August 22 2014 Latest news:
Friday, September 21, 2012
The recent revelation the owner of Robinsons, which has a factory in Norwich, is in merger talks with the company behind Irn Bru has attracted much attention in recent weeks.
But look at what is happening across the wider food and drink industry and it perhaps becomes less surprising.
There has been a flurry of activity over the summer which has not only seen Britvic line up the merger, but Premier Foods selling off brands including its jam and jelly brands to rival Hains Celestial – which has a Fakenham base.
Experts predict there is more to come.
Craig Hodgson, Norwich partner and head of food and beverage at Mills and Reeve said he anticipated there would be more consolidation.
“It wasn’t long ago that Cranswick bought Bowes,” he said. “It was one of the last independent processing facilities and I can see there will be some future consolidation in the poultry sector.”
He believes the costs of investment for independent businesses, with increased feed and commodity prices, would be a driver. “The drought in the US is going to create higher feed prices which is going to impact on the profitability of the sector as well,” he added.
“If you are a privately owned entity it is hard to increase capital in the market too. The likes of companies like 2 Sisters are seeing this as an opportunity to acquire businesses to grow their reach.”
He added: “Where we are moving to is fewer and fewer independent processors with more consolidation internationally and bigger and bigger players in the market who are looking to consolidate operations on bigger sites. It is going to be a very dynamic sector.”
So what are the advantages of becoming a bigger company in a merger, or part of one?
Another Norwich-based business – Kettle Foods – was acquired by US food giant Diamond Foods in 2010.
Kettle’s UK managing director, Dominic Lowe, who is based at the Bowthorpe factory, said the new US owner had been a good partner, even though there had not been that much overlap in products.
He said: “They made a £7m investment in the plant and we have taken on an extra shift which has been very good for local employment.
“I think the advantages for us were based particularly on brand, but we can also talk about sunflower oil prices [with Diamond Foods] and make sure we are getting a good deal across the Atlantic. There is a bit of synergy,” he added.
But he said looking at the wider sector the recent activity was driven by economies of scale including purchasing economies, distribution economies, warehousing economies.
But he also said a key driver of a merger was having “power brands” such as Robinsons and Irn Bru.
He said: “The more power brands you have, a soft drink buyer will be very interested in talking to you.”
But what are the issues to overcome with a change of ownership?
In a previous role Mr Lowe had supply chain and commercial roles at Cadbury Schweppes until 2007. Cadbury was part of one of the highest profile takeovers in the sector in recent year when it was bought by US owned Kraft.
Mr Lowe said: “One of the big things people talk about in mergers is culture. Cadburys had a unique style of doing things and Kraft has its own US style.
“I know it was slightly tricky at the beginning, but not because the business did not fit.
“It settled down quite well and Cadbury had a very good Olympics.”
He said: “There is a lot of activity around. The art is to find complementary brands which work together.”
But he said it was not just mergers and acquisiton that were taking place, but demergers too.
Mr Lowe said a prime example was United Snacks which has recently taken on Kraft UK boss Nick Bunker as CEO to demerger KP snacks from the main business.
He said this had been done as the private equity owners had been unable to sell the business as a whole.
Premier Foods could also been seen as a demerger as it sells off its brands.
Mr Hodgson said: “Premier bought up a war chest by acquiring lots of businesses and it was acquiring lots of debt,” he said.
“It is going through a pay off process.”
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