Inter Link looks to niches for growth

- Last updated on GMT

Related tags: Inter link, Cakes, Material, Bread

Inter Link Foods has grown rapidly to become Britain's number three
cake maker, helped by canny acquisitions and lucrative licensing
deals. The challenge now is to push into new areas of growth, such
as healthy cakes, and mount a serious challenge to market leaders
Northern Foods and RHM.

Inter Link last week reported a 35 per cent hike in both full-year turnover and operating profits, to £69.6 million and £5 million respectively, shrugging off concerns such as the rising cost of basic raw materials by leveraging its diversified product portfolio.

Over the last 10 years, Inter Link has grown from a former media company with no assets and a huge cash pile to one of the most dynamic companies in the British cake sector - not generally known for its dynamism.

Through a series of acquisitions, Inter Link has moved steadily into a number of niche markets within the cake sector - including seasonal favourites such as mince pies and the country's best-known malt loaf brand, Soreen - at the same time carving a lucrative position for itself as a producer of own label cakes.

But it is the recent acquisition of the licence to produce a range of Disney-branded small cakes, and a new focus on healthy cakes, which are likely to drive further growth for the company.

Citing TNS market data, Inter Link said that the UK cake market had grown by 3.8 per cent in value terms over the last year, driven by higher prices and a move into luxury products, but healthy cake sales have risen by 18.5 per cent a year, and now account for 2.4 per cent of the total market. Inter Link's sales accounts for around 14.3 per cent of the UK cake market.

While Inter Link clearly sees great potential following its deal with Disney - the next major launch will coincide with the opening of animated movie The Incredibles later this year - the majority of its business remains focused on own label products, where it has generated far greater value than in the branded market. The company said it would continue to work closely with key retailers to develop new product lines this year.

But this growth has not come cheaply. Inter Link has seen a sharp increase in debt (to £19.8 million) as it invests in new plant and machinery for its various bakeries, not least the recently acquired Hoppers whose range of Christmas products proved particularly popular during the festive season. Working capital requirements have also risen as a result of the Hopper deal, with the seasonal nature of the business requiring an increase in stocks from August to October.

The company has also offset increases in raw material and packaging costs by buying greater quantities in bulk, again increasing the cost of stocks. A diversified portfolio also allows it to spread the cost of raw material increases.

Inter Link makes no secret of its aspirations - to be the UK's number two cake maker and number one own label supplier - and given its rapid growth over the last decade it would be a confident gambler indeed who bet on it failing to meet these goals.

Its dedicated focus on the cake market is its major asset, allowing it to adapt quickly to areas of rapid growth without significant additional costs, in contrast to larger rivals Northern Foods (which supplies a far wider range of own label foods including pizzas and ready meals) and RHM (whose Manor Bakeries supplies the Mr Kipling brand but which also has major bread, baked goods and milling businesses).

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