Nordic meat group HKScan, which had been looking to build its presence in foodservice as part of plans to grow revenues, is cautious about how long it will take its current level of sales in the channel to recover amid the Covid-19 pandemic.
Tero Hemmilä, HKScan’s chief executive, is spearheading a strategy to shape the business into a “versatile food company”, a plan announced in November last year that included trying to expand its sales into foodservice.
Speaking to just-food after HKScan reported its financial results for the first half of 2020, Hemmilä outlined how Covid-19 had weighed on the company’s sales in the foodservice market and said it was challenging to make confident forecasts about the outlook for the sector, which, at present, accounts for “10-15%” of revenues.
“We lost around 40% on average of our foodservice sales, compared to the previous year, during quarter two,” Hemmilä said. “We are present in four different markets – Sweden, Denmark, the Baltics, Finland, – [and] the impact was the strongest in Finland, definitely. I think in Finland we lost close to 50% of the foodservice sales during Q2.
“In June, the foodservice has been recovering step by step [but] we are still far away from the pre-pandemic level. It will take a while – and that while may not be a very short time period. I would say it’ll take the rest of the year before consumers really trust and can start to utilise foodservice services. We can’t expect there won’t be any second wave either. It’s very difficult to forecast and anticipate what will come. Let’s assume that there is no second wave, I would say that the recovery will take a while before we are back to the pre-pandemic level. We are talking about a few months in my thinking.”
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He added: “Foodservice was intended to be one of the [growth] drivers and I assume it will be after the pandemic is over.”
Although foodservice accounts for a relatively small part of HKScan’s total revenues, the company’s business in that channel “delivers a higher share of our margin”, Hemmilä explains, through the sale of “higher value-added products”. As a consequence, HKScan is looking for “mitigating actions” to try to compensate for the impact on profitability, including manufacturing more products consumers buy to use at home, narrowing its overall range and lowering costs, the chief executive added.
HKScan reported “strong growth” from its sales into retailers during the second quarter and first half of the year. In HKScan’s earnings statement, the company said “consumer demand was, as a whole, more focused on products with less added-value”. Hemmilä said the HKScan’s commentary was a reflection of the shape of demand in the overall market, with the higher-margin foodservice channel suffering, rather than consumers shopping for cheaper items at retail. “If home cooking will stay at a higher level than before, then the average sales is with less value-added,” he explained.
With Covid-19 putting pressure on businesses across industries, the prospects of rising unemployment in a number of countries are high, leading to pressure on incomes. Hemmilä said HKScan would be ready to adapt its product ranges but insisted changes would not be significant. “It’s more fine tuning then than any major changes,” he said. “We’ve been saying that there’s no need to make big changes in our strategy due to the pandemic or recession, if that will come somehow.”
HKScan is halfway through a three-year programme that started in early 2019 to improve its profitability and, the company hopes, give it a stronger foundation upon which to grow.
Hemmilä said the company was able to grow its underlying EBIT in the second quarter despite the impact of Covid-19. “We were able to improve the comparable EBIT during the second quarter by EUR3.1m (US$3.5m) and, what is even I would say more important, the operating cash flow improved by EUR8.4m,” he explained. “We are happy with the development, even though the pandemic, during the second quarter, took away part of the improvement we anticipated to achieve. We estimate that the direct impact of the pandemic into our comparable EBIT was EUR2m in total.”
HKScan’s comparable EBIT reached EUR600,000 in the second quarter, versus a loss of EUR2.5m in the corresponding period a year earlier. First-half comparable EBIT was EUR9.1m, against a loss of EUR3.4m in the opening six months of 2018.
Hemmilä said HKScan saw “a few cases” of Covid-19 infections among its staff but insisted: “We have been able to isolate those very efficiently, so I’m happy to say we’ve been able to keep our whole supply chain in a good shape during the whole pandemic. There have been no big disruptions in our supply chain. That’s good work from the personnel when following the guidelines and keeping a high level of discipline in our factories and operations.”
The pandemic has had an impact on HKScan’s plans to build its presence in the market for meat-alternative products. Last November, the company announced it was teaming up with food firm Hes-Pro (Finland) to develop plant-based protein products and planned to launch into foodservice in Finland as a first step. “We were supposed to start the cooperation in foodservice in spring but, due to the lockdown in foodservice, we needed to delay the start,” Hemmilä said. “We need to take a take a new start after the summer period. Also the plan is also to go out with retail now with the plant-based protein products with Hes-pro as well.”
In May, HKScan announced a venture through which it would manufacture the Boltsi brand of oat-seed ‘meatballs’ for partner Leivon Leipomo. “We are starting to produce those products in our own production lines after this summer period,” Hemmilä added.
HKScan’s first-half net sales rose 3.4% to EUR869.8m.