With consumers assessing whet they eat on health and ethical grounds, UK-based meat-free products manufacturer Quorn Foods has benefited. The business also enjoyed a boost from last year’s horsemeat contamination saga. Dean Best met Quorn CEO Kevin Brennan to discuss the company’s recent growth.
It is 12 months since the horsemeat contamination saga shook Europe’s food sector. This week, the media has been reflecting on what happened, the lessons that have been learnt (or not, some argue) and the sales impact on parts of the industry.
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While some saw sales suffer – Greencore CEO Patrick Coveney outlined the impact on the ready-meals giant in an interview with just-food last November – others benefited from the scandal.
UK-based meat-free products manufacturer Quorn Foods is one such company. In 2013, Quorn, owned by Exponent Private Equity, saw sales volumes jump 13% in the UK, a market that accounts for over 70% of its revenue.
Ongoing consumer interest in health and a 20% hike in marketing expenditure played their part but, speaking to just-food this week at Quorn’s HQ in north-east England, CEO Kevin Brennan says what he describes as “horsegate” and consumers’ growing interest in the provenance of food provided a boost to the company’s sales – and not just a short-term spike.
“We were probably growing about 5%, 7% coming into it. We went up into 15% and 20% but then it settled back down to 8-10%,” Brennan explains. “And, as the year went on and we were investing a lot into the business, it continued to rebuild as people stayed with it. In the last quarter of the year, we were up 20% in the UK. Our strongest quarter was Q4 and that’s why we are strongly of the view that there has been a residual behavioural change rather than just a spike.”
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By GlobalDataBrennan, who joined Quorn in 2010 when it was owned by Premier Foods plc, says the company’s mince and sausage products saw “very strong sales” in the wake of the horsemeat contamination.
“It’s about quality – there was never a safety issue – but there’s clearly, in certain areas of meat, people wondering what quality of meat they are getting. We launched a cocktail sausage in the second half of the year and we are still barely able to keep up with the supply of it,” he says.
Brennan highlights Quorn’s growth in the UK by underlining the “flat volume grocery market” in the country in 2013. The company, he says, was “delighted” with the performance. Sales by value increased 11%, a slightly lower – although strong – rate Brennan put down to Quorn’s customer mix. Quorn’s volume growth, Brennan says, emphasises the progress the company is making. “Volume reflects gaining consumers; commodity prices can drive pricing up and down. Value pays your bills but volume is an indicator of whether you are making progress with your consumer.”
Under Exponent’s ownership, Quorn has made progress. In 2012, the last year for which full financial figures are available, Quorn’s revenue was up 20% against a 59-week 2011 financial year. Operating profit doubled. The business made a net loss but that was due to interest on loans.
Brennan is looking to 2014 with confidence, convinced horsemeat has led to a lasting change in consumer behaviour in the UK and one that will help the business grow further. And the company is not resting on its laurels, upping expenditure on marketing by a further 20% (including a TV campaign with British Olympic athlete Mo Farah) and more investment in R&D.
“We have kept investing right through the recession. The benefit of being owned by Exponent is that you can stick to an investment plan – you haven’t got quarterly or even annual results to work to in the same way as corporations. Last year, we spent 20% more in the UK on marketing. This year we will spend 20% more again. That’s really helping us and we are able to invest at a time when there is a lot of interest in finding healthier alternatives,” Brennan says.
The tie-up with Farah, formally announced at the start of the month, was a bid to try to “get across the healthy protein aspect of Quorn”, Brennan explains. Consumers, he argues, know they can replace the meat in their diet with Quorn but the business wants to give more shoppers more reasons to buy the product.
“A lot of people knew it physically replaced the behaviours of meat – the texture, the taste,” Brennan claims, “but hadn’t actually twigged the protein you get. We thought there was a big opportunity to get to people who are making healthy choices, not necessarily fanatical gym-goers but just generally leading healthy lifestyles, to generally understand the healthy protein bit of it.”
Sales in January, Brennan estimates, will be “up 15-20%” in the UK year-on-year. “The trends are staying. There are some really high growth rates, which is great, and that makes it easier to keep investing and growing.”
just-food meets Brennan on a day when a number of UK national newspapers are carrying headlines on the country’s “obesity crisis”. A report from The National Obesity Forum claimed previous forecasts that half the UK’s population could be obese by 2050 may have underestimated the problem. Last week, academics in the UK, US and Canada launched Action on Sugar to try to pressure the industry to reduce the level of sugar in food.
Does Brennan, the head of a meat-free manufacturer, read those headlines with a wry smile?
“Obviously the growing concerns around obesity and therefore diet really helps,” he admits. However, Brennan adds: “What I do like is being in a business where what we do is good for people’s health and good for the planet. Not just because we can grow, clearly there is a great opportunity to grow, but knowing you’re growing in a way that is so positive.”
Quorn has yet to make serious moves to emphasise what it sees as its sustainable credentials. In part, it seems the company is feeling its way around the issue. “Sustainability is a Pandora’s box,” Brennan says. “You open it up and there is a lot more in there than you expect.” Quorn has been working with The Carbon Trust to measure its footprint and compare its environmental impact with meat production. However, for now, Quorn will focus on promoting its credentials within the business and NGO community. Later this year, it plans to hold a conference on the issue. Such events will, Brennan hopes, establish Quorn as an authority on sustainability but also get commentators thinking about the business when analysing subjects such as alternatives to meat.
“In the last 18 months, there has been a big step up in people writing about the long-term sustainability of the meat industry and the environmental impacts of meat. Then they were start writing about insects being turned into protein and the lab burger from Holland but they would never write: ‘By the way, you can buy a solution [in Quorn]’,” Brennan says. “We’ve been through that process. It’s a 20-year process for [the lab burger] to turn into something that is approved from a safety point of view, commercially viable and edible and so on,” Brennan says. “[The lab burger] is a great thing by the way. We are going to need it – there is no debate – but it’s a long process and people were not referring to Quorn at all.”
And there is a longer-term consumer rationale underpinning Brennan’s desire to see Quorn talked about more when sustainability issues are discussed. “The rate at which it is getting written about, I think there is a real chance of it becoming a consumer agenda. We started looking at this 18 months ago and I thought we were planning for five to ten years out for the consumer end of it. Now I’m not so sure.”
Where Brennan is sure is over the prospects for the UK grocery retail environment in 2014. The trading updates of the country’s major multiple retailers have underlined how challenging conditions are, with even Sainsbury’s, the best performing of the so-called Big Four, seeing sales slow in its last quarter. The Government is trying to emphasise the economy is improving but living standards remain under pressure, weighing on all types of expenditure, even on food.
“For me, the one thing that is clear is that the consumer is not wandering around saying the good times are back. Whatever the data says, the average consumer is finding it tough. I don’t think you’ll see realistically any material growth in food consumption this year. That’s very challenging for all retailers and manufacturers,” Brennan says.
However, his outlook for Quorn is rosier. “If we were in a share scrap, or in a flat business in a flat category, the conversations with retailers would be tough. The most exciting thing for us is, if we can bring double-digit growth and grow with every customer, which we did last year and we aim to this year, then we’ve got an agenda to work on with the retailers.”
Click here for part two of just-food’s interview with Quorn Foods CEO Kevin Brennan, in which he discusses the company’s international performance and ambitions.
