Greencore is eyeing further M&A as the Ireland-based private-label business seeks to expand its food-to-go offering to all meal occasions.
Chief executive Patrick Coveney, speaking to just-food today (27 November), says Greencore is more likely to embark on one or two smaller acquisitions in 2020 instead of a single, large transaction, and in areas that build on its recent purchase of Freshtime, a UK-based manufacturer of salads and chilled snacks.
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Coveney says chilled snacks are still a small part of the business, a category Greencore needs to grow from outside the current line-up of eggs snacks and sandwich products, either through M&A or organically. However, the company has no plans to enter new categories beyond food-to-go or new markets after exiting the US to focus on the UK.
“In simple terms, what we want to do is to take our business from what I would describe as a largely sandwich business focused on the grocery channel supplying lunchtime food, to a food-to-go business that’s truly multi-channel and that’s providing products throughout the day,” the CEO says. “And that sets up a path of looking to build growth and scale in some product categories that we were much smaller in like meal salads, fresh sushi, chilled snacking items and hot food for breakfast.”
It has been a challenging 12 months for Greencore having sold the US operations to Hearthside Food Solutions for US$1.1bn in October last year, a move that required a “reset” of its business model, and to be, as Coveney describes, “more specific on the sources of growth”.
Having expanded its salads offering, and to a lesser degree the chilled snacks business, following the Freshtime acquisition, he says “we would like to continue to do that through organic investments into our existing network with existing customers but also other M&A activity that looks a little bit like the model of Freshtime”.
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By GlobalDataThe CEO continues: “I think we are more likely to stay in the food-to-go area but that would be with a pretty broad definition of what food-to-go is. We are very clear that it must be, and will be, much more than just a fresh sandwich.”
Further down the line, in the next two to three years, the CEO says Greencore could instigate “multiple deals in or around the size of Freshtime”, which was purchased for GBP56m ($72.1m).
“We have a clear strategic mandate to actually do that [M&A] but it will be dependent on us finding businesses that are a good fit and we are able to execute those acquisitions at a price and a deal that works for us,” he says.
Greencore reported annual earnings this week consisting of a mixed bag of results. Revenues dropped 3.5% to GBP1.45bn, while operating profit climbed 0.9% to GBP105.5m. Profit before tax surged to GBP56.4m from GBP17.8m.
Coveney says the decline in the top line was due to its recent exit from the cakes and desserts category, along with the closing of a contract with high-street retailer Marks and Spencer, but he expects revenue growth to return in the New Year.
Greencore has a “medium-term goal” to achieve mid single-digit organic growth, with Coveney hoping that will materialise in the coming year but with the uncertainty of Brexit and the UK general election presenting risks.
Last year, he said the UK food-to-go market would grow twice as fast as markets in general. However, he now says that did not materialise in 2019 due to factors related to the economy, “specific issues within parts of UK grocery”, and “very demanding comparative periods”. Nevertheless, he expects the out-performance to return in 2020.
He continues: “If we can get to a more kind of normalised economy and political system where we have some stability in terms of direction and some clarity on what’s happening with Brexit, and consumers and businesses see that and can invest and spend with greater clarity, then as that happens we would expect the market growth to come back.
“Then we would be confident that we could grow a bit faster than the market and so the combination of those two things would bring us back to that mid single-digit level. I hope it will happen in 2020 but we will have to see.”
Innovation is also playing a part in Greencore’s growth aspirations. Coveney says 2019 was a standout year, including a hive of activity around plant-based, vegan and vegetarian products, translating to 300 new SKUs brought to market in those areas, treble the previous year. Overall, of the 2,500 SKUs produced last year, 1,200 were new products, he says.
“I think the industry [plant-based] will be there for sometime. So I think it’s a really important part for our innovation and product development agenda.”
And as the year nears a close with a new one about to begin, Coveney is hoping Greencore can inject some velocity through M&A and product innovation, notwithstanding the risks associated with Brexit and upcoming elections.
Asked to sum up the challenges for 2020, he says: “I think the market remains challenging and some of that we can influence but a lot of it we can’t. What we need to be within a difficult market, is we need to execute really, really well, and then we’ve got to get traction on the growth parts of our strategy. I’d like to see us really get some top-line momentum back into the business, so that’s a big part of what we are going to be doing.”
