The last 12 months have been a busy period for US snack maker Diamond Foods with the purchase of premium chip company Kettle Foods, several product launches and inked plans for expansion. Here, Linda Segre, senior vice president, corporate strategy and communication for Diamond Foods talks to just-food’s Michelle Russell about the company’s plans for Kettle, innovation and further acquisition opportunities.
just-food: Diamond Foods has raised its profit target for the second half. Is the firm hoping the purchase of Kettle Foods will turn profits around in this period?
Segre: We were going to have Kettle for those four months of that half, and I believe we set our first target and then we raised it again. It was mainly because once we got our arms around [Kettle] we felt that it was going to be more profitable. But I wouldn’t say it’s a turnaround though, it is just that with the addition of the Kettle business to our current business, we raised our guidance despite the fact that we issued 5.2m shares. The deal made a lot of sense for us so that’s why we raised it in the second half.
just-food: What was it that ultimately attracted Diamond Foods to the purchase of Kettle?
Segre: We launched into the snack nut category with our Emerald brand in 2004 and then in 2008 we bought Pop Secret from General Mills. In the retail environment, the same buyer buys both of those products, so we basically doubled our scale in going and talking to our retail buyer because we now come in with both Emerald and Pop Secret and it gives us a lot more opportunity with promotions across the two brands. So we were looking to add another brand again that would be purchased by that one buyer, and also a brand that we thought would fit well from a promotional and marketing stand point with the Emerald and Pop Secret brands.
just-food: So premium really is a focus now for Diamond Foods?
Segre: Yes, and Kettle certainly fits that … it’s just a really top quality product, it’s a premium product which again, our Emerald, Pop Secret and Diamond Culinary products are positioned as, and with a relentless focus on product quality it fits very nicely from that perspective.
just-food: What about Kettle’s presence in the UK, is this something you may look to build on?
Segre: We’re really excited about Kettle in the UK. We’ve been an international company for a long time because we’ve sold our Diamond walnuts internationally but this is the first time we’ve had infrastructure outside of the US as we typically sold through brokers and distributors. We’re really excited about the team that we have in place, it was a really good foray for us to go international in a country that speaks English and that many of us have experience in.
just-food: Do you see Diamond Foods expanding the presence of Kettle outside of Europe and beyond the US?
Segre: The brand is in a number of countries. Kettle is pretty well distributed in Canada, out of the North American market. And then we do sell into Europe but it’s a small amount of sales and we’d like to see more of that as that’s out of our UK facility. We’d like to certainly expand our presence in new markets [in Europe] with the Kettle product. Also with our new ridge crisp products, we’d like to expand that too.
Linda Segre, Senior vice president, corporate strategy and communication, Diamond Foods
just-food: Is the fact that Diamond Foods now has an expanded shareholder base and higher debt levels a concern for the firm?
Segre: No, I mean we clearly need to keep executing like we have been for many years. Our debt level was really quite low frankly when we went into this deal, it was about 1xEBITDA and with the interest rate environment where it is, that is actually a very cheap form of capital right now. And we see this business as generating very good cash flow. So while the debt level is probably higher than our long term level, I think we were way too low prior to this. Companies need to have some debt in their capital structure and at times, when interest rates are so low, it makes a lot of sense because the cost of capital is so low.
just-food: Since the Kettle purchase, Diamond has been busy with the expansion of the Oregon plant and the launch of the Kettle Tias range. What plans does Diamond Food have for the Kettle brand and where do you see the brand in say, five years time?
Segre: We see good growth opportunities in the Kettle brand. In the US, the brand isn’t that well known in the centre part of the country and on the East coast, which are the two largest potato chip markets for the US. It has largely been a west coast brand because they didn’t have a plant east of the Rocky Mountains until 2007, so it’s a fairly new brand there. We feel there is a lot of opportunity to move the brand more into the centre and eastern parts of the US. We will benefit because our Emerald brand was launched on the east coast and that’s where we have strong share with our Emerald brand, so we hope to leverage the relationships we have on the east coast with our retailers and bring in more Kettle. That is a big opportunity there.
Also, the plant expansion in Salem was a way of providing some product into the south western part of the US and that will allow the Wisconsin plant to focus more on the east. We also hope to have other plant expansions coming up. We certainly have plans for it as the brand is growing nicely.
just-food: Diamond Foods recently entered the savoury toppings category, a new category for the firm. What was the motivation behind this and are there any other categories the firm thinks might be potential targets for innovation/new launches?
Segre: We do have some glazed nuts in our Emerald snack line that are situated in the snack aisle. In the US, you can find some toppings like this but they are typically in the produce aisle and they tend to move around in the store so consumers have a hard time finding them. We wanted to offer a very high quality product but put it into the culinary baking aisle with our Diamond nuts so that the consumer was able to find them and link them with the Diamond brand where we have a very strong following among bakers.
We do a lot of product innovation and extensions within our categories and for example, within our Emerald line we’ve got the breakfast on the go item. So it’s sort of a new category but it leverages our expertise in nuts and in trail mixes. And then we’ve got additional flavours in our snack packs. We will continue to introduce some products that are within these categories but maybe extend them. We also try to cover several times of the day, so breakfast products, snacking products, meal preparation and microwave popcorn.
just-food: Who do you see as your biggest competitor in the snack arena at the present time?
Segre: We compete against some large competitors across our categories like Kraft, ConAgra and Frito Lay. But it’s interesting that in the snack and potato chip sector in the US there are a lot of very small regional players that have between $10-15m of sales and they just operate in one small region. So we kind of see those as the primary competitors in both the snack and the potato chip market.
just-food: Do you think the Kettle buy will help you close the gap on some of your competitors?
Segre: Really the impetus is much more about us being in relevant scale to the buyer and staying really focused rather than gaining on competitors. By having the three brands that are very focused on snacks where we have that one buyer and the ability to do cross promotions and marketing, it just makes us more competitive because we are much much smaller than any of those players. But by staying very focused we have a very compelling offering to the retailer and the consumer. This helps us be more competitive.
just-food: There has been a lot of noise in the US about nutrition labelling. Is this something Diamond Food supports and what are you doing, if so, in this respect?
Segre: We support the direction the FDA is going. We have a customer base which tends to be a bit younger and certainly well educated and they want to know what’s in the product and we’d like them to know, so we’re supportive of that effort and the industry’s efforts to make it a lot clearer for consumers. It’s a positive all the way around if we’re all the same, especially if it is done in such a way that there is no individual company that gets hurt in the process. It’s nice to have the industry move that way.
just-food: What does the future hold for Diamond Foods? Is there any possibility of further acquisitions or merger opportunities?
Segre: We’re always looking. We feel really good about the portfolio we have and the organic growth potential in the portfolio. Our real growth engines are Emerald and Kettle. Pop Secret is growing but probably not as fast as the other two because it’s fairly well distributed already. So we see a lot of opportunity just for the current portfolio we have and just continuing to expand distribution and geographic presence, but we’re always looking for good acquisitions of brands that might really add to that portfolio. We’d like to get a brand that not only is good in itself but that will help contribute to the other three brands. We’re always looking but nothing in particular at the moment.