Gluten-free foods might be niche but they are an everyday essential for coeliac disease sufferers and those with other sensitivity disorders.
It’s a consumer group Dr. Schär has sought to serve since the business was founded in Italy. Since its inception more than four decades ago, the company has seen revenue increase to EUR480m (US$520m) and another EUR20m is targeted this year.
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Despite the growing assortment in free-from aisles suggesting appetite for gluten-free foods is rising, Dr. Schär chief executive Hannes Berger says the category has witnessed the slow demise of the fad or lifestyle era. However, that hasn’t stopped the company from expanding into new geographical markets and doubling the proportion of revenue generated outside of Italy.
The list of ingredients causing gluten sensitivity is long, from wheat and barley found in bread and beer to wheat derivatives such as durum in pasta. Wheat is also a common thickening component used in sauces and condiments and can even be found in some confectionery products.
Growth in gluten-free in some countries is hindered by a lack of diagnosis of coeliac disease, which if overcome would provide further global impetus to the category, Berger tells Just Food.
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A Dr. Schär veteran, Berger was recently appointed as CEO having headed up the company’s North America business, while overseeing the UK and South American operations too.
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By GlobalData“If I go back in time, the gluten-free market was growing significantly, not only in Europe but also in the US because there was hype behind gluten-free – it was becoming a lifestyle, predicated by people from Hollywood, celebrities trying to start a gluten-free life,” Italy-born Berger explains.
“But that is something which is now coming down in a way and substituted, especially in the US, by other, let’s say, special requests on nutrition. For instance, people are looking for a vegan, vegetarian or keto diet, and there’s a little bit of moving out from the gluten-free space.”
Dr. Schär saw an uptick in demand during the pandemic as health considerations came to the fore but that spurt has tailed off somewhat, he adds. “For us as a company, the main focus was always people suffering from coeliac disease and gluten sensitivities and that is not going away. ‘Is that market growing now as it did before’? probably not. We are now in the single digits. That doesn’t mean for us there are not a lot of opportunities worldwide.”
International agenda
The business began work to enlarge its sole US plant in 2021 to add 42,000 square feet of new space to the Logan Township facility in New Jersey. Over the past few years, Dr. Schär has acquired single factories in Brazil and Turkey and is now focused on expanding existing sites rather than buying new ones.
Another was added in the UK last year via a business acquisition to give family-owned Dr. Schär a local manufacturing presence with the purchase of GDR Food Technology, a gluten-free bakery producer in Scotland.
It also has three plants in Italy, two in Germany and one each in Austria and Spain, along with non-manufacturing facilities in France, Canada and Mexico, Berger confirms.
“International expansion has been on our agenda over the last two decades. We started by exporting to a lot of countries in Europe, then North Africa, South Africa and Eastern Europe. Then we started in 2007 in North America, and then also in Brazil,” he says.
“With that expansion and the growth of the business, we decided we needed to produce locally because one of the biggest parts of our business in terms of gluten-free categories is bakery goods and bakery goods have a limited shelf life. And you want to have the product fresh, close to the consumer.
“That’s the reason why our company looked to have manufacturing sites in the biggest markets, especially outside Europe. That’s why we bought the manufacturing sites in Brazil and Turkey. Even though these are small markets, they are growing markets.”
After acquiring new facilities over the past five years, Dr. Schär will now “leverage” existing capacity, with, for instance, another new production line to be added at the New Jersey site to serve US, Canadian and Mexican consumers. A similar project is planned for Brazil, which supplies Argentina, and another in Spain.
Diagnostic rates
As well as gluten-free bakery such as bread and rolls, cookies, crackers and cakes, predominately sold into retail, Dr. Schär also produces Italian-style ready meals, frozen pizza, breakfast cereals and flour mixes – “we are covering the needs of our consumers on their journey during the day”, Berger says.
Nevertheless, while coeliac diagnostic rates are lacking in some countries, especially in emerging markets, he suggests others are more mature.
“Italy is very developed, so a low growth rate. The UK is also very developed and Scandinavia. There are other countries like Germany, or France especially, where they have very low diagnostic rates. There’s a lot to do in that area,” Berger contests.
Notwithstanding, Italy remains the company’s largest market followed by the US and Germany. The US is expected to take over the top growth spot in a “couple of years”, while the South American region, where Dr. Schär supplies Brazil, Argentina, Chile, Uruguay, Paraguay and Mexico, is still relatively “underdeveloped”, he suggests.
“In the past, you could attract new consumers because it was a trend. There is still opportunity in that the market is growing, but it depends on the health situation in different countries.”
[Improving diagnostic rates] is a “long-term process”, Berger says, requiring “working together with the medical community, which is what we are doing over time in different countries”.Berger was coy on whether Dr. Schär will turn to further M&A following last year’s UK acquisition but he didn’t rule it out either, indirectly suggesting a deal in the area of irritable bowel syndrome (IBS) might be on the cards.
“I’m not going to talk about it now, this is confidential information,” the CEO counters in terms of general acquisition activity in gluten-free.
He adds: “The biggest growth driver for us is still North America. In Europe, there is a lot of potential still because we are serving new concepts or additional consumers. Our biggest consumers are those who are suffering from gluten intolerances, coeliac disease or non-coeliac gluten sensitivity. Another area we are currently expanding a lot is IBS.
“And that’s one of the cores we have seen over the years where we are bringing the solution, very connected with our mission of a company that wants to improve the lives of people with special nutrition [needs].”
Business pressures
Berger took over the CEO role after Philipp Schoeller resigned at the end of last year having headed up the Burgstall-based firm since 2020. However, he doesn’t plan to overturn the boat as such with Dr. Schär in the midst of its 2025 strategy plan.
He encapsulated his response in terms of the challenges the business has faced over the last couple of years.
“I’m not coming in here now and saying, ‘I’m going to completely change strategy’ because we have a 2025 strategy of expansion.
“We had not predicted Covid in our strategy and we had not predicted that raw material prices would double over 12 months, putting a lot of stress on the whole supply chain, especially with our business overseas where prices for containers were skyrocketing.”
That’s an area still proving to be problematic, with container availability remaining “a big issue”, he says.
“The container business from China to Europe came down dramatically to pre- Covid levels but that is not true for the US. In the US, the price is extremely high. This is why we’re going to accelerate local production to be less dependent on these international global disruptions.”
As a counterweight to rising ingredients costs as well as freight, Dr. Schär, like other global food manufacturers, has had to increase prices but not to the extent of recovering inflation in full.
While the business differs from traditional bakery manufacturers by using gluten-free rice, millet and buckwheat flours in its products, Dr. Schär is still exposed to rising energy and cooking oil costs.
“We had to deal with costs doubling on both our raw materials and packaging materials. Of course, we couldn’t increase prices at the same level – we were in the single digits – whereas average food prices, for instance in Germany and the US, were 20%,” Berger explains.
He adds with respect to last year’s super-hot summer in Europe and the Ukraine crisis: “There was a huge issue with the climate change [in Italy]. A lot of rice production could not take place and the harvest was really poor and therefore prices were going up.
“It’s not only the war but also other components. Corn is also coming from Ukraine. We are using a lot of sunflower [oil] and Ukraine is one of the biggest producers. We had some issues on availability but we never stopped production. But of course that came with a very high cost.”
Foodservice is also part of Dr. Schär’s playbook, a channel that accounts for 10% of the company’s annual revenue and where it works with fast-food giant McDonald’s to supply gluten-free burger buns in Italy and Eastern Europe.
Distribution to the quick-service restaurant chain could be more extensive if it was not for McDonald’s centralised purchasing system and the differing consumer health needs across geographical markets.
In the out-of-home segment, Dr. Schär’s goal is to cater to the underserved restaurant goer in gluten-free, who often face a predicament when eating out.
“Foodservice is part of our mission because the consumer, the patient, they can find a big variety of gluten-free products in the retail stores. However, they are still struggling if they go to a restaurant. If somebody has coeliac disease and then goes in a restaurant with friends, they are hesitating to order something because they always have a fear that [the food] is contaminated.”
