European food group PinguinLutosa has undergone a period of significant change in recent years, with two notable acquisitions. And that transformation has continued but this time with a deal to sell one part of its business, Lutosa, to McCain Foods. COO Herwig Dejonghe speaks to just-food about the changes and his thoughts for the future of the frozen and canned food group.
just-food: There has been a lot of change at PinguinLutosa since we last met at SIAL 2010.
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Dejonghe: Enormous change. We bought CECAB’s D’Aucy frozen food division, which was a big jump in production, adding Poland and Hungary as production countries, reinforcing our French position and attaining the number one brand in the Brazilian market. We completed a deal for canned foods company Scana Noliko. Then, in the first half of this year, we were hearing in the market that people were questioning what [frozen foods arm] Lutosa was doing in our company.
just-food: Who was questioning that?
Dejonghe: The market, competitors. Financial people question anything as long as it brings them money. We said Lutosa was not for sale but when people really feel it is of value to them, they try to attract you with offers. Then we got an offer that attractive that our board decided to talk about it. On Friday evening just before SIAL, we concluded the deal. It wasn’t planned but it was good timing because we have our team from all over the world here. We can say to everyone ‘calm down, don’t worry, it’s a very positive decision’.
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just-food: How do you feel about Lutosa being sold?
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By GlobalDataDejonghe: I am the family founder and created this company the way it is. For me, there was no need at all to get it away. We regret it. But it adds money. We found the best partner for Lutosa. We also found a partner that respects the Lutosa label.
just-food: Will bringing Lutosa and McCain together bring competition issues in some markets?
Dejonghe: No. Lutosa is a brand spread over 104 countries, as many as McCain, but it is a relatively small company compared to McCain. Lutosa is a niche player but it adds to McCain’s worldwide strategy. The niche it is in is foodservice and it sells a different fry to McCain – yellow french fry, a real Belgian type of potato. A french fry from McCain is very good quality but it is a product not linked to a country. Some 75% of Lutosa’s is foodservice, 20% is retail and a bit industrial. That is why it is a good fit for McCain.
just-food: So what now for your company?
Dejonghe: A brilliant future. It may be sad when you sell something but when you then look back, it makes ourselves debt-free, which is unique in this business because you use a huge amount of working capital. We won’t be debt-free forever but it gives the opportunity to select the right options. When you are under financial pressure, you go for long term but you’re forced to do short-term things. We have a bit of time. We took the opportunity to hire a new CEO. I was CEO as I created the company but when it becomes a multinational, you have to get other people in. When I started, we were 200 people. Even without Lutosa, we are 2,300. We hired a CEO coming out of Sara Lee, Marleen Vaesen. She adds the right things for us to grow as a multinational group. She is the CEO and I am the COO. My life is the product and my function will be to find the synergies between farming and processing in canning and freezing. She will be adding in what she can do with creating markets, emphasising our product portfolio to the consumer.
just-food: Will you look to build more brands?
Dejonghe: We would look mainly at how we can get closer to the consumer, helping private label be more proactive. In the frozen food industry, there are no brands. Nestle sold out, Unilever sold Iglo, Bonduelle is hanging in there in France. Birds Eye is only here and there. Birds Eye is a perfect example of how to do something right but it is not a leader in Europe. When you don’t have a leader, private labels become stagnant. When you do have a leader, you have a certain price level that allows you to invest in R&D to develop. When you move towards 100% private label, you make the market poor. Our ambition is to bring some atmosphere into the market about private labels. We can do it because we have a bit of money and room to employ someone like the new CEO from Sara Lee. The retailers are open to taking responsibility. Today, they say they take responsibility for the farmer but it’s only by selling his product at the right value and creating new things that you really help him. The next step is to be really serious about co-operation with the processor.
just-food: Are there acquisitions you can make now you have the cash from the Lutosa sale?
Dejonghe: There is enough targets but there are not enough good ones.
just-food: Perhaps Bonduelle’s frozen food operations?
Dejonghe: That’s just speculation. I would say this market still has to get to a higher level. Bonduelle, in Europe, in frozen, has not succeeded. They have enough power but they have to spend their means. They cannot spend on everything. With the leaders gone, they know it is quite difficult to put a label into the market. Maybe the only way is consolidation, I don’t know. We are open. We only know that the market is too poor.
just-food: Would PinguinLutosa lead a process of consolidation?
Dejonghe: We are definitely one of the people leading it. Ardo has been leading, we have been next to them, leading it. Bonduelle has done a number of things, what it did with Ardo in France and Spain. Bonduelle, Ardo and Pinguin have been the ones taking up the responsibility in Europe. Iglo and Permira, too, but that’s not just the frozen vegetable business.
just-food: And in the canned food sector?
Dejonghe: Canned is very consolidated. Forty years ago, there were at least 30 canned companies in Belgium. Today there is one and we have it: Scana Noliko. It’s still growing, more in convenience. Canned is a more static market. Our new CEO can help to get more new products and better products on the canning side. If you walk around the expo, you see lots of good ideas. It’s enormous. Scana Noliko also has a big business in dip sauces and that is a good market because that is driven by some good leaders like the Nestles and Unilevers.
just-food: What is the priority of the two remaining businesses?
Dejonghe: Two-thirds is Pinguin, one-third is Scana Noliko. There is still a long way to go in frozen. Don’t forget a big part of frozen is in ingredients. With a frozen product, you can do lots of things. It is logical frozen remains the bigger part. Scana Noliko is a finished product business. It is for convenience. Frozen is also about convenience. What we see is within frozen, you have an ingredients product and a ready-made product and that has to grow. That’s where somebody who comes from Sara Lee can have ideas that fit consumers.
just-food: We’ve talked a lot about opportunities, what about the challenges you are facing? Hein Deprez told us recently PinguinLutosa wanted to get your UK cost base to match that in Europe.
Dejonghe: One of the problems is the swing in pound sterling. Some people are saying we are going back to EUR1 for GBP1, which would fit our strategy very well because then the UK is competitive. It has been a big, big challenge but there is an advantage. We lost quite a bit of money but we are fitter, we closed units.
just-food: Are there plans to close any more units in the UK?
Dejonghe: In 2007, we had five. This year we closed Bourne, so now we have two. Whether we close more depends on sterling. One protection for the UK business is the green pea; you don’t get that kind of green pea everywhere in Europe. If we have a normal level of sterling, we would have less imports from Spain. If it continues that the pound is EUR0.78, we may have to say: ‘Sorry, we love your British peas but we can’t sell them.’
just-food: What demands are your retail customers making of you? Has the pressure intensified?
Dejonghe: They have always put pressure on their suppliers. No news. They just change the people who ask. It’s normal. It’s at the opposite end of the chain. Ingredients are getting more expensive, right from 2007. There was a little dip in 2010 but they are back now. Farmers are stopping if they don’t get the right money for certain products. The price of products further down the line does not follow. If everybody accepted food should be at a higher price, we would be fine. For an energy crop, the farmer doesn’t have to worry about pesticides or food safety, it’s easy to grow it and he gets more money. You would be stupid to go for a food crop, where you are responsible for the lives of people and you get less money. There has to be an enormous move to get people to accept food crops must be paid at the same level as energy crops. Politicians make food too cheap. If you pay farmers more, they will make the ground fertile. Farmers associations are talking to us about how the chain can be fairer for everyone but this is changing the world, huh.
just-food: That really would be a huge step! What about changing the company name?
Dejonghe: The name has to change. The company will be Pinguin and Scana Noliko and the name of the holding company will be on the stock exchange and will have no brand value, unless Marlene Vaesen has an idea. We won’t create the new name until she gets on board. We have some time because of competition authorities checking the Lutosa deal. It will not be Pinguin Scana Noliko that I can tell you because we want to have something that can be fit for other acquisitions. Now we build a new strategy.
