Dean Best met Canada-based natural and organic food group SunOpta COO Tony Tavares

Dean Best met Canada-based natural and organic food group SunOpta COO Tony Tavares

Canada-based natural and organic food group SunOpta supplies a number of the world's largest food makers and retailers with products from soy ingredients to private-label snack bars. The company is undergoing significant change and has decided to offload non-core assets and focus squarely on food. Dean Best met SunOpta COO Tony Tavares at international trade show Anuga in Germany to discuss the company's ambitions.

SunOpta seems to be a company with a renewed focus. In recent years, the Canada-based company has sometimes made industry headlines for the wrong reasons. In 2008, SunOpta revealed inventories had been over-stated, which led to a write-down, a restatement of its 2007 results (in which profits were lower), shareholder lawsuits against the company and the dismissal of its CEO and CFO.

When the dust settled, SunOpta retained its CEO and Steve Bromley continues in the role to this day, leading the company's moves to become more focused on food manufacturing.

Alongside Bromley is COO Tony Tavares, who joined SunOpta from Canadian poultry processor Maple Lodge Farms in the spring of 2008 after the disclosure of the accounting errors. It has not all been plain sailing - SunOpta made losses in 2008 and 2009 due in part to costs relating to the accounting affair but also to one-off impairment charges and costs from restructuring parts of the company. In 2009, revenues also fell but, in March 2010, when SunOpta issued its results for the fourth quarter of 2009 and the year as a whole, Bromley said the company was continuing to see "improvement" from its "core business segments".

It was in the spring of last year when SunOpta signalled its plan to focus on food manufacturing, with a decision to sell its Canadian distribution operations to US distribution group UNFI. Over the last 12 months, SunOpta has pursued its goal through other deals - including the sale of a frozen-fruit business in Mexico and the acquisitions of sunflower firm Dahlgren and cereal bar maker Edner. In September, the company also announced that it would look to sell its majority stake in Opta Minerals, a supplier of products to industrial sectors like steel. Meanwhile, SunOpta also owns a 15% stake in biofuels firm Mascoma and there are plans to list that company.

SunOpta, a business that sells ingredients to the likes of Kraft Foods and PepsiCo, co-packs for companies like Hain Celestial and makes private-label products for retailers from Costco to Whole Foods Market has, Tavares tells just-food, a new target. "We're trying to position SunOpta as a pure food company, focused on natural and organic and focused on manufacturing food and not distributing food," he says. And it is focusing on the natural and organic sector. "We've had a look in the last two years in the spaces we are in and we like the natural and organic food space. We think it's going to continue to be a growing part of the food industry."

just-food met Tavares at Anuga, an international trade show held every two years in the German city of Cologne. SunOpta's presence at the show, aside from meeting key contacts ("This show saves us God knows how much in plane fares," Tavares says), is to promote its Tradin Organic arm, which supplies ingredients for manufacturers. The acquisition of Tradin in 2008 meant SunOpta became a more international business. Tavares says 30% of SunOpta's revenue is now from markets outside North America and he says the company believes it will become more international.

"In our mission statement [which says SunOpta aims to be a "global leader in natural and organic food products"], we kept the word global. We debated that intensely and we think, to grow in the natural and organic space, you have to have an eye everywhere. We think we're in the right space and have the right products, so if we see an acquisition opportunity that fits in, that's what we're looking for," he says.

Tradin Organic is part of SunOpta's international foods group, one of four divisions within SunOpta's core foods business. Of the company's total US$898.9m turnover in 2010, $818.1m came from these four divisions and the international arm was the second largest, with sales of $232.6m. Outside North America, SunOpta's international division sells organic ingredients and private-label products from frozen fruit and vegetables to sweeteners.

SunOpta's food business also includes an ingredients division that encompasses a business that is the world's largest producer of oat fibre and it also features a fruit group that manufactures natural and organic fruit and makes beverage products for retailers.

The largest food division, however, is SunOpta's grains and food group, which sells soymilk, organic broths and snacks under the Sunrich Naturals brand, as well as a range of private-label products from soups to sunflower snacks. Last year, the division generated sales of $365.5m.

Tavares is upbeat about SunOpta's potential for growth. The organic sector remains in growth in the US despite the pressures that the downturn is putting on consumer spending and Tavares says concerns over food safety and increasing consumer awareness of what goes into food will continue to drive the category.

However, the potential of organic means, Tavares argues, that over time, the major conventional food manufacturers "will make major steps in organic", although he says the industry remains too small for any investment to be imminent.

SunOpta plans to reinvest some of the proceeds it hopes to receive from the sale of its non-core assets into acquisitions. The sectors in which SunOpta operates, Tavares says, are fragmented and he expects there to be consolidation. He admits that SunOpta has "targets identified in each one of the segments" but reveals that the company could be more likely to invest further down the supply chain. "If there's a tendency, it would be to acquire and invest more down the chain, closer to the end-retailer and consumer-versus industrial products," Tavares says. Around 40% of SunOpta's sales are from consumer products at present.

He indicates that SunOpta would like to focus on building its private-label business. SunOpta owns brands - as well as Sunrich Naturals, the company sells frozen fruit and vegetables under its Pure Nature brand - but Tavares says the business is looking to expand its own-label operations. He says SunOpta tried to relaunch some vitamin supplement brands two years ago but the move did not work out, which has convinced the company its expertise is in own label. "We're not branders. We're going to focus on private label," he says.

There is, he insists, plenty of room for the own-label sector to grow both in the US and the EU. "The perception of consumers that private label as being is something of lesser quality is less and less true," he says. "Private label is more developed in the UK probably than anywhere else on Earth but there is still lots of room to grow in the US and EU."

However, SunOpta will still look to use its brands for different reasons, although Tavares says the company does not plan to invest a huge amount of money behind the products.

"In general we will use our own brands to get sales activity started for a new product as well as for use in retailers who do not have the scale to justify their own private-label brand. We do limited marketing support for these brands. We have no plans to support with consumer marketing campaigns," he says.

At present, the majority of SunOpta's revenues are from industrial products and the company, for all the potential it sees in its ingredients sectors, is faced with the problems of dealing with volatile commodity costs - and trying to pass on those costs to consumers.

Sunflower costs, for example, have weighed on the business this year and Tavares admits that volatility in commodity prices is challenging. The company's success in passing cost increases on depends, he says, on the sector. There have been times this year where SunOpta, operating in a fragmented sector with rival suppliers fighting for contracts, has decided to hold back from asking for price increases. "I'd say overall we've managed it. In a couple of our divisions this year, it's been harder. We've held on and absorbed more costs than we'd have liked in order to keep the business," Tavares says.