Australia-based Freedom Foods Group is targeting expansion overseas for the next stage of growth from its allergen-free business, of which gluten-free is its largest. In an interview with Dean Best, MD Rory Macleod outlines the company’s plans, explains why gluten-free needs to focus more on taste and defends Australia’s threshold on gluten.
Freedom Foods Group is a mix of businesses, offering allergen-free breakfast cereals, long-life beverages and seafood. The Australia-based company also has a stake in New Zealand’s A2 Corp., which claims to produce milk that is easier to digest.
However, in the last six months, Freedom Foods Group’s share price has more than doubled as investors have warmed to its various interests, some of which industry watchers see as having relatively high barriers to entry. The core of the group’s business, the Freedom Foods allergen-free business, accounted for around 40% of sales in the first half of the company’s financial year, which ran until the end of June. Sales of breakfast cereals, for example, jumped by 39% in volume terms in the six months to the end of December. The company sees scope for further growth in Australia and is now making plans for a fresh tilt overseas.
In May, Freedom Foods Group announced plans to set up a subsidiary in North America. The company has worked with a local distributor and said growing sales meant it now wanted to set up its own unit.
In an interview with just-food, Freedom Foods Group MD Rory Macleod says the US is less than 5% of the sales from its Freedom Foods unit. “The US will probably in three years be 30% of our Freedom Foods business. We’re targeting over the next three years to drive about a million cases of cereals, which for us would just exceed where the Australian market is for us today,” he says.
“We don’t think that’s overly ambitious. The market opportunity potentially could allow for more than that but that’s what we’re driving towards. The Australian market will still be growing quite strongly – we see quite a lot of opportunity for our business here – but it’s really a population and market opportunity issue. Australia is still only 23-24m people.”
The new Freedom Foods subsidiary in North America will take on the import and distribution rights of current partner Wholesome International. Freedom Foods Group has said the agent will “provide ongoing distribution and administration services”.
MacLeod says it is easy to get over-excited when thinking about North America’s potential. The company says the US gluten-free market is estimated to be worth US$3.4bn, with sales growing at a compound annual growth rate of 15%.
“There’s a lot of retailers, consumers, it’s a very big market. I liken it to a big lolly jar. You can say: ‘Wow! Look at all these opportunities.’ Our challenge and our focus is we want to keep to the specialty channels initially. It’s not the number of stores, it’s the quality of stores. There is still a lot to learn but our knowledge and experience with our partner is to keep it in the specialty channels, be very targeted in the key demographic regions where good units per store come out with these type of products. There could be a lot of temptation to say ‘I want 20,000 stores in three years.'”
Alongside the Freedom brand, Freedom Foods Group also plans to build an own-label business in the US. The company, Macleod says, is set to start shipping products to an unnamed customer by October. He insists Freedom Foods Group should seek to be a “total solution to the market” and brushes off concerns a branded manufacturer cannot also be an effective own-label supplier.
“We see it as complementary to our branded position and helping our partners have a range that suits their strategy. We’d rather be servicing the market than retailers wanting a private-label offer and therefore searching for other people that one day provide that outcome,” he says.
“It’s a challenge if you look solely to your brand team to develop private-label. Inherently, the mind is focused on building the brand as you are also trying to think about how to develop for someone else. That can be the mental challenge. We separate the private-label supply from the brand supply.”
The gluten-free sector is one of the more buoyant parts of the food industry. There have been specialist manufacturers and brands that have developed in markets in North America, the UK and Australia, while mainstream brands (take Warburtons in the UK) have identified the potential in the category and set up specific gluten-free businesses.
What was once the reserve of those diagnosed with coeliac disease now attracts those who believe eating less gluten makes them feel healthier. Therefore the potential consumer base for gluten-free manufacturers like Freedom Foods Group has widened and companies are able now to entice mainstream consumers who have an increased awareness of gluten.
Macleod insists gluten-free manufacturers must focus on taste and nutrition to take the category to the next stage of growth. Gluten-free products, he says, have been said to lack taste and manufacturers have been criticised for then using ingredients like sugar to improve the taste of their products.
“To attack gluten-free, people will say gluten-free is not that good for you because it is high in sugar, high in this. And to some extent, the industry, in order to get taste and use very simple gluten-free bases, which don’t have a lot of taste, then add lots of sugar and salt to get a benefit. Those products are probably not that great for you.”
Macleod claims Freedom Foods Group’s products are lower in salt and sugar compared to “the mainstream equivalent” in Australia. He says the company has worked on trying to cut salt and sugar and provide products that support digestion. “You’ll see more of that coming out from us in the next period of time. It’s not just about gluten-free; it’s about a healthier proposition of better digestion, feeling better.”
He underlines the company will still focus on coeliacs as well as mainstream consumers but emphasises the importance firms should place on taste and nutrition.
“There were always be the core market that have to be completely gluten-free and we will look after them as core consumers but people saying I understand that less gluten in my diet is good for me, if I can enjoy certain products that are really good for me nut, and low in gluten that’s what I’m happen to enjoy. Fundamentally we’ve got to deliver on taste. The big negative has been that gluten-free doesn’t taste good. We’re doing a lot of work around getting good taste [and nutrition].”
In recent weeks, there has been some debate in Australia about the legal threshold at which products can be labelled gluten-free. The country has a stricter limit than markets like the UK and The Australian Food and Grocery Council, supported by Coeliac Australia, wants the threshold lifted from ‘no detectable gluten’ to 20mg per kg.
The AFGC, and Coeliac Australia believe a change in the threshold could provide more choice to consumers and lower the price of products available. Macleod calls that argument “a nonsense” and argues allowing products sold as gluten-free in Australia to contain more gluten would hurt the country’s reputation in the sector as well as affecting some coeliacs.
“I’m certainly not for tariffs and trade barriers at all – we’ve got to stand on our two feet – but we have a real, unique advantage and being the best in terms of allergen standards that’s the opportunity Australia has to leverage its position globally,” he says. “If anything, Freedom trying to go into the US and take its range … that’s a great export initiative and benefit for the Australian industry.”