Opportunities despite food sector pressures
A case in point was the recent move by Greencore to expand in the US.
The group has entered the US chilled food market with the acquisition of HMBF (Home Made Brand Foods) at a modest cost of $44 million (€28m) with a further potential charge of $10m due later, the company said.
This move was under review for about 18 months, and the group had a few key executives on the ground there, assessing prospects for the expansion of its core consumer range, produced by its British subsidiary, Hazlewood.
At a cost of less than €30m it can hardly be described as a major move, but strategically it may provide the group the platform for growth outside of its core market it has been seeking for some time.
Research by Davy Stockbrokers, who act for the company, paints a pretty positive picture of the underlying potential.
That said, the group still has to deliver and on that basis the markets will not be getting over-excited just yet.
Home Made makes freshly prepared foods for major grocers and & is in the same niche as its new owners.
Home Made expects to hit $40m in annual revenue this year and already plans are in place to drive that figure up to $100m in annual revenues.
While a date has not been put on that figure, the Irish group’s British and European operations are of such a scale that bumping up sale in the US to $100m is not being over-optimistic. In dollar terms, Greencore sales are close to $2bn worldwide, so a figure of $100m is just pin money to the group.
Its fresh ready-meal products and the management services of the group’s 30-year president, Rick Walters, gives the group an ideal platform too bring its product range and skills to the US in a low risk way and Greencore’s strategy to grow business in the US should be well served by this deal.
HMBF is located in Massachusetts, and employs 195 people. The company produces over 250 different products, currently packages 25 private labels, and develops and manufactures numerous special recipe products for the retail, food service and institutional trades.
Over the past five years the company has posted 25%-30% sales growth and is understood to be financially sound.
Its core market includes regional US supermarkets. Two key customers have well-developed private-label propositions, which fit directly with Greencore’s European operations.
Of greater interest is that the two customers, Hannaford and Stop & Stop, are owned by food retailers to whose Dutch and Belgian operations Greencore is also a supplier of private-label chilled foods.
Those relationships increase the significance of the HMBF acquisition and in theory offer Greencore substantial scope to build on these US connections.
While the acquisition is small, Greencore, with its strong product development and distribution abilities in its British operations, can transfer all of that knowhow to its newly acquired US outlets.
However the US market is huge and what works in Europe may not work there.
It is significant that Tesco recently announced it was halting the rollout of its retail offering on the East Coast until further notice.
That said there is a sense that for Greencore, the HMBF acquisition, is the starting point for a strategy in the US food sector, that offers massive potential.
Kerry Group and Glanbia have already created significant operations in that market and now Greencore could be on the threshold of something big there too.
