Aryzta has indicated its business in North America can improve its performance after the Switzerland-based bakery group posted a fall in half-year sales from that market.
Earlier today (14 March), Aryzta reported an increase in sales for the first half of its financial year. Sales were up 5.5%, helped by a five percentage point gain from currency fluctuation and given a boost by an increase in underlying sales from the company’s European business.
However, Aryzta booked a 4% fall in underlying revenues in North America, where its sales have been under pressure for a number of quarters. In Aryzta’s 2014/2015 financial year, underlying revenues in North America dropped 6.2%.
In the first six months of this financial year, Aryzta’s revenue in North America stood at EUR971m, compared to EUR881.7m in Europe and a further EUR107.3m from its “rest of world” operations.
Aryzta insisted its underlying sales in North America improved as the company moved through the six-month period. Aryzta said underlying sales in North America are “expected to continue to develop” through the second half of the company’s financial year.
Nevertheless, in the first six months of Aryzta’s fiscal year, Aryzta’s North America business suffered amid lower footfall in the quick service restaurant channel. The company also lost out on some contract renewal, although it did win some listings elsewhere.
“Our plan is to dial back the losses,” CEO Owen Killian said. “We are gaining market share if we weren’t experiencing losses so our major focus is to dial back those losses to a more reasonable number and to have sustainable development in wins over losses.”
Alain Oberhuber, analyst at MainFirst, pointed out Aryzta had been rationalising its SKUs in North America in the last year and questioned whether the programme had impacted results. With Aryzta saying today the cutbacks were coming to an end, Oberhuber asked the company’s management if there would be “a good improvement in organic growth” in the months to come.
“You should see an underlying revenue growth improvement in North America, largely as a result of that 13% losses figure reducing,” Killian asserted. “That would be a reasonable expectation and you should see that sequentially as we go through the next quarters. In relation to the SKU rationalisation – yes it had an impact – but we’ve also been impacted by footfall reduction in some QSR channels and by some contract renewal activity.”
To counter some of the losses, Aryzta said today it is pushing investment in its branded packaged range, including its Otis Spunkmeyer and La Brea brands.
Last month, Aryzta announced its La Brea range would be non-GMO verified by the end of the year. In September, Aryzta set out plans to expand the presence of its Otis Spunkmeyer range in US retail stores with the launch of a wider range of products.
“The market response to the relaunch of La Brea Bakery and Otis Spunkmeyer branded portfolio was encouraging during the period,” the group said in a statement. “Developing Aryzta’s branded position remains a key part of the North American marketing strategy in the periods ahead.”
CFO Patrick McEniff added: “We didn’t have a lot of packaged goods in our [North American] offering in the past. That’s been unlocked through the Cloverhill acquisition in the prior period.”
Killian said Aryzta is “relying on wins from branded products”, although he sought to play down the prospect of immediate financial returns.
“At the moment we have a lot of development costs. You’re not going to see a lot of gain in FY16. It will be something that rolls out as a result of investment taken. You will see more investment in the second half in relation to rolling out the brands. You will see it moderate in FY17-18 as it becomes self financing,” he added.