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Greencore:  shining  star  or  question  mark?                

Fall  16  

08  Fall  

UCD  Michael  Smurfit  Graduate  School  of  Business    MKT40620:  Corporate  Marketing  Strategy      

Student  name:  Mai  Pham  Student  ID:  14201496    

Mai  Pham  Greencore:  shining  star  or  question  mark?  

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 Executive summary This report reviews Greencore’s product portfolio across four major divisions using the Boston Consulting Group’s growth-share matrix (Aaker & McLoughlin, 2010) It is found that Greencore’s major revenue driver, its food-to-go segment, is the star of the overall business, while the ready meals and grocery segments are cash cows which provide a stable inflow of revenue to support the growth of the star business. Greencore’s US division is currently a question mark, with its high investment and low market penetration, yet it has strong potential of becoming a star with Greencore’s aggressive investment strategy. This report chooses to not examine the Ingredients and Property division, as it accounts for only 5% of group revenue. The report concludes that Greencore is a star overall, with its strong financial performance in the past and clear strategic focus for the future. Company overview Established in 1991 following the privatization of Irish Sugar, Greencore entered the convenience food manufacturing business in 2001 (Greencore, 2014). It has grown strongly through acquisitions, and by 2014 has become market leading in the majority of convenience food categories. Now Greencore supplies private label products to major retailers in the UK, including Marks & Spencers, Tesco, Sainsbury’s, Asda, Waitrose, Spar (Greencore, 2014). Greencore business consists of 4 major categories: Food-to-go (FTG), Ready meals, Grocery and the US food-to-go business (see figure 1 for Greencore’s revenue components) Figure 1:

Greencore achieved positive financial results for 2014, with 7.4% growth in revenue and an operating margin of 6.5% (see Figure 2) Figure 2: selected financials

40%  

20%  

20%  

15%  

5%  

Revenue  breakdown  

Food  to  go  

Ready  meals  

Grocery  

US  Business  

Ingredients  &  Property  

Mai  Pham  Greencore:  shining  star  or  question  mark?  

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 Source: Greencore Annual Report, 2014 The following sections will examine each of Greencore’s product portfolio with reference to the BCG’s growth-share matrix (see Appendix 1 for detail description of the matrix). Food-to-go category Greencore’s FTG product line includes sandwiches, salad and sushi, in which sandwiches account for 79% of sales (see Appendix 2 for sales breakdown). Greencore’s decision to focus in the FTG segment is driven by the market’s strong potential for growth. The UK’s sandwich market is still relatively small at £6 billion, with strong year-on-year growth of 10%, which makes for a very attractive market option. Figure 3: UK’s food market, by size and growth rate

Source: Greencore Annual Report, 2014 Greencore’s FTG business has consistently delivered positive growth and outperformed the market in 2014 with growth of 15.3% (see figure 4). Greencore currently dominates the sandwich market with 44% of market share Figure 4:

Source: Greencore Annual Report, 2014 A major acquisition took place in 2011 when Greencore acquired competitor food group Uniq in for £113 million. The deal was reported to increase Greencore’s sandwich production volumes by 50% and brought on board major customers including Marks & Spencer (Kavanagh & Wembridge, 2011).

Mai  Pham  Greencore:  shining  star  or  question  mark?  

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 Figure 5: FTG sales growth following Uniq’s acquisition (Goodbody Research, 2014)

Source: Goodbody research, 2014 Greencore’s FTG is forecasted to grow by 8% annually for the next 4 years (Goodbody Research, 2014), driven by the strong growth in the number of convenience stores (see Appendix 3), an major investment of £30 million in its Northampton facility and a £60 million business win from Marks & Spencer.

Figure 6:

Source: Goodbody research, 2014

According to the BCG growth-share matrix, Greencore’s food-to-go segment can be considered the star of the business portfolio, as this is a high-share, high-growth category, generating substantial revenue while requiring large investments. Goodbody forecasts that Greencore could see FTG revenue to grow to £1bn (75% of group revenue) by 2018.

Prepared meals and grocery

Mai  Pham  Greencore:  shining  star  or  question  mark?  

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 Greencore’s prepared meals category includes chilled ready meals, quiche, pasta sauce and soup, while grocery includes cooking sauces, table sauces, pickles and desserts. Similar to sandwiches, Greencore supply these products to as private labels to major retailers. These two categories are market leaders in their respective sectors, which have experienced decline or modest growth in recent years. In 2013, the prepared meals sector experienced a slight decline (-0.4%) due to a combination of factors, the most prominent of which was the horsemeat food scare (Price, 2014). The market was predicted to return to growth of 1.9% in 2014 (Figure 7). The market for cooking sauces and seasonings has seen consistent decline both in values and volumes (Figure 8). Value growth in 2014 is estimated to be -2.8% Figure 7: UK retail value sales of prepared meals, 2008-18

Source: Mintel, 2014 Figure 8: UK retail value and volume sales of table sauces, seasonings, pickles, 2009-19

Source: Mintel, 2014 Reflective of market trends, sales of Greencore’s prepared meals was flat in 2014 (0.2% growth) while sales of grocery grew slightly by 1.1%. Despite the lack of growth, Greencore’s prepared meals and grocery businesses still generate significant income (40% in total of group income, approximately £600 million) as market leaders within their respective segments (see Figure 9 for market share).

Mai  Pham  Greencore:  shining  star  or  question  mark?  

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 Figure 9: Market share of leading categories

Source: Greencore Annual Report, 2014 Thus, it can be seen that both prepared meals and grocery are cash-cow categories in the BCG matrix. They do not require significant investments as they have established leading positions in flat markets, yet they generate a stable inflow of revenue to support the high-growth sandwich business. USA Business The US’s convenience food market is valued at 36 billion, with positive growth across multiple categories (Figure 10) Figure 10

Soure: Greencore Annual Report, 2014 Greencore entered the US market in 2008 through a series of acquisitions across multiple food categories. Over the years, the company has refined its strategy by focusing on key FTG offerings to cater to the faster-growing convenience stores and coffee shops channels. Its key customers include Starbucks and 7-Eleven, who have both experienced strong growth in the US and are therefore key drivers of growth for Greencore (see Appendix 4).

86%  

42%   37%  22%  

Private  label  cooking  sauce  

Italian  ready  meals  

Quiche   Soups  

Mai  Pham  Greencore:  shining  star  or  question  mark?  

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 In 2014, Greencore’s US operations achieved a like-for-like growth rate of 15.3% (Figure 11). Figure 11:

Source: Greencore, 2014 In 2014 Greencore acquired Lettieri’s, a leading manufacturer of frozen convenience food products. The company is also making major investments in Jacksonville, Rhode Island and West Coast to create its own geographical footprint across the continent (see Appendix 5). Total investment is estimated at US$85 million (Goodbody Research, 2014) For now, Greencore’s US Business can be considered a question mark according the BCG’s growth-share matrix: the US convenience food market is large with attractive potential for growth, yet Greencore’s US division currently only accounts for 15% of overall revenue, in comparison with its “star”, the UK’s sandwich business, which contributes 40%. The strategy with question marks is either to keep investing to turn them into stars or to divest/exit. Considering Greencore’s aggressive investment plan, it can be seen that the company is determined to win in the US market. Analysts are optimist about Greencore’s US prospects. According to forecast by Goodbody, US sales will continue to enjoy double-digit growth, and US margins will reach group average of 6.6% in 2017 (Figure 12 and 13) Figure 12

Mai  Pham  Greencore:  shining  star  or  question  mark?  

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  Figure 13

Source: Goodbody research, 2014 Conclusion The above analysis sheds light on the underlying rationale for Greencore’s overall strategy for 2015. Since the sandwich category is growing strongly in an attractive market, it is a star which requires substantial investment in order to stimulate further growth. Thus, Greencore considers sandwich their #1 focus: “To deepen food-to-go leadership” in order to “deliver attractive returns on capital employed” (Greencore, 2014). The prepared meals and grocery categories dominate their respective markets and generate stable revenue, yet limited market growth potentials make them unattractive options for investments. Greencore therefore keeps them as cash cows, as reflected in their #2 strategy: “to have market leading positions in complementary convenience food category” with the purpose of supporting relationships with key customers and providing stable cash flow (Greencore, 2014). The US’s business is currently a question mark as it operates in a high-growth market yet generating low revenue and market share, however as the above analysis indicates, it has a strong potential of becoming a star business, driven by strong overall market growth, Greencore’s aggressive investment plan and solid customer base. This is reflected in the company’s #3 strategy: “To win in the UK and US markets” (Greencore, 2014) This report contends that Greencore is a star overall. The company has performed well despite tough market conditions, has clear, focused and ambitious strategies for high-growth markets while utilizing revenue from more stable markets to support them. (Ford, 2014)

Mai  Pham  Greencore:  shining  star  or  question  mark?  

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 Works  Cited    Aaker, D. & McLoughlin, W., 2010. Strategic Market Management: Global Perspectives. Ford, R., 2014. Table Sauces and Seasonings - UK - December 2014. [Online] Available at: http://academic.mintel.com/display/679708/?highlight.  Goodbody Research, 2014. Greencore: Bucks the trend. Goodbody Research.  Greencore, 2014. Annual Report & Accounts 2014. [Online] Available at: http://www.greencore.ie/content.asp?topic=financial_statements&page=313.  Kavanagh, M. & Wembridge, M., 2011. Greencore agrees £113m Uniq takeover. [Online] Available at: http://www.ft.com/intl/cms/s/0/7f0b625a-ac5c-11e0-bac9-00144feabdc0.html#axzz3SUATVawI.  Price, A., 2014. Prepared Meals Review - UK - May 2014. [Online] Available at: http://academic.mintel.com/display/705119/.