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Competition intensifies in potato field as overcapacity puts pressure on profits.

In the highly productive and competitive Benelux potato sector, it seems that the big players are getting bigger while many of the others hustle to keep pace. With the economics of scale looming even larger in a frontierless, pan-European free trading system, some analysts speculate that there is room for only a few major processors, plus a handful of small concerns serving niche markets. They expect that eventual consolidation among several of the mid-size companies could form a strong No. 3 player to rival share leaders McCain and Aviko.

Meanwhile chronic overcapacity, which has led to a spate of bankruptcies in the Benelux, Germany and France during the past several years, remains a serious problem. And with current raw material prices scraping bottom at six to seven cents a pound in the Netherlands due to surplus stocks further supplemented by bountiful harvests in eastern Germany, it is especially challenging to make money in the commodity french fry business.

"Acreage is up considerably in Europe, resulting in an oversupply of four million tons on the market. Thus ware potato prices are very low," Tom J. Bey, marketing manager of the Den Haag-headquartered Dutch Potato Board, told Quick Frozen Foods International. "Next year plantings will probably decrease, which should bring a rebound in prices."

Adding to the current pressure on profits is a trend among major supermarket multiples throughout Europe to pool their buying power and exact deep discounts from suppliers. Chains are cooperating to purchase pre-fried, frozen potato products in large volumes ranging from 30,000 to 120,000 tons per order.

That notwithstanding, this magazine's autumn survey of leading marketers of industrially processed value-added potatoes in the Netherlands and Belgium found optimism regarding mid-and long-term business prospects. With an eye toward potential EEC-financed potato exports to Russia and other former Soviet states this winter, one producer remarked: "Prices are so low now that they can only go up."

But he hastened to caution: "Capacity in Europe is growing faster than demand, which is the real reason why prices have fallen. It has nothing to do with high yields, because elsewhere in eastern Europe harvests are down. You combine all this extra tonnage with rising unemployment, and it's clear that a lot of budget-minded consumers have found the time to peel their own potatoes again."

Harvest Efficiency

Farmers in the Benelux remain by far the most efficient potato producers on the Continent. The Dutch, who specialize in growing the prized Bintje variety in reclaimed, sea-clay fields, realized 38.6 tons per hectare in 1991 - good for total output of almost 6.95 million tons. Their counterparts in Belgium and Luxembourg got 38.1 tons per hectare, or 2.13 million in all. By comparison, growers in the United Kingdom and Denmark averaged 35.4 tons a hectare, accounting for 6.26 and 1.45 million tons respectively. France and Germany checked in at 32.6 and 29.8 tons, totaling 5.57 and 10.201 million tons.

More than 800,000 hectares, or 20% of total arable land, is devoted to raising spuds in Holland. The Dutch produced over 918,000 tons of value-added potato products in 1991, of which pre-fried items accounted for almost 90%. Frozen's share of the total was overwhelming. A whopping 822,000 tons was exported, with EEC countries buying more than 95% of the total. Germany was by far the best customer, taking 258,000 tons. The UK received 173,000 tons, while 115,000 tons were shipped to France.

Clearly, the European market for frozen potato products continues to grow annually at solid rates of between 5% and 8%, with sales in the fast food sector posting even healthier increases in the range of 10%. While french fry consumption - which accounts for 80% of all frozen potato sales - seems to be stabilizing in the more mature markets of northern Europe, demand continue to grow in southern tier countries.

"Spain's potential is especially strong," said Tom Bey "Currently sales there favor catering by a ratio of 80-20 over retail, which is exactly opposite of the market mix up north. So the retail sector has plenty of room for expansion. But a lot of promotion must take place to educate consumers on how to prepare fries at home."

Van Den Broeke

Despite the squeeze on profits caused by tough market conditions, frozen potato manufacturers in the Benelux have apparently not skimped on capital spending for new plant and equipment. "This isn't a business for those out to make a quick return. Money must be reinvested every year to upgrade productivity," explained Etienne Sandra, marketing manager of Van Den Broeke NV, Leuze-en-Hainaut, Belgium.

The company, which turns out about 110,000 tons of finished product annually, has installed a state-of-the-art water purification system and is building a new warehouse capable of storing up to 80,000 tons of unprocessed potatoes. Some 90,000 cubic meters of cold storage capacity for finished product, already on site, accommodate 20,000 pallets.

With factories in Leuze and Waregem, Van Den Broeke lays claim to being Belgium's No. 1 potato processor. The diversified group, which is involved in everything from cultivation to processing and marketing, offers a range of more than 30 specialities sold primarily under the Lutosa Haute Cuisine brand name and private labels. Such items represent 20% of output, while chips or french fries dominate with a 75% share. Mashed potato flakes account for the other 5%.

More than four-fifths of production is exported, mainly to France. Both catering and retail markets are served. For the latter, a line of Pom'Duchesse products in 400g boxes and 1,000g bags was recently introduced featuring individual vegetable blends of broccoli, carrots and celery. Also new are mashed potato purees available in 500g packs and 2,000g bags.

Other items in Van Den Broeke's Bintje-based potato range include cottage pie tops, pre-fried croquettes, noisettes, parisiennes, rissolees, pom'pin and pancakes. The specialities are hits in Japan, said Sandra, who anticipates further growth there thanks to menuing at popular Western-oriented fast food restaurants such as McDonald's and Quick.

Van Den Broeke has also reported success in selling to air carriers in Britain, Japan, Singapore and Taiwan. "Those are the kind of customers we like to have - they don't mind paying for quality," said the marketing manager.

With satellite sales offices in France, Spain and the UK, the Belgian potato products supplier hopes to further build its private label and co-packing businesses. "We can pack orders of as little as 200 tons if the price is right," said Sandra. "Small customers are courted just as earnestly as large ones."

McCain Foods

Without a doubt, Hoofdoorp, Holland-based McCain Foods is king of the hill in Europe when it comes to frozen potatoes. Its Netherlands base looks after the Dutch market as well as those in Germany, Italy, Scandinavia and Belgium.

Paul van der Wel, McCain CEO for Continental Europe, underscored the importance of recent shifts in Holland geared to boost performance. "High quality products and efficient factories with low production costs are essential for our future growth in Europe," he said.

Among steps taken last year was the closure of a plant in Weerkendam. The first McCain factory on the Continent, it was acquired in 1972. The production line and all 30 employees of the facility were transferred 20 kilometers away to subsidiary Keizer BV in Waspik. In the process the production capacity of the Keizer operation was doubled.

Elsewhere, the expanded and upgraded Lewedorp plant went on line in the fall of 1991. An investment equivalent to $25 million doubled output and contributed $5 million to new environmental controls including waste water treatment facilities.

The Lewedorp production line, now fully operative, has the highest labor productivity of any McCain plant in the world, according to van der Wel. The expansion created an additional 25 jobs, bringing Lewedorp employment to 110 people. The Lelystad factory, acquired 14 months ago, is now running three shifts with the help of 105 workers.

Aviko

Steenderen, Holland-based Aviko BV, which processes more than 600,000 tons of raw potatoes per year, is second only to McCain in the frozen sector. But it can rightly claim to be the largest such producer of European origin, since McCain's roots are in Canadian soil.

Peter G. Dekker, marketing manager, told Quick Frozen Foods International that the share of the Dutch market commanded by Aviko and sister Pommy brand products is 40%. Noting that value added potatoes comprise one of the fastest growing retail segments, he expects volume increases to continue for some time. This is notwithstanding the fact that home meal-makers peel their own potatoes an average of four times a week.

Aviko offers an extensive lineup of french fries in various shapes and forms including juilienne, crinkle cut, steakhouse, oven and frying chips. Specialities range from scalloped potatoes and rosti vegetable mixes to baby roasts, pommes parade, mini croquettes and potato hearts.

Deeply involved in producing chilled value-added potato products for the catering sector, Aviko ranks as the largest such supplier in the world. It introduced a new line of refrigerated french fries for snack bars and chip stands at October's SIAL Exhibition in Paris. With an eight-day shelf life, the product can be prepared either in a steamer or microwave oven.

The marketing manager is not worried that sales of chilled potatoes will cut into frozen's volume: "Both categories will continue to get bigger in Europe."

On the frozen side, Aardappel-Schotel was unveiled recently. The recipe features a tasty combination of sliced potatoes, bacon bits, onions and mushroom pieces. A colorful 450 gram bag sells for 2.89 guilders, which is about double the price of a like amount of regular fries.

"Aardappel-Schotel offers a good profit margin for all concerned - retailers, caterers and the manufacturers," said Dekker. "We're advertising it on television in Holland, Germany, Czechoslovakia and Poland. Admittedly, though, development in the latter two nations is apt to be slow."

While the above product is thought to have Europe-wide appeal, Aviko is ever mindful of the importance of regional tastes, which are reflected in more than 25 different offerings for the foodservice market. "In Belgium people eat croquettes like french fries, while in Holland sliced potatoes are most popular. In Spain it's croquettes with fillings," explained Dekker. "And in the UK and most of Holland it has to be ovenable, while in Belgium and the south of Holland frying is preferred."

Europe is Aviko's primary market, with the Netherlands taking 25% of production. Additional tonnage of both branded and private label products is exported to customers in the Middle and Far East, North America and Japan. Sales offices are situated in seven European countries.

Fri-D'Or

"The market is tough, but so are we," Carlos M. Matthijs of Fri-D'Or told QFFI when asked to sum up today's business climate. "Our strategy will continue to be centered on quality, even though pressures on pricing are strong."

The Bergen Op Zoom, Netherlands-based marketing manager was pleased to report that production last year was up some 20%. "We're supplying 37 countries now, and markets are still growing in many of them," he said, ticking off France, Germany, Holland, the UK, Ireland, Spain, Italy, Greece and Scandinavia as especially active.

Fri-D'Or, the potato processing unit of Hazelwood Frozen Foods Plc, has also charted some success in the UK with its baked potato and potato waffle products. Thus far, however, such items have not traveled well on the other side of the English Channel.

The company is very keen on market segmentation sales approaches in moving its menu of prefried products that range from regular chips and cheese and broccolifilled potato shells to potato flakes and mix fantastique (a blend of leeks, corn, onions, carrots, green peas, paprika and potato bits). "The French market favors long and tiny 6 x 6 fries, while in Germany and Holland it's the 9 x 9 that is popular," advised Matthijs. "The British prefer 12 x 12s, or even 14 x 14s - the bigger the better. In Sweden the chip has to be oven-prepared, and the browner the better. The Italians, on the other hand, want yellow fries that are almost as thin as spaghetti."

Fri-D'or used the SIAL Exhibition venue to roll out a new line of upscale black and gold packages to the German and French retail trades. Available in one-kilo bags and 450g boxes are sunflower oilfried pommes frites, rissolees, sautees, noisettes, croquettes, mix fantistix and long fries.

More than seven-million guilders were invested in new equipment and plant upgrading last year. While the company's branded business is important, some 80 to 85% of volume is in private label. Major European retail supermarket multiples are among its leading clients.

Meijer

Kruiningen, Holland-based Meijer Frozen Foods BV is a vertically integrated company that produces some 95,000 tons of french fries per year, in addition to 7,000 tons of flakes.

"We concentrate on quality-oriented catering and fast food markets," said J. den Hamer, marketing and sales director. "On the retail front, our Butler brand packs are pushing ahead despite the fact that their cost is higher per pound and per unit."

With more than 70 years in the potato business, Meijer has been active in the frozen sector since 1985. Controlling the production process from the time of planting seedlings to the point of packaging and distributing finished products, it specializes in turning out "extra length" fries that yield more portions per case.

Pommes frites offerings run the gamut form 6 x 6mm juliennes and 11 x 11mm crinkle cuts to 10 x 10mm steak fries and 9 x 18mm Big Butlers. Other products include pommes parisiennes, sautees, rissolees, croquettes and noisettes.

As for raw materials, the Bintje is used almost exclusively But Hamer thinks that there is room for expansion of the Turbo variety. "The french fry industry is moving more toward using purpose-grown potatoes with specified lengths," he advised.

Does Meijer see a future for frozen baked whole potatoes in Europe? "They could develop slowly into an acceptable catering item, assuming there is ample promotion," said Hamer. "But we are not interested in making them. Baked potatoes, like other specialities, require short factory runs. That means expensive down time. Because of low margins, the name of the game in this business is high volume. The plant has to keep running without interruption."

Meijer's mid-term plan is to aggressively drive its established Butler label in export markets. Eleven sales offices are strategically situated throughout Europe and Saudi Arabia (it claims to have 60% of the latter market). The UK connection is Harpenden, Herts-based Curtis Knee & Co.

"We are looking at Poland," noted Hamer. "And a joint venture has been set up for the recovery and processing of starch with the Raisio Group of Finland. We're also supplying them with frozen fries for upscale market clients."

Lamb-Weston

American potato processing giant Lamb-Weston has entered the European market in earnest. Operating for more than a year now from an upgraded plant formerly run by Gerant in Eemshaven, Holland, present capacity is limited to 50,000 tons. That's "small potatoes" for an outfit whose whole USA output exceeds 1.6 million tons annually

"This is only the beginning," said Victor J. Phaff, a Dronton-based export-marketing consultant who is advising the company "We believe that after 30 years of eating ordinary fries in Europe, consumers are ready for new tastes and different shapes of things to come."

He was referring to the seasoned, Cajun-style Twisters and CrissCuts that Lamb-Weston has introduced to the United Kingdom and Continental markets. Twisters, which feature curls cut from whole jacket potatoes, provide good plate coverage and heat retention in a "fun-to-eat form." Crisscuts, a lattice sliced product, are promoted as signature starters (appetizers) or side dishes.

Until recently they were only available to caterers in regular, or non-seasoned flavors. Now not only foodservice operators can choose alternative spiced-up offerings, but they are also being packed for retail accounts.

Time Will Tell

Phaff has high hopes that in time the various traditional potato-eating preferences of Europeans will be expanded to accommodate zestier-tasting pommes frites. The UK market, which has been consuming onion-, garlic- and barbecue-flavored crisps for years, has already reacted favorably to cheddar cheese- and Cajun-style spuds.

Nonetheless, Lamb-Weston is not putting all its potatoes in one basket. "Regular straight cut french fries will still be supplied, because wholesalers need this staple," said Phaff. "And spiced and non-spiced natural wedges will soon be brought out to supplement the range."

Continental Strategy

Backed by a 1 million pound sterling television and public relations campaign in Great Britian, Lamb-Weston has reportedly achieved a store distribution level of 70% there. Now focusing on the Continent, plans call for pushing branded items particularly hard on the catering front, while forging private label alliances to penetrate the retail sector. Such is the case in France, where it has joined forces with VICO s.n.c. of Vic-sur-Aisne to distribute Twisters, CrissCuts and Southern-style products. Meanwhile, other sales organizations have been established in Italy and Spain.

Eurofreez

Eurofreez NV of Proven, Belgium, turns out between 15,000 and 20,000 tons of frozen potato products annually. And while french fries are tops in terms o volume, cheese croquettes are the biggest money maker, reported Alan D. Palmer.

"It's a very particular Belgian product that is also in demand in northern France," added the former UB McVitie's marketing man. "We've expanded the range with the introduction of Apero Cheese, a snack product aimed at the convenience food segment. Other fillings featured are chicken and shrimp."

With Eurofreez's factory situated just five kilometers from the French border, it comes as no surprise that France is the company's leading export market. More than half of all output - valued at 430 million francs - is sold abroad. The UK ranks second in non-domestic sales. "I think our croquette products will make real inroads into the British catering sector," said Palmer.

In Belgium, the manufacturer is active in supplying retailers with private labels. On the foodservice front, plans call for bringing out a new french fry called the Belfrit. It will be made of high standard, large-size potatoes.

The company's chief shareholders are Belgian potato merchants. Optimistic about the future, Eurofreez invested 30 million francs during 1992 to improve its chip line. This year that expenditure will be doubled to increase capacity and upgrade coldstores.

Tolsma Storage Technology

Maintains Produce Quality

Tolsma Techniek BV, Emmeloord, based in the heart of the Dutch potato growing area of the Noordoost Polder, is a trailblazer in storage technology for agricultural products.

From its founding 25 years ago, with a testing laboratory for the development of potato storage systems, Tolsma has led the way to today's high standard of high-efficiency storage and become market leader in its field.

Maintaining optimum quality without the loss of efficiency in the storage of potatoes and other crops has made Tolsma a familiar name to Dutch farmers. At a time when storage losses of 12-18% were considered acceptable, for example, the company had already developed a probe to monitor the temperature inside mountains of potatoes.

Four patents have been granted to Tolsma, and its innovations range from triangular ventilating ducts to removable partitions, climate-control computer, and software for product quality control.
COPYRIGHT 1993 E.W. Williams Publications, Inc.
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Title Annotation:News from Europe
Publication:Quick Frozen Foods International
Date:Jan 1, 1993
Words:3217
Previous Article:Smooth-running Benelux exporting machine passes global recession by ... thus far; Quick Frozen Foods International magazine's annual, in-depth study...
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