Interview

Patrick Coveney: Greencore

9 February 2017 | By Edwin Smith

Behind-the-scenes sandwich seller Greencore is exporting fresh UK food know-how to US convenience consumers

Dublin-headquartered Greencore manufactures half of all the sandwiches sold on the British high street, but set its sights in November 2016 on international expansion with the $747.5m acquisition of US firm Peacock Foods. Greencore has had operations in the US since 2008, but the FTSE 250 firm will see its US turnover quadruple as a result of the Peacock acquisition, bringing US revenues almost in line with those from the UK, where total group turnover reached almost £1.5bn last year. Greencore chief executive Patrick Coveney explains the thinking behind the deal and how he hopes to prosper on both sides of the Atlantic.

Q: Why did the acquisition make sense, strategically?
A: For reasons both of market opportunity but also of risk mitigation - we wanted to have some balance to our UK business by having a strong business in another geography or set of geographies.

We really liked the US market but felt that our business was fundamentally sub-scale relative to the opportunity. We had been looking to see whether we could step up our business through acquisition in America, but now we remain focused around the same kinds of products that we were making already, which included things like prepared sandwiches, meal kits and salads. The acquisition gives us the ability to operate as a national player, with the efficiencies that come from that and with access to customers that we wouldn't previously have had.

Q: The acquisition was completed after the US election and was planned before the EU referendum – any second thoughts?

A: We think our strategy stood up very well before either of those geopolitical changes, but actually it may be even more important given the political uncertainties that have unfolded since.

I don’t share a lot of political views with the new US President or have a particular admiration for his way of doings things but, I would say that his economic principle – what he calls ‘America First’  actually meshes pretty well with our business model. We're manufacturing and investing in America for sale to Americans, with American employees. At worst, we should be pretty well protected from any policies that are currently being contemplated.

Q: Greencore is listed on the London Stock Exchange, but headquartered in Ireland. Does that give you a different perspective?

A: I think if you come from a very small market then you naturally tend to develop your business model for a new market more specifically. If you start off in a larger market like Britain, there can be a tendency to force-fit your existing business model to the new market. I think that's a point of difference.

Q: Are US customers very different to UK sandwich consumers?

A: The underlying consumer trends are similar, but the way in which the supply chain is configured is different. The UK is quite a concentrated geography, so you can manufacture fresh sandwiches, for example, in one place and ship them to everywhere in the UK in one day. You can’t do that in the US. The distances involved mean that fresh food supply chains don't work anything like as well; US consumers eat a lot more product from frozen.

Then you have some taste trends. Typically the quantity and specificity of protein in America is more developed than would be the case for the UK. Another trend is that more food is bought from specialist food service outlets by people on the go in the US, whereas grocer retail plays a greater role in the UK.

Q: What are the big cultural differences beyond sandwiches?

A: The US tends to operate with a good-news culture. So everything is always great. In order to cut through that, it's very important to centre discussions about performance, management or budgeting around specific data rather than just sentiment.

In terms of the industry, the UK the food market is really about relationships with five significant retailers. In the US you've got five retailers per state. There are only really two national retailers. So you are have to re-do your business model on a state-by-state basis.

When it comes to the US Department of Agriculture and the Food and Drug Administration (FDA), the application of regulation varies by state. We've learnt over time which states are better suited to our business and which aren't.

In terms of workforce, we’re building out steadily in the US. I think it would have been very difficult for us to make an investment of this scale in the US if we didn’t have nearly a decade of experience of operating in the market.

Q: Convenience food supply chains tend to involve transport and packaging – neither of which is ideal from a sustainability point of view. Is it an issue?

A: A big part of it is joining up our supply chains to our customers, trying to get more scale and more efficiency. There’s a real focus on managing waste through the system and the carbon footprint of our products. For example, the essence of our business is that we manufacture locally for sale locally. So we tend to have short shipping distances. Most of our ingredients are fresh which, in the UK, means they’re sourced from the UK as well. So we think the sustainability credentials of our business relative to other parts of the food industry are very good.

Q: Is there more international expansion to come?

A: I think we're likely to prioritise the UK and the US for performance and growth for the next couple of years. After that, we'd be open to finding markets where we can partner with customers that we currently have in the UK or the US and work with them elsewhere. But I think it will be a relatively modest part of our management and board attention for the next two or three years.

 

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