- - news, features and articles for the meat processing industry

Featured Articles

Buy-and-build Strategy in Europe's Frozen Foods Market

09 February 2013


The mature European frozen foods market is characterised by modest growth and challenged by growing consumer preference for fresh products.

Still, the European A-brands, the 'captains', and specialised private label producers (the 'specialists') have been able to improve their return on capital, according to a new report from Rabobank.

The key strategy for the captains has been the acquisition of established brands in sizeable European markets.

Specialists are expected to continue acquiring local private label suppliers to increase the scale of their operations.

M&A is the key growth strategy in the frozen foods sector and the remaining sizeable local brands are likely to be the next acquisition targets.

Consumption of frozen foods in Europe is being challenged by rising consumer preference for fresh products and is showing little growth.

Annual growth in frozen foods markets averaged 1.5 per cent between 2006 and 2011 but a number of companies managed higher rates during that period, especially the leading branded companies and the specialised private label producers (i.e. the 'captains' and the 'specialists'). This stagnant demand pattern has not translated into stagnant returns for all players.

The main explanation for the observed outperformance in return on capital employed of the captains and specialists versus other branded companies lies in the acquisitions made during the last five years which have led to significant market share gains.

The captains have strengthened their market presence in Europe with acquisitions of other brands operating in the same segments.

Similarly, specialists have sought to achieve scale through acquisitions of local private label suppliers across Europe.

The economies of scale attained through these acquisitions have contributed to efficiency improvements in terms of both higher profitability and higher asset returns.

Captains aim for future growth of their brands and to this end seek access to market-leading positions in more European markets, a strategy that has proved successful and is likely to be continued in the near future.

The specialists' outperformance flows from a continued demand for private label frozen foods and the rationalising of private label supply. Growth and efficiency opportunities have triggered specialists to acquire local private label suppliers.

Subsequent economies of scale and scope have generated higher returns on capital employed.

Juliette Kuiken, Rabobank Food & Agribusiness Research analyst said: "Both the captains' buy-and-build strategy and the specialists' consolidation and acquisitive growth are likely to continue as the European market provides little opportunity for greenfielding.

"Expecting no significant changes in consumer demand, and given the successes of previous acquisitions, these strategies will be important for further value creation."

Where the trend for consolidation will move next depends on existing brand fragmentation in European markets.

The initial strategy for captains is to buy local brands in those countries and segments where they are not yet dominant.

Some local and segment-specific brands are still market leaders in selected regions and they should prepare for more competition from the captains.

For specialists, opportunities for expansion exist in markets where the share of private label in frozen foods is still lower than the industry average (37 per cent) and private label is expected to pick up in the coming years.

On the other hand, it may be the more mature private label markets-which require even more focus on cost efficiencies-that drive acquisitive growth by specialists to go after economies of scale.

Further consolidation among private label suppliers in mature markets should, therefore, not be ruled out.

December 2012

Our Sponsors


Seasonal Picks

Meat Cuts and Muscle Foods - 2nd Edition