Blog: Dean BestWhy the US is not the "land of opportunity" for all

Dean Best | 27 April 2009

The saturated US market is a tough nut to crack for European food manufacturers and retailers alike. The mature and highly competitive nature of the sector certainly makes expansion a daunting task.

And yet, time and again, European companies are drawn to the US, where the food sector is worth in excess of US$600bn and is expected to grow by 40% over the next five years.

One company that last week claimed to be making “huge progress” in North America (/article.aspx?id=106285&lk=s) is Associated British Foods.

The UK-based Kingsmill-to-Ryvita maker’s North American consumer oils business has had a hard time of late, not least because it was locked into higher oil prices by forward purchasing contracts.

Despite announcing a 33% drop in pre-tax profits (/article.aspx?id=106284&lk=s), ABF remained upbeat on its full-year prospects and chief executive George Weston even hinted that the group was open to potential acquisitions in the US.

"If the right thing comes up we will have a look. We retain the appetite and capacity to do it," he said during a conference call.

Releasing its full-year numbers (/article.aspx?id=106283&lk=s) last week – and revealing that pre-tax profits topped GBP3bn (US$4.39bn) - UK retail giant Tesco also provided an update on its US expansion drive.

While the company remains firmly behind its move to expand in market, it claimed that unforeseeable economic conditions had put a spanner in the works of its US venture, Fresh & Easy (/article.aspx?id=106292&lk=s).

Fresh & Easy’s trading losses stood at GBP142m for the 12 months to 28 February, up from GBP62m a year earlier, and the chain failed to hit sales targets.

As a consequence, Tesco has taken its foot off the accelerator and slowed its store opening programme for Fresh & Easy. It has also evolved the Fresh & Easy offering
(/article.aspx?id=106300&lk=s), a move that perhaps adds weight to the argument that Tesco failed to hit the mark when it first launched the chain.

Nevertheless, as Neil Stern, senior partner at US retail consultants McMillanDoolittle, told just-food, Fresh & Easy still has the potential to win through in the end.

"The bottom line is that the business is growing slower than they had hoped and losing more money, initially, than [Tesco] planned. But, this really needs to be looked at in a long-term perspective. If they get it right, the opportunity remains enormous," he said.

Meanwhile, the news that Dutch group Wessanen is considering turning its back on the US and selling its North American businesses (/article.aspx?id=106314&lk=s) stands as proof that America is not necessarily the ‘land of opportunity’ for all European food groups.

Instead, Wessanen said it wants to sharpen its focus on natural, organic and speciality food categories in Europe, where it sees greatest potential for profitable growth.

Until next time...


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