The baked goods market in North America has changed dramatically in the last decade with the firms who once dominated the sector disappearing.
“The industry kingpins of a decade ago (Sara Lee, Interstate Bakeries, Weston, Earthgrains) no longer exist, while Bimbo (which acquired part of Sara Lee and Weston) and Flowers, have emerged as the new sector leaders,” said Davy analyst Cathal Kenny.
Davy believes Aryzta is well placed with recent acquisitions to expand through mergers and acquisitions in the North American market.
“Aryzta are uniquely focused on bakery whereas erstwhile kings were part of diversified concerns for which capital allocation to bakery may have been ruled out,” said Mr Kenny.
The company which grew out of the 2008 merger between IAWS and Swiss group, Hiestand, has already began making acquisitions in the US which boosted its returns last year. So far the company has acquired Otis Spunkmeyer (2006), Fresh Start Bakeries (2010) and Maidstone Bakeries (2010).
As a result of the acquisitions Aryzta has attracted some of the biggest American baked goods customers.
“All three acquisitions enhanced Aryzta’s operating footprint in North America; it now has greater access to customers with growth ambitions such as McDonald’s, Subway, Starbucks and Tim Hortons. Such customers have made the revenue line more sustainable with improved visibility,” said Mr Kenny
As a result of the acquisitions Aryzta is looking at changing its business model to accommodate the fast food sector, or quick-service restaurants, as Davy refers to them.
“Efficiency is critical in a quick-service restaurant because of the comparatively small size of the average cheque, the need to keep this affordable for the socioeconomic customer demographic and the high claim that food and labour costs make on this.
“The paradigms of retail and quick-service restaurant are very different,” he said.
Davy continues to rate Aryzta as outperform.