Greencore: Factory closures have tackled overcapacity

Speaking as the convenience food giant posted a 43% rise in operating profit* to €27.7m on sales up 2.1% to €434.5m, chief executive Patrick Coveney said: “For many years the ability to earn an economic return in chilled ready meals has been hampered by excess manufacturing capacity. ​

“There have been six scale factory closures in the last two years, which have gone some way towards rebalancing supply and demand. We now earn a return on capital in chilled ready meals much closer to our portfolio average.”​

Meanwhile, consumers that had “retreated​” from the category had started to return, he said. “The performance of prepared meals was significantly ahead of the same period last year.”​

The convenience foods market in the UK had also “moved on significantly from the uncertainty it experienced in the early part of the year”,​ he claimed.

American dream​

However, Greencore's fledgling US business was the biggest growth engine in the group, posting a 27% leap in sales in first-half, revealed Coveney: “A key driver of ​[US] growth has been food-to-go volumes, with our fresh manufactured sandwich offering replacing made-in-store lines at our grocery retail customers. ​

“Sales to date in the seasonally more important second half of the year have also continued on the same trend as the first half.”​

Ambient​
There was also strong growth from the firm’s ambient cooking sauces, pickles and salad dressings business, which had been subject to a significant streamlining programme to cut loss-making or uneconomic lines, said Coveney.

“Category profitability was well ahead of last year's first half although sales decreased by 8.7% due to the stock keeping unit rationalisation." ​

The cakes and desserts business had a “satisfactory first half in a difficult environment”,​ he said, with strong promotional activity denting margins. “Consumers generally have traded down in the category and reduced their purchasing frequency of higher tier lines.”​

Chilled and frozen​

There was much stronger growth in chilled soup (up 26%) “albeit from a small base”, ​said Coveney, while pasta sauce volumes “held up well”.​

The frozen Yorkshire pudding business had a solid first half despite increased competition, significant promotional activity, and a fire at the factory in Leeds in March, he added.

“The site was back in production in April albeit with reduced capacity until the re-fit is completed over the summer.”​

Desserts​

Greencore’s foodservice desserts business was trading “modestly ahead”​ of a flat market, he said. “We continue to focus on building scale trading relationships and are now the number one foodservice desserts supplier to leading foodservice players such as Brakes, Greene King, Caffé Nero and Whitbread.”​

Chilled overcapacity​

Operations managers contacted by FoodManufacture.co.uk agreed that recent closures had helped address capacity issues in the chilled ready meals sector, but said margins were still worryingly low.

One said: “Margins in some parts of the chilled food manufacturing sector have been squeezed so much that there is nothing left to screw out of us.​”

He added: “Kerry Group is the only one that seems to be making reasonable returns.”​

Another new product development manager in the sector said: “It’s really concerning, because we are not making the returns that you need to re-invest.”​

She added: “The frequent re-tendering for business is also really demotivating because you can’t plan for the long-term.”​

* from continuing operations