Smithfield’s COO Larry Pope has said that the company’s growth strategy hinges on increasing sales of value added products and expanding into new markets – primarily Europe.
The comments were made whilst addressing the Prudential Securities Back to School Conference on Wednesday (6 September).
In order to grow profits, Pope said that the company intended to expand value-added sales where profit margins are higher. “Here’s how we see our Processed Meats business growing over the next several years: relatively stable minor growth in the traditional products and the value-added and convenience products growing dramatically,” he commented.
The company has invested substantially in developing its value-added business of late and Pope signalled Smithfield’s intention to continue moving in that direction. A strategy that would pay significant dividends, he assured investors.
“From a company standpoint, what we are doing is moving the product from … that one to two cent category [fresh] to this eight and ten cent category [value added/cooked], which gives us a profit margin five, six times the margins that we can get from the fresh category. Those are the products that are growing today. Those are the products we are spending US$354m [on developing].”
Rapid growth in these areas is being achieved through bolt-on acquisitions, Pope continued. Taking the pre-cooked bacon category as an example, the meat company’s COO documented Smithfield’s intensive expansion: “I’ll have in less than 12-months a 50% increase in capacity in that one category of pre-cooked bacon and I am starving for capacity as we speak.”
Smithfield’s international operations, Pope continued, are laying the foundations for the company’s future growth. “What we are doing internationally on an operational standpoint is building this company for the future,” he said.
Smithfield has identified Eastern Europe, with its upwardly mobile economies and access to the EU, as an attractive emerging market. Smithfield has invested in buying branded operations in Western Europe, namely the UK and France, and manufacturing facilities in Eastern Europe in order to use low-cost production in the east to meet the demand for high-margin branded meat products in the west.
“You get access to Western European markets by simply producing the product in Eastern Europe, putting it on a truck and driving it over there. So you buy the branded programme -which we’ve got French operations, we’ve got UK operations – you buy the branded programmes in Western Europe and you produce the product in Eastern Europe and you take advantage of the pure economics there,” Pope said.
Warning that this strategy looked to the long-term and would not produce an immediate profit lift, Pope said that the group had identified Romania as a good production base. “Romania is a place that we are extremely excited about,” he commented.
As the economies in Eastern Europe expand, Smithfield anticipates these markets becoming increasingly attractive – meaning that the company’s presence there will put Smithfield ahead of the game. “We have the ability to develop attractive markets. … We have a unique position,” he said.