UK pork processor Cranswick has grown sales over the past year through some significant contract wins and adjustments to its product mix. The company has also successfully negotiated higher prices despite weak economic sentiment and fierce competition between the country’s largest retailers. One of the keys to Cranswick’s success has been innovation to keep its product portfolio relevant, CEO Adam Couch told just-food in part one of the just-food interview.
Cranswick saw revenue rise by 14% during fiscal 2013/14, with organic growth contributing 12% to the total. In a flat-to-down category, during a period of intense retailer competition and weak consumer sentiment, such stellar organic top-line expansion is no mean feat.
Of this organic growth, 5% can be attributed to new business wins and 7% to sales mix improvements, Cranswick chief executive Adam Couch says.
The company’s sales expansion was broad-based and only its sandwich business – where it decided to shed some less profitable volume in order to improve margins – saw sales dip. In particular, the group saw a strong performance from its fresh pork and bacon businesses, where it won new supply contracts and shifted its mix to products that hit higher price points.
“We had a couple of key business wins in fresh pork over the course of the year with a number of retailers. That helped grow it. In terms of the bacon offering, it was moving to gammon steaks and gammon joints. That was a bit of a step change. Our factory went to producing premium quality gammon products… we are getting market wins,” Couch explains.
The company has also seen strong growth – albeit from a low base – at its recently-launched pastry products unit, where sales gained 138% in the 12-month period.
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“We came up with a very innovative approach to the pastry market,” the chief executive observes. “Our offering is very much at the premium end of the marketplace. We have Marks and Spencer as the anchor customer there and are really sticking true to our proposition of up-scaling artisan. So we have an artisan format, we use a ‘food hero’ – in this case a lady called Jill Ridgard who knows pastry inside and out – and develop with her skill set a scale facility that you can produce a very artisan or home-made product, with good filling and all butter pastry, but do it at scale.”
Innovation has been key to Cranswick’s ability to win new business and grow existing business. The company has expanded into complementary categories – such as pastry – while also driving product development in its core product portfolio.
“We are constantly rejuvenating our product offering, looking at new products that we can produce in an innovative format. The most notable one I can think of is the fish and chip pie we produced for Marks and Spencer. We are never running out of ideas in terms of coming up with new products.”
Much of Cranswick’s efforts around innovation centre on the development of products that meet the needs of the channels that are winning favour with UK consumers – online and convenience. “We have to be mindful of the new channels selling products, whether that be the internet or convenience store format. We have always got to make sure our product range is relevant and our product offering and servicing of those channels is also relevant,” Couch observes.
The rising popularity of online sales in particular have presented a challenge to Cranswick’s fresh meat business. Unlike sausage or bacon products – which are presented in standardised packaging – Cranswick needs to find ways to communicate what to expect from a fresh pork cut to the consumer, Couch reveals.
“There are a number of challenges in fresh meat, particularly when we are looking to do an online offering. You want the consumer to understand what a particular size of roasting joint is, for instance, how many people that will serve. Does the picture serve the product well enough so that a consumer linking onto a web page would appreciate that it is representative of what they will actually receive? And making sure that the presentation is what one would want to purchase. We have a number of packaging innovations that we are working on at the moment that should help improve that.”
Investing in making sure its products are relevant to today’s consumers has been key to Cranswick’s ability to appropriately serve its retail customers and withstand the challenging trading environment and constrained consumer spending.
“We are not immune from the pressures that retailers are under quite clearly. It is a very, very competitive set. One area we have been able to benefit from is the pricing mix of products we do. We have tried to situate ourselves at the premium end of the marketplace. Investing in our facilities and coming up with innovative products and approaches to the product offering that we have. That has stood us in pretty good stead,” Couch insists.
In recent months, three of the country’s four largest retailers – Tesco, Asda and Morrisons – have announced plans to lower prices in a bid to halt declining sales and fend off competition from the discount sector. While pricing has taken centre stage in UK grocery, Couch believes ultimately retailers select their suppliers based on much more than pricing alone.
Over the past 12 months “constructive” discussions with customers have enabled Cranswick to secure price increases and Couch is optimistic the competition around pricing will ease “over time”.
“The pressures are constantly there… it is a feature of the landscape that we are very familiar with. I think it will become more considered over time – security of supply will become as important as pricing. That is a very key feature that we have to be aware of,” Couch observes. “It is not just about price. It is about the proposition you can put forward for the customer also, in terms of investment in the facilities, new product and new innovation.”
While consumer spending is putting retailers under “quite significant pressure”, Couch also believes the pork category is well positioned within proteins.
He says: “Pressure from the retailers has always been quite significant as you would imagine. But one thing we must not forget in all this is pork’s relative price proposition to any other protein is very very strong. In terms of beef or lamb, pork is very well positioned. And it is not just a protein in its own right. It is a strong ingredient for bacon, sausage and ham. It is a very strong category for the retailers.”
Looking to the coming year, Couch does concede sales growth is likely to come down from the clip seen over the last 12 months. Having secured a number of large contract wins in 2013, the group will lap some tough comparatives as it grapples with the current price-sensitive environment.
“It was obviously a stellar performance this year. You can expect more modest growth next year. But we are not out of ideas – there are a number of opportunities that we would like to continue to pursue.”
Among these opportunities, Cranswick is “always looking at potential acquisitions” from smaller bolt-ons to “further protein” businesses, Couch reveals.
“Further development in those areas of a premium product are also areas that we would look at from a value-added protein perspective. Our balance sheet does lend itself to being able to take advantage of those opportunities.”
During fiscal 2013/14, Cranswick has reduced net debt from GBP20m (US$33.7m) down to GBP17m, despite the acquisition of two pork businesses in the period. The company will continue to pursue a disciplined approach to resource allocation, Couch stresses.
“It can be guaranteed we would only ever do it in a conservative and considered format. You won’t find us rushing in and ladening our balance sheet with a lot of debt. We would take it very much in our stride and really look to do anything in a very considered format.”
While Cranswick works to grow its business at home, it has also targeted expansion in key export markets. Read more about that strategy in the second part of the interview.