“The structure of the €5bn [£4.17bn] western European table sauce market has been remarkably stable over the past few years, with local brands retaining their market share,” said Rabobank analyst Juliette Kuiken, author of the Consolidation in European table sauces report.
“However, in such a fragmented market with heavy competition, the average EBIT [pre-tax profit] margin of the manufacturers of smaller, local brands and private label has declined from 5% to 3.5% [in the past five years] as retailers were reluctant to raise retail prices despite rising commodity prices.”
And operating profit margins among smaller players had dropped by 30% over the same period.
Raw material costs
A big reason for this had been rising raw material costs, which had significantly outpaced increases in product prices, Kuiken said. Retail sauce prices rose by 2% last year, but vegetable oil prices, for example, rose by 7–9%.
Processors had shifted to cheaper ingredients, but doing this had helped push prices for these components up as well.
Differing consumer tastes from country to country had made it difficult for any one manufacturer to dominate Europe, Kuiken said. However, the exception was Heinz, which had risen above this.
The company had extended its retail and distribution networks in France by acquiring national brand Bénédicta in 2008 by snapping up UK firm HP Foods in 2005, said Kuiken.
Focused on rationalising portfolios
Kraft and Unilever could compete with Heinz if they chose to do so, but table sauces were not their core business and they were focused on rationalising their portfolios, she added.
Branded and own-label offerings localised to particular countries would struggle to achieve the same international expansion as Heinz, she said. But cross-border or local consolidation provided a way for them to grow, she added.
For that reason, further consolidation was expected in the market.