Kerry growth hit by promotion increase

04-Nov-2011 - Last updated on 04-Nov-2011 at 12:58 GMT

Competiton for consumers has lead to increased promotional activity at Kerry

An increase in promotional activity due to competitive consumer spending across the UK and Ireland has blunted performance in Kerry Foods third quarter results, the firm has said.

Kerry’s consumer foods division reported 1.6% volume growth in the nine months leading to September 30. This reflected 2.8% growth in the UK and a decline of 2% in Ireland.

The Richmond and Mattessons brands still performed strongly in the UK in the face of the increased promotional activity, the firm revealed in its interim management statement.

In customer-branded areas of the UK market, the firm’s results were boosted by a strong performance from its chilled ready meals offerings, the statement revealed.

The firm also said performance in the own-label spreads and cheese sector in the UK was “adversely impacted” by heavy promotional campaigns by major brands.

Kerry described its performance as “solid all across all regions” despite restrained consumer spending and increased competition in a number of markets.

Economic challenges

Frank Hayes, director of corporate affairs at Kerry, told Food Manufacture.co.uk: “Consumers are seeking value and quality more than ever. There is a continuing trend of economic challenges with manufacturers looking increasingly to product innovation to broaden their offerings to customers.”

Overall group sales revenue in the first nine months increased by 7.9%, reflecting like-for-like growth of 7.3%. Business volumes were also ahead 3.9% in ingredients and flavours.

Kerry’s ingredients and flavours division also saw continuing growth, achieving an increase of 3.6% in the America region, a 2.6% rise in Europe, the Middle East and Africa and a 10.1% volumes increase in the Asia Pacific market.

Net debt rose slightly to just over £1bn, but the group said that it remained on target to grow earnings per share by 8p to 12p for the full year.

Meanwhile, in the frozen meals sector newly acquired Headland Foods performed in line with expectations as the firm awaits full approval on the deal from the Competition Commission.

Last week, Kerry was provisionally given the green light to complete the deal for Headlands after it had been referred to the commission following complaints from retailers, who accused the firm of demanding price hikes of up to 30%.

Green light

Despite Kerry blaming the increases on rising costs, the Office of Fair Trading referred the deal to the commission in July.

Following the news, some of the firms’ customers, including Iceland, subsequently found more suitable terms elsewhere. As a result, the commission ruled that the deal did not leave retailers with a lack of supply options.

Last Tuesday (October 25), Competition Commission deputy chairman and chairman of the Kerry/Headland Inquiry Group, Laura Carstensen said: “The response to Kerry/Headland’s initial post-merger price rise showed that customers do have sufficient supply alternatives readily available and at a competitive cost.

“Although it would appear that these alternatives were not fully realised prior to the merger, their existence and the availability of further capacity, if necessary, should put a brake on price rises from Kerry in the future.”

Stakeholders now have until November 15 to submit any further information to the commission before the deal is rubber-stamped.