Key insights from Greencore's Coveney

Over 150 leaders from almost every sector of Ireland’s agrifood industry descended on the Intercontinental Hotel, Dublin, for the launch of the 2017 Agribusiness Report, which is published by the Irish Farmers Journal in conjunction with KPMG.

The keynote speaker at this year’s event was Greencore chief executive Patrick Coveney, who discussed on stage with the Irish Farmers Journal’s agribusiness editor Eoin Lowry, the transformation and growth of the Greencore business over the last five years.

With a 60% share of the UK sandwich market selling over 1bn sandwiches a year, Coveney said one of the key pillars of the business is actually the consistency in consumer food tastes as much as anything. He added that while a lot of innovation takes place “around the edges” of the sandwich industry, the biggest selling sandwich in the UK today is the BLT, just as it was 20 years ago.

Coveney added that the UK sandwich market grew by 7% over the last 12 months, which he attributes to the fact that very few new office builds in the UK include canteens, meaning workers are having to buy their lunch more than ever.

Coveney says when he first started in Greencore there was a perception that if the business didn’t have a consumer-facing brand it was an inferior company. However, the solid underlying food-to-go trends in the UK mean that Greencore is seen today as a very strong B2B food brand.

Acquisition

Greencore’s recent acquisition of the US convenience food manufacturer Peacock Foods for $747m will be transformative for the group’s operations in the US, effectively quadrupling the size of their business there, according to Coveney.

The acquisition of Peacock Foods comes after close to a decade since Greencore first entered the US market, a period during which Coveney said the company had learned to adapt its strategy specifically for that market.

The Cork native shared an interesting anecdote from 2008 when, not long after Greencore made its initial investment in the US, he had the opportunity to speak with Kerry Group’s Stan McCarthy, who simply asked him whether the company could afford to write off all of the US investment should it come to it. McCarthy added that in his experience of entering new markets, the value of the initial investment can end up at zero.

Coveney says this has become true of the group’s initial investment in the US, which has been written down over the years as Greencore’s strategy in the US market has evolved and adapted.

US business

He added the group’s US business today differs hugely from its UK business in terms of the manufacturing process and sales channels. In manufacturing terms, the US is more large scale and industrial with orders locked down weeks in advance compared to the UK fresh business, where Coveney said the business didn’t even have orders locked down for tonight yet.

In terms of sales channels, Coveney said 99% of Greencore’s UK customer base are retailers compared with the US where 90% of its customers are consumer packaged goods (CPG) or consumer brands companies like Tyson Foods, Kraft Heinz, Kellogg or Nestlé.

He said the one constant was that food businesses had to add value to their customers and cannot rely on multi-year supply contracts.

Listen to Patrick Coveney and other speakers from the event in our podcast below:

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Perhaps one of the key takeaways from the discussion was Coveney’s summation of the UK retail sector. He said that while UK retailers were starting to pass cost inflation from sterling devaluation and wages on to consumers, the level of cost pressure on retailers today was massive.

He described the performance of the large UK retailers over the last five to six years as “disastrous”, with the aggregate profitability of UK supermarkets about one-third of what it was in 2011.

“One of the responses to that has been a massive cutback in the level of central costs. Tesco has just under 40% of the workforce it had six years ago. What that means is that the areas the retailers used to do themselves they are now looking for suppliers to do instead and that might be about food safety, product development, auditing, category management and, increasingly, distribution,” said Coveney.

In the US, he said the Brazilian private equity firm 3G Capital, which acquired stakes in companies like Anheuser Busch, Kraft and Heinz, had “terrorised” the management teams of the domestic American food industry, with concepts like zero-based budgeting.

On Brexit and migrant labour

On Brexit, Coveney said that Greencore is not particularly exposed to Brexit given that its businesses in the US and the UK manufacture products from locally sourced produce to be sold in local markets.

However, he said the food industry in both the UK and Ireland cannot operate without migrant labour.

Despite 35% of Greencore’s UK workforce being EU nationals, Coveney remains confident migrant labour will continue to flow into the UK in the years ahead.

“I don’t think you will end up with materially different levels of immigration into Britain post-Brexit than before. There will undoubtedly be a greater level of control that the British state will have but the absolute numbers of people coming in and out for the food industry is unlikely to change,” he said.

From an Irish perspective, Coveney believes the collective system in Ireland, including business, political, civil service and regulatory sectors, had done a “pretty nice job” on Brexit and a much, much better job than their UK counterparts.

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Irish Farmers Journal/KPMG Agribusiness Report 2017