Interview: Jacobs Fruitfield
Jacobs Fruitfield has come through a radical restructuring as a much tastier prospect, thanks to its executive chairman Michael Carey, writes Fearghal O'Connor
Few people talk positively about a company that has fired them. Not Michael Carey. He has nothing but praise for Kellogg's who fired him in 2001. Nine years on, he is executive chairman of thriving Jacobs Fruitfield and he can afford to be sanguine. Carey had worked first as marketing director and later as managing director for various leading food brands in Ireland - Fox's, Jacobs, Evian, Volvic. He then moved to Kellogg's where he became managing director for the UK and Ireland.
"That came to a shuddering halt when
Kellogg's fired me. I didn't get on well there at all. I just didn't fit."
The breakfast cereal giant's way of doing of business was very different to
anything he was used to. "Anything that worked for me didn't seem to be
the Kellogg's way," he says. Kellogg's has a very strong business culture
of its own. It is very process driven. Large thick manuals outline the
"Kellogg way".
"My previous job as managing director with Fox's was very free and was more like running my own business, really. It was owned by Northern Foods which allowed the managing director of each subsidiary to run their own show. That was an environment that I greatly enjoyed. Moving into the multinational complex of Kellogg's was a big shock to my system. Kellogg's normally tend not to recruit at a senior level externally - they develop their own people in their own way."
But Carey was an exception and was recruited externally. They probably won't do that again for a while, he half jokes.
"The transition in culture was too big a jump for them and for me. But they are a great company. I often joked at the time that if you ever get fired by anyone you should get fired by Kelloggs. They handled the process very professionally."
The experience taught him a lot of lessons about how people should be treated when they are in the stressful position of losing their job. It was a lesson from which he would soon draw.
He arrived back in Dublin with a cheque in his pocket and soon, with some friends and people he knew from college (Lioncourt Capital founders Michael Tunney and David Andrews), he put together an investment vehicle. In 2002, they started a long process with the purchase from Nestle of its Irish long-life food business, including brands such as Chef, Fruitfield marmalades, Silvermints, Scots Clan, Yorkshire Toffees and Double Centres. Two years later they added the loss-making Jacobs Biscuits to their stable.
Carey is now executive chairman of one of Ireland's most successful food companies, winning market share from some of the biggest multinationals in the sector. He is the guardian of some of Ireland's best-loved brands (he adamantly refuses to divulge how he gets the fig into the fig roll, for example). He has even just been awarded 2010 Alumnus of the Year by UCD Smurfit School (as pictured left).
But all of that success has not come without pain. When Carey took over the business, it employed 400 people. It now employs 100 people after a decision to outsource much of its manufacturing abroad (the company still manufactures in Drogheda and West Cork). He credits Jacobs Fruitfield managing director Seamus Kearney for the success of what could have been a very difficult process. Kearney brought a wealth of experience from his previous role as chief operating officer in Aer Lingus, alongside Willie Walsh.
"His experience in Aer Lingus was hugely valuable for the challenges we faced here," he says. "The outsourcing was an emotional and difficult decision. In hindsight, it was absolutely the right thing to do. Had we not taken on that task, which probably should have happened 10 or 20 years earlier, then I would expect we would have gone to the wall. The Irish food industry is in a market where consumers are demanding value. The retail trade is demanding value.
"There is no way the sort of inefficient manufacturing facility we were operating could compete in the environment against the sort of competitors we were up against. Given what has happened since we went through those changes, we can now see that we would have been in awful trouble had we not made the changes. But today, we have a business that is stable and brands that are doing very, very well and we are positioned well for future growth. If we had not made that decision to outsource, our position would be very different."
The old biscuit manufacturing facility was massively under utilised, Carey explains. It was capable of producing about 80,000 tonnes of biscuits but was only producing 10,000 tonnes and that had been the case for at least 10 years. On top of that, the costs of doing business in Ireland, for example the cost of electricity, were crippling says Carey.
The company now establishes manufacturing lines in much bigger production facilities that manufacture a wide range of biscuits for other third-party clients. Jacobs Fruitfield maintains complete control over the production process, the recipe and the integrity of the product but makes huge savings because overheads are spread much wider.
"The end result of this is that our brands our now stronger than they were before," he says. "With some consumers, there was initial disappointment or concern that the products weren't going to be manufactured in Ireland. We still have some manufacturing here but when we were manufacturing everything here, the fact was that most of the ingredients were imported - the chocolate was imported, nobody grows biscuit flour in Ireland so that was all imported, nobody makes glass jars in Ireland anymore for our marmalades so they were imported.
"All the inputs for our products were coming from outside Ireland and we were converting them in Ireland with a relatively small group of people. It had moved to a conversion sort of operation. So, yes, there are fewer people working with us than there were, but there are now people working with us who have secure jobs and we can grow our business from where we are."
The key benefit was that the average price of Jacobs Fruitfield products on supermarket shelves fell about 15%. The company also had the money to invest heavily in branding and advertising. Consequently, volumes have increased and Carey says the last quarter was particularly strong.
"People are eating lots of biscuits," he says. "They are probably staying home a little bit more - they are having a cup of tea and a biscuit instead of going out to the pub which is great. Our brands are very strong and we have gained share in biscuits. Our chef brand has increased share over the last few years, again because we have invested more heavily in the brand. Food brands respond well to promotional activity or advertising activity."
Much of the company's recent growth has come from taking market share from multinational competitors. Many of the company's brands compete against major worldwide brands. Jacobs biscuits competes against McVities, Chef competes with Heinz, Silvermints competes with Trebor and Polo. Of course, virtually all of this competition takes place on Irish soil. Jacobs Fruitfield earns 90% of its €115m turnover in Ireland. It does about 10% of its business in the UK, France and the US but remains hugely dependent on Ireland, a situation that other large Irish companies have tried to break free from.
"Our strength is having very strong brands in the Irish market that can be defended, developed and grown," says Carey. "We don't have any brands with any strength in international markets. That is probably a weakness but it is also a strength. We are very focused here and that means we can compete against the multinationals in this local market."
Nevertheless, he says that a potential growth opportunity for the company is to try and replicate this model in other markets by buying well-established locally strong brands.
"That could work very well," he says. "I don't think we have the capability to develop and launch a significant brand internationally. Acquiring businesses is probably what would suit our approach best. We have looked very seriously at a couple of acquisition opportunities in the UK. Those opportunities come up fairly regularly and we look at all opportunities both here in Ireland and internationally."
He believes there is an appetite amongst international banks to fund acquisition deals that are sensible and give good synergies.
"If the plan is strong enough, I believe it would be fundable," he says.
Seeking out such deals is a constant process. The company had looked very seriously at some and passed them by and continues to look at others. But experience has taught him that flexibility is likely to be the key.
"The Jacobs model has worked for us so our preferred option would be to look at replicating it," he says. "But we are an independent, entrepreneurial type of business so we will look at opportunities as they come. If an opportunity comes along that involves doing something differently, we will still look at that opportunity. We don't have a "Jacobs Fruitfield way". We're not a Kellogg's. We are a small Irish business and we need to be flexible to look for opportunities."
Future of the food industry
Ultra-competitive sector with rich rewards
The food industry is a key industry for Ireland that is often ignored and has undergone massive change in recent times. It employs 80,000 people. Michael Carey believes that there is a real need for the Government to recognise the importance of the food industry more than it does. "The food industry is very integrated into the economy," he says. "For every €100 of product sold by the food industry, a huge proportion of it goes back into the Irish economy, much moreso than the IT industry or the chemical industry or pharmaceuticals.
"Food manufacturing is extremely important to the overall economy and I don't think the Government have necessarily given it the level of importance and support it deserves. It is a sector that will pay back handsomely if the opportunities are pursued, and there are huge opportunities for growth."
But these opportunities are only there for companies willing to compete in an ultra competitive world, he says. "There is absolutely no future for inefficient manufacturing in the Irish market or in any other market. Any market where there is downward pressure of prices, inefficiencies will be driven out.
"There is a future for well-invested, innovative food brands manufactured in Ireland. There is no reason why a business with an efficient manufacturing process cannot do
well here. There are lots of examples of very successful food and drink brands that are produced here and that continue to be produced here. Some of the older businesses have legacy and cost-base issues and such businesses can't survive.
"But there are some great manufacturing businesses out there: Cully and Sully and Goodfellas Pizza are just two examples. There is no reason why food manufacturing can't take place very successfully if businesses have addressed their cost base."
