Flexibility gives Greencore an advantage

Food and ingredients giant Greencore, which supplies own-label convenience food to well known retailers such as Tesco, Sainsbury's and Asda, is set to introduce a range of new products, from low-carb sandwiches and quiches to gluten-free sandwiches and soup, to test out growing diversity in consumer demands for health foods.

The company said that, amid a preliminary like-for-like sales rise of four per cent in the last year, 45 per cent of sales in its flagship sandwich business were for sandwiches making health claims, up from 25 per cent in 2002.

In its results statement, Greencore emphasised that an "increasing consumer understanding of, and interest in, the link between food and health provides significant opportunities for the group"​.

Frank Gaynor, Greencore's capital marketing director, believes the underlying trend in this area is "a big increase in the diversity of consumers' requirements only in the last couple of years"​, and he was keen to see how far the company could take advantage of this with its proposed low-carb, low-fat and gluten-free product launches.

Convenience and health were recently identified by market research company Leatherhead Food International​ as the most significant trends in UK food innovation alongside pleasure and indulgence. Although, market analysts Mintel​ recently said only 1.35 million out of Britain's 60 million inhabitants were following low-carb diets.

Gaynor said that Greencore was building up its whole convenience food sector in response to a "growing requirement amongst consumers for fresh convenience food"​, and that the company had a competitive advantage because its "business is geared towards having a high proportion of new product development in order to satisfy as many consumer requirements as possible"​.

However, he also insisted that Greencore "was in no way betting our future on health"​, and that the group had the financial and manufacturing capability and flexibility to drop new products without badly damaging profits if they failed to perform. Greencore said in its statement that the need for flexibility was why bigger companies like itself were likely to improve, whilst smaller companies with less production and distribution capability would lose out in the UK convenience food sector.

The company is the number one sandwich supplier to forecourts and multiples and is placed first or second in most of its convenience food markets, including chilled pizza, sauces and mineral water.

Alongside Greencore's emphasis on flexible production, the company also wants a more diverse source of income to decrease its reliance on major multiples.

Greencore currently only gets 29 per cent of income from retailers other than these, including forecourts, convenience stores and transport, and Gaynor wants this to rise to 35-36 per cent in the next three or four years. The company claims it has already secured deals with leading international fast-food groups as part of this strategy.

Behind this policy may lie a need for Greencore to insulate itself against rising raw material costs, cited by the company, along with several others, as a problem in 2004.

Some UK supermarkets have become notorious for selling products at the lowest possible price - a cost which can be handed on to the producer as has been the case with some UK dairy farmers. Without a decent alternative income, such a policy could see Greencore, which introduced price increases worth £17 million in 2004, getting squeezed from both ends.The company's unaudited operating profit for its convenience food division actually fell by £3.3 million (to £53.7 million) between 2003 and 2004 because of a three to four month lag in passing on higher raw material prices to customers. Company gross profits were up eight per cent to £73 million before tax.