Still, the European A-brands, the ‘captains’, and specialised private label producers (the ‘specialists’) have been able to improve their return on capital, according to a new report from Rabobank.
The key strategy for the captains has been the acquisition of established brands in sizeable European markets. Specialists are expected to continue acquiring local private label suppliers to increase the scale of their operations.
Consumption of frozen foods in Europe is being challenged by rising consumer preference for fresh products and is showing little growth. Annual growth in frozen foods markets averaged 1.5% between 2006 and 2011 but a number of companies managed higher rates during that period, especially the leading branded companies and the specialised private label producers (ie the ‘captains’ and the ‘specialists’).
The main explanation for the observed outperformance in return on capital employed of the captains and specialists versus other branded companies lies in the acquisitions made during the last five years which have led to significant market share gains, according to the research.
The captains have strengthened their market presence in Europe with acquisitions of other brands operating in the same segments. Similarly, specialists have sought to achieve scale through acquisitions of local private label suppliers across Europe.
The economies of scale attained through these acquisitions have contributed to efficiency improvements in terms of both higher profitability and higher asset returns.
Captains aim for future growth of their brands and to this end seek access to market-leading positions in more European markets, a strategy that has proved successful and is likely to be continued in the near future.
The specialists’ outperformance flows from a continued demand for private label frozen foods and the rationalising of private label supply. Growth and efficiency opportunities have triggered specialists to acquire local private label suppliers. Subsequent economies of scale and scope have generated higher returns on capital employed.
Source: Rabobank
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