Tale of two markets: Aryzta reports decline in US and growth in Europe
The Zurich-based manufacturer, which focuses on frozen and par-baked bakery products, has reported a 4% underlying decline in revenue from its Food North America division to €971.0m ($1.1bn) in the first half of its 2016 fiscal year.
Aryzta said revenue grew in retail and parts of the food service channel, but added the Quick Serve Restaurants (QSR) channel was proving “highly competitive.”
“As the consumer's perception of value is increasingly based on multiple variables, of which price is only one consideration, some customers are gaining share while others are losing out,” it stated in its 2016 interim report.
Volume decline in North America was being driven by the company’s underperformance in the QSR market, added Aryzta, alongside supply chain optimization and supply chain contract renewals. It said Food North America had also been impacted by higher ingredient, labor and freight costs.
The company said developing its branded position remained a “key part of the North American marketing strategy in the periods ahead,” adding that market response to the relaunch of La Brea Bakery and Otis Spunkmeyer portfolios had been “encouraging.”
European sales growth
Strong performance in the in-store bakery market had contributed to 4.7% underlying growth in the Food Europe division to €881.7m ($979.5m).
Aryzta said discount retail formats and “sophisticated supply chains” had driven above-average growth in European in-store bakery. The business added it had invested in new capacity that would come on stream over the next 12 months to support this growth.
“While isolated customer insourcing is expected to impact revenues, good progress in terms of expanding the European customer base through long-term partnerships has been achieved,” stated the report.
It added that, unlike North America, the European bakery market was experiencing price deflation, primarily as a result of lower soft commodity prices in the region.
Improved product mix
Underlying revenue growth in Aryzta’s Rest of World food division was 3.9%, to €107.3m ($119.3m), which was primarily due to an improved product mix, said the manufacturer.
Across the total Aryzta business, underlying revenue growth was 0.2%, to €1.9bn ($2.1bn). Underlying net profit increased 2.0% to €141.1m ($157m)
“Underlying revenue growth momentum continued to improve, although still 18 to 24 months behind prior expectations,” said Aryzta chief executive officer Owen Killian.
“Speciality food is a growth segment of the overall food market in Europe and North America where consumer demand was positive in the period,” he added. “Aryzta is well-invested and well-positioned to grow, because its recently invested infrastructure is the most relevant and most competitive for this market.”
Erratic revenue development
Killian admitted revenue development had been erratic for the past 12 months and “will be for a further 18 months as we commission and optimize our capacity.” He added that, during this period, customer insourcing in Europe and contract renewal in North America would negatively impact revenue by around 3%.
“We are focused on establishing a sequential growth pattern and view short-term earnings guidance as less relevant, until we deliver on this priority,” he said. “We are confident we can achieve our post-2020 strategic goals, for which the significant investment building blocks are in place."