification. He also insists there is a need to "root out" some of the middle-men or brokers that sit in parts of the protein industry.

He adds: "[There is also] a desire for retailers and from consumers to have more local provenance in terms of ingredients, and a requirement for more accurate labelling that helps consumers navigate through all that."

These changes, Coveney says, are playing out now, but he adds: "You still have a set of product categories, like ready meals for example, that had had five years of tremendous growth attached to them, that have suffered very severe volume declines in February/March/April, and are still very flat versus the style of growth that you've seen in those categories."

Sales of Greencore's ready meals in the UK fell by 30-40% in February due to the horsemeat scandal. That is significant given around 15% of the company's entire business is in ready meals, and most of that involved in beef.

During the firm's first-half earnings update in May, Greencore said its UK business had yet to fully recover from horsemeat. Company profits were up but the impact of the scandal, added to continued caution among UK consumers watching their expenditure, created a challenging backdrop. The group warned about "tough" UK market conditions for the remainder of the year. The market, it said, was showing "little or no volume growth".

The company is due to release its full-year results next week, from which Coveney is expecting to show a "strong recovery" in volumes in the UK in the fourth quarter across its business.

He predicts "very good growth" in its food-to-go business. As for ready meals, Coveney says "encouraging" like-for-like revenues should be expected. "Given this year we've absorbed all of the volume declines following the horsemeat scandal, it gives us potential for good momentum going into next year."

So, does Greencore feel it has fully recovered from the horsemeat scandal and has consumer confidence returned to the ready meals category? It seems the jury may still be out.

"I hope we've done a good job in terms of both how we managed our way through the crisis and the subsequent work we've done to enhance confidence further still in terms of the integrity of the supply chain. I strongly believe we have," Coveney says.

"You then have a task as to how the brand owners in ready meals, which are principally the retailers, re-establish confidence. Then through product development, consumer engagement and either in-store or via direct consumer communication, we build a combination of confidence, excitement and a reason to buy into the ready meal category. I would be quite hopeful that would play out positively as we get into this winter and into 2014. The underlying consumer trends are still very supportive of a ready-meal proposition, and the sense would be that consumers have moved on from being concerned about the specifics of contamination like horsemeat and are more looking for just great products, but we'll have to see."

The horsemeat scandal is not the only major setback to have hit Greencore since just-food last spoke to Coveney in 2009.

In 2011, a plan to merge with UK rival Northern Foods turned sour when the company was gazumped by poultry magnate Ranjit Boparan. Greencore, however, quickly returned to the saddle and whipped its chequebook out to buy UK desserts-to-sandwiches maker Uniq in a GBP113m (US$178.8m) takeover deal months later.

Coveney admits the Northern Foods deal was "an attractive proposition" and one that made sense. But, he says with a smile, it left the firm like "a bride standing on the altar with no-one to get married to". After a brief pause, he adds: "With some inherent vulnerabilities that came from that."

Coveney appears unperturbed by the setback, however, and with the benefit of hindsight, says it left Greencore "in a good place".

"I don't apologise for the fact at all that we were there because clearly that was in the interest of our shareholders. The delivery we've had from the Uniq deal, which was a very, very sizeable transaction, a transformational transaction, has been absolutely excellent and that's driven both the economic performance of the business but also it's broadened our customer mix and our capability set. It's just made us a much better business.

"If you asked us now with the benefit of between two and three years of time since Uniq happened and the initial engagements with Northern began, I think from a shareholder perspective, we are now in a better place than we probably even would have been if we'd done the merger with Northern Foods."

In any case, the Uniq acquisition proved, following the disheartening dissolution of the Northern deal, that Greencore still had an appetite for M&A. Indeed, its efforts to build scale have continued unabated. Last year, Greencore acquired a UK ready-meals plant owned by Hain Celestial. It has sold off a desserts facility to picked up through the Uniq deal to German giant Muller but, the company, meanwhile, has made two acquisitions in the US.

What are Greencore's M&A plans now? "There is always room to do other things," Coveney says.

However, he adds: "The momentum that we have in our business now, probably more than at any other point in our history, doesn't require us to have to grow or to have to develop our business through acquisition.

"We've got lots of discreet opportunities that we're chasing down now and we've got a strong and rapidly growing business in America that is complimentary to what we're doing in the UK. So we've got a board and a management team and a set of shareholders that are very comfortable with that strategy. If there are opportunities to do things that fit with that, then we will be happy to pursue them. But there is not an urgency for us to."

Click here for part two of just-food's interview with Coveney in which he talks about Greencore's US business and its long-term growth ambitions.