Consumers may be looking to lead healthier lives but the urge to indulge remains strong, creating growth opportunities in the better-for-you snacks and confectionery categories. In this month’s Just the Answer, Ian Blackburn, the founder and CEO of healthier confectionery and snackfoods specialist Zetar, spoke with Dean Best about the company’s rapid growth and plans for the future.
J-F: Zetar is a relatively young company – what was the strategy behind its formation?
Blackburn: I wanted something different but related to what I’d been doing. I didn’t want to go back into convenience food, which was basically chilled and frozen. Snack foods is worth billions of pounds, of which confectionery is billions of pounds, and when I looked at the market, it tended to be somewhat different to the convenience foods sector. Every market was dominated by three major brands in each country, in Europe and indeed the US, with very little private label.
J-F: How did the Zetar business develop?
Blackburn: Right from the outset, I said we would potentially look to establish three divisions (at present Zetar has two divisions – confectionery and snackfoods). We’re talking about healthier, better-for-you snack food options. All of the dynamics behind the growth in the snack foods sector are still in place but at the same time, consumers are more health-conscious. We were trying to build something based on snacks but with premium or natural characteristics as well.
We’ve done five transactions to date. Readifoods was the first business that we bought just over a year ago, which gave us a position in the nut market. In confectionery, we’ve got the core Kinnerton business, plus we acquired Salamanda last year, which gives a slightly healthier offering in that it’s fruit and nuts coated in chocolate and yoghurt. Humdinger gives us a core dried fruit presence but it also in the last year built its own factory to go into the manufacturing of fruit bars. Britannia is looking at snack foods that are baked rather than fried, with low-fat and low-salt content.
J-F: What shape could Zetar’s third division take?
Blackburn: I can’t tell you, I’m not even thinking about it. I don’t know when the third division will come; we’ve got enough opportunities to look at in these two at the moment. It’ll be, to an extent, opportunistic. If someone was to come to me with a quality opportunity like Kinnerton, with good management in there that needs to be part of a slightly bigger group, we would look at it.
J-F: How will Britannia take the Zetar business forward?
Blackburn: It’s got a very good factory, it’s got a range of products that are better-for-you, lower in fat and sugar and so forth. But perhaps it didn’t have the resources to exploit what it had invented. We’ll use our distribution, hopefully some of our operational management experience and will be helpful to them. We’re not silly; it will take us a little bit of time to turn it around. Ask me in 12 months time if we’ve managed to get Britannia to break even; if we do and we’re moving it into profit, I’ll be very happy. If we haven’t, I’ll be disappointed.
J-F: Do confectioners and snack food companies have a job to do in convincing ever more health-conscious consumers that snacking still has a place in a balanced diet?
Blackburn: Nobody is saying chocolate is bad for you, as long as it’s eaten in moderation at the right time. Most of our chocolate sales are made at Christmas and Easter, so you haven’t quite got the same pressure. People don’t mind having more treats at that time of year.
J-F: But there is a debate about obesity and the impact certain foods can have on consumers, particularly children. What’s your take on that?
Blackburn: The debate is a very valid one and it should be there. For that reason, we have already taken additives and artificial flavourings out, and we’ve introduced portion control. I don’t think anybody’s saying there’s a problem with children having some chocolate but you want to be able to know what they’re having and when they’re having it.
J-F: How much pressure is there from your customers to look at those kinds of issues?
Blackburn: There is pressure but that’s why they’re talking to us because we’re one of the players being innovative, thinking about it and taking it to them.
J-F: What challenges are there from working with retailers in the UK?
Blackburn: We have as good a relationship with them as one can have. Naturally, because of the consolidation of the marketplace in this country, they’re in a very strong position. Having said that, they need good, innovative suppliers – without that they can’t deliver to their end customer. We’re happy with the margins we make. Hopefully, we can maintain those margins provided we get good volume growth, and we are achieving good volume growth.
J-F: Zetar’s business is predominantly in the UK. How much interest do you have in expanding the business overseas?
Blackburn: We’ll look at Europe, the French and Benelux markets. In three years’ time, I would hope that we’ve added a business on the continent to give us distribution on that market. I wouldn’t go to the US. It’s a graveyard for British businesses in the food sector, both manufacturing and retail; it’s a different culture.
J-F: How do you view Zetar in comparison with its rivals in private label?
Blackburn: There isn’t any one company that is a look-a-like to us. Don’t get confused – even though Zetar is only two years old, the Kinnerton management team have been around for 30 years and I’ve been in the sector myself for 20 years. We’re older and more experienced than Zetar. In terms of size, I don’t think it matters in the market, provided you can efficiently deliver quality and innovation. One thing we do miss though is a brand.
J-F: Do you have any ambitions to buy brands? How happy are you operating in private label?
Blackburn: I am content with private label because I think there’s a lot of growth. Having said that, sometimes it would suit to have a brand. The problem is we couldn’t compete to buy a brand and we can’t invent one ourselves; it would take too long and cost too much money.
In terms of acquisitions, I’ve changed the strategy a little bit. The first intention was to buy bigger businesses – Kinnerton or bigger – but I think the emergence of private equity players into the marketplace means that any sizeable transaction will tend to go through an auction process now. Their valuation methodologies seem to be getting them to price these businesses way above what we can justify, even with trading synergies.
We’ve changed tack a little bit and decided to look for smaller entrepreneurial businesses that can then tap into our resources and that we can actually grow faster. We’re more interested in value creation rather than size for size’s sake.
Now, if a brand were to come along that may be superfluous to someone’s requirements, that needs re-investing in and is appropriate across our product ranges – and we could get it at a reasonable price – we might be interested. Is that likely? I don’t know.