Frigoscandia Leads the Way In European Frozen Food Logistics.

For fully half a century now, Frigoscandia has been Europe's foremost provider of logistics services to the frozen food industry. From the very beginning, the company's visionary founders dreamed of building an expanding cold chain which, link by link, would reach across the Continent to inter-connect growers and primary food processors with further-processors, retailers and catering outlets.

The first block in today's sprawling 5.5 million cubic meter capacity operation spanning 12 countries was laid in May of 1950 when the Helsingborg Fryshus commercial refrigerated warehouse opened in Sweden to store frozen peas and other bulk vegetables for Findus. That very important customer, the predecessor of Swedish Nestle, pioneered development of frozen food commerce in Scandinavia and points south.

While Nestle's frozen commodity businesses have recently been sold to EQT Scandinavia BV, to this very day Europe's largest food company remains a key client of Frigoscandia across the Continent. Indeed, it handles almost 80% of Nestle's outsourced storage requirements. That is pretty hefty volume, considering that 60-70% of Nestle's distribution is performed by third parties.

"We are relying on Frigoscandia to create cost-effective logistics for the coming increases in the flow of processed foods for export to the rest of Europe," said Gunnar Lundgren, who oversees Nestle supply chain activities in Scandinavia.

Frigoscandia serves over 7,000 customers in Europe -- large and small. In striving to enhance seamless supply chain integration activities, it has further bolstered positive synergies with the Continent's leading food manufacturers and retail chains.

"Relations with our two pan-European customers, Unilever and Nestle, have been strengthened," stated Thomas B. Svensk, president and chief executive officer of Frigoscandia. "In the United Kingdom, Frigoscandia Ltd won a storage contract [in 1998] from Nestle, and an important transportation agreement was signed with Unilever to manage its entire distribution needs. Both Nestle and Unilever regard us as a `preferred supplier,' and we are continuously preparing solutions for their logistics problems in many parts of Europe."

Euro-minded from Day 1

The year of Frigoscandia's creation -- a time when per capita consumption of frozen foods in Europe was less than one kilo compared to 30kg today! -- was historically eventful in many ways. Gustavus VI succeeded his father as King of Sweden. Construction of the United Nations headquarters building was completed in New York. In Europe, Matisse began work on the Vence Chapel. International Bach Year was celebrated in honor of classical music genius Johan Sebastian Bach. At the same time, "Cool Jazz" was evolving from Charlie Parker's Bebop school of improvisation.

At Frigoscandia's Helsingborg Fryshus "all that jazz" was about keeping foodstuffs "cool and collected" at -30 degrees Centigrade and providing value-added ancillary services. Such was music to the ears of satisfied customers who recognized the value of putting storage and distribution responsibilities into the capable hands of third-party specialists. They realized the inefficiency of tying up capital in bricks and mortar when outside professionals could be entrusted to assume post-production warehousing and logistics requirements at significant savings in time and money compared to in-house operations.

Frigoscandia wasted no time in branching out to provide freezing services for clients. "Outsourcing" was not then the buzz word it is now, but it was nonetheless a concept whose time had come. Today some customers give Frigoscandia responsibility for every aspect of storage and distribution handling -- from picking and palletizing to marking and EAN-coding.

Early Proponent of Outsourcing

Fifty years ago, Frigoscandia Group Managing Director Tore Lauritzson, backed with financing from the Malmros Rederi shipping company, embarked on the mission of convincing food manufacturers that it was impractical to build their own private warehouses and cope with the day-to-day challenges of running such expensive installations at a profit. The economics of scale, he pointed out, affected both capital and operating costs inasmuch as one meter of storage space cost approximately twice as much to maintain in a 10,000 cubic meter facility as in a 100,000 cubic meter refrigerated warehouse.

Lauritzson's idea about third party warehousing and distribution, revolutionary in Europe at the time, was the seed from which a thriving international refrigerated logistics service business was born. Today, as part of the ProLogis Group, Frigoscandia claims to be the "only global temperature-controlled distribution network." It operates 87 facilities catering to the European market from Norway to Spain, and from the United Kingdom to Austria and beyond. Across the Atlantic sister company CSI runs another 31 refrigerated warehouses and distribution centers in the USA, controlling 169 million cubic feet of space at strategic sites located from New Jersey to California. In Asia, Frigoscandia sub-contracts the services of eight refrigerated warehouses for key multinational clients such as IKEA.

"Our overall objective is to provide customers with total logistic solutions, whether international or regional in scope," President Svensk told Quick Frozen Foods International magazine. "We take full responsibility for the customer up and down the supply chain. As more companies consolidate and opt to out-source non-core activity services on a pan-European basis, we are increasingly the logical partner for them to place their faith in when it comes to warehousing and distribution."

It is interesting to note that Frigoscandia started out in business one year before the six original members of today's European Union (France, Germany, Italy, the Netherlands, Belgium and Luxembourg) put Jean Monnet's scheme for post-war stability and prosperity into action back in 1951. By 1958 Frigoscandia's international expansion had begun in earnest as it entered the United Kingdom to open a refrigerated warehouse in Grimsby. Six years later refrigerated warehousing operations were launched in Germany with the opening of a facility near Frankfurt at Gross Gerau.

By the mid-1970s vegetable processing on behalf of clients in the UK was in full swing in King's Lynn. At the same time, a number of new facilities came on line in Sweden, Denmark, Great Britain, France, Italy, Switzerland and Australia. By the decade's end, joint venture agreements had been signed in a number of countries, including Austria.

In 1978 AGA acquired Frigoscandia from Malmros Rederi. A decade later Cold Stores in Denmark and Ostlandske Fryserier in Norway were added to the Group's holdings.

In 1992 came the acquisition of CEGF in France and the purchase of a majority position in Germany's Bremerhavener Kuhlhauser. A major milestone was reached in 1994, when Frigoscandia shares were quoted on the Stockholm Stock Exchange. In 1995 the company was bought by the ASG Group. Two years later it was acquired by ProLogis, an Aurora, Colorado, USA-headquartered real estate investment trust then doing business as Security Capital Investment Trust.

Operating across the Continent, Frigoscandia is by far Europe's leader in the refrigerated warehousing and distribution field. It ranks first in commercial volume in five of six major countries, as illustrated by the market shares shown graphically on the chart below: UK, 21% of the 6.8 million cubic meters of space available; France, 35% of 6 million cubic meters; Sweden, 37% of 1.7 million cubic meters; Denmark, 21% of 1.4 million cubic meters; Norway, 48% of 300,000 cubic meters. Only in Germany is it No. 2 at the moment with a 16% share of the 6.5 million cubic meters of refrigerated space available.

Fifteen countries and 370 million people currently make up the European Union, which boasts a gross domestic product of $8.357 billion and per capita income equivalent to $22,351. Twelve potential new member states are knocking on the EU's door -- including Poland and nine other nations from Central and Eastern Europe.

"Europe will be growing for some time to come as more countries join the EU. We are well positioned to grow our business along with the geographic and economic expansion," said President Svensk. "To accomplish our goals we will continue to be acquisition-minded and invest primarily in distribution warehouses. Our strategy will avoid new involvement in dedicated factory warehouses, unless there is an open-book proposition involving cost-plus compensation."

Svensk has been at the helm as Frigoscandia's chief for almost five years now. In the spring of 1999 he and a cadre of highly skilled personnel moved from administrative headquarters in Sweden to the company's new executive and sales offices in the suburban London confines of Slough. Just 10 minutes away from Heathrow airport by automobile, the location is ideally situated to facilitate business travel which frequently takes the president and his lieutenants across the English Channel or over the "pond" to the United States.

"It's also more convenient to participate in teleconferences with my US-based chairman from here," said Svensk. "The time difference from Britain is only seven hours, compared to eight hours from Sweden. So there is some overlap as the end of our scheduled work day corresponds with early morning office hours in the US."

Parent company ProLogis (formerly operating as SCI) acquired all shares of Frigoscandia from the Swedish ASG Group on Dec. 31, 1997, for $395 million (before deduction for net debt). The global provider of integrated distribution services, whose market capitalization in 1998 was over $5.1 billion, has 172.3 million square feet of distribution space operating or under development at 1,500 distribution facilities in 94 international markets.

"ProLogis wants to see Frigoscandia grow its business as fast and as profitably as possible," said Svensk. "Its ambition is nothing short of maintaining a global logistics presence second to none."

With that very much in mind, Frigoscandia has continued to carefully target expansion-oriented multinational clients with increased services ranging from total distribution networking and instantaneous on-line information access to inventory control management. Indeed, its "Top 10" customer list -- which accounts for 31% of annual revenues -- reads like a "Who's Who" of Europe's leading information technology-driven companies that just happen to be leading producers and marketers of ice cream, frozen ready meals and vegetables.

Supplying foodservice end-users is also an important aspect of Frigoscandia's activities. From McDonald's and Pizza Hut to Burger King and Kentucky Fried Chicken, the fast food restaurant and QSR segments have long been catered to. More recently the company has entered into new territory by handling all food distribution responsibilities for IKEA Home Furnishings stores worldwide. From Stockholm to Paris and from Los Angeles to Taipei, Frigoscandia oversees complete warehousing and distribution of the company's foodservice and grocery products (see story on page 14 of this section).

With the IKEA contract -- which involves taking title of foodstuffs -- Frigoscandia is exporting its expertise deep into the United States and Asia. Still, Europe remains where the company's primary focus is.

As President Svensk sees things, the potential for organic growth is great. He explained: "Frozen food and ice cream, to a large degree, are still considered as luxuries in much of Europe. Look at per capita consumption figures relative to the USA, where the average American eats 85 kilograms of frozen food products each year. It's currently no more than 50 kilos in the UK, 40 in France, 32 in Germany, and only 24 in Spain.

The CEO is convinced that countries in southern, central and eastern Europe are poised to chart significant upticks in frozen food consumption. This belief no doubt had something to do with Frigoscandia's purchase of Internacional Frigorifica, S.A. (Interfrisa) in September of 1998. The acquisition gave it warehouses and temperature-controlled transport operating from five locations: the Port of Barcelona, Terassa, Mercabarna and Valencia.

The plan is to boost share of market from 6% to 20-25% in short order, as Frigoscandia aims to roll out from Barcelona to Madrid. A further ambition is to develop good customer relations and assets on the Iberian Peninsula. This includes Portugal, where land owned close to Lisbon could be developed when the time is right.

Italy is also being eyed for additional investment possibilities.

Looking eastward, much opportunity is seen in Poland, the Czech Republic and Hungary -- each of which has a reputation for producing high-quality food. Indeed, Frigoscandia was on the verge of inking a deal in one of those countries when this story was being written. "Leave some space open, because we will probably have an announcement to make before you go to press," said Peter Carlin, vice president of marketing and human resources. He is especially enthusiastic about prospects in a number of promising countries in the early stages of developing market-oriented economies.

More Consolidation Coming

The growth ambitions of ProLogis has enabled Frigoscandia to analyze, identify and acquire good fits to complement and enhance its pan-European network. In the last two years it has invested approximately SEK 900 million in extensions, new buildings and acquisitions.

"Unlike in the United States, consolidation in Europe's refrigerated warehousing sector has not really started yet," Svensk told Quick Frozen Foods International. "There are few public companies on the scene. Our competitors tend to be strong in size but weak in terms of financial resources. Family companies are surviving, but more are coming to realize that the time for them to cash out is near -- if not already here."

Meanwhile, concentration of retail and production sectors is intensifying in Europe. Holland-headquartered Royal Ahold NV, one of the largest food retailers with over 4,000 stores in 32 chains around the world, has acquired the six-unit Mercasol and four-unit Las Postas supermarket multiples in southern Spain. It reportedly has 10 other regional chains under consideration for possible purchase.

The Ahold Group, which recently ran a "Global Champions" promotion featuring hundreds of discounted products, is closely coordinating buying of foodstuffs and services to maximize economies of scale. The company increasingly favors doing business with large suppliers capable of quickly and efficiently delivering at competitive prices.

In France, Carrefour and Promodes recently agreed to a friendly merger to create Europe's largest supermarket multiple and the world's second biggest retailer after Wal-Mart Stores, Inc.

Speaking of the Bentonville, Arkansas, USA-based giant, WalMart aims to almost double its current $130 billion in annual sales to $250 billion through a combination of domestic growth and aggressive international expansion. Having already shaken up the German retailing establishment in 1998 with the acquisition of Wertkauf as well as 74 InterSpar units in 1998, a year later it caused a stir in Britain by announcing an agreement to acquire Asda Group PLC (the United Kingdom's third largest supermarket chain) for $10.8 billion.

Bigger & Fewer Factories

On the food production side, it's plain to see that the trend among large conglomerates such as Nestle and Unilever is to manufacture at fewer -- though substantially larger -- factories strategically situated to move product into Europe's main population centers. Magnum ice cream bars are now being made at a single plant in Germany, for example. Major brand names are becoming increasingly trans-European as national border barriers have fallen and the everyday use of a single currency draws near.

"The big companies have more or less decided they don't want to invest in distribution facilities unless it is absolutely necessary," said Vice President Carlin. "Meanwhile, many retailers are lengthening their hours of operation and requiring more frequent shipments delivered in smaller vehicles. At some locations we are making deliveries twice a day. Increased demands bring still more opportunities for us to offer tailor-made, comprehensive solutions."

With a fleet of almost 1,000 refrigerated trucks rolling across Europe from approximately 100 points of origin, Frigoscandia's extensive distribution network is set up to handle whatever the market requires. "Each customer is different," noted Carlin. "Some ship as little as a case or two. Some deal in pallet quantities, while others ship full loads."

Processors, retailers and foodservice operators are all looking to take costs out of their systems, which is why supply chain management functions are increasingly being out-sourced. In this way production or merchandising assets may be made use of 24 hours per day if required.

Serving McDonald's

While on the subject of supply chain management, one of the world's most efficient practitioners of the art is the McDonald's fast food chain. It leaves nothing to chance in the area of just-in-time deliveries. Indeed, a television advertising campaign it ran in some markets just before the new millennium assured customers that there would be no shortage of hamburgers, french flies or other menu pleasers due to what later proved to be imagined Y2K bugs. Its distribution system is very much up to any other challenge that might crop up.

Perhaps it should come as no surprise that Alpha Management, which sources raw materials and delivers finished products to McDonald's restaurants in most of Europe, is 33% owned by Frigoscandia. The other partners are Andreas Rost and OSI.

At last count, McDonald's was operating in no less than 4,421 outlets in Europe, of which all except 177 in Sweden and the UK are serviced by the Alpha-Frigoscandia alliance. The comprehensive food distribution system got its start in Germany more than 20 years ago. Frigoscandia procures frozen foods from suppliers and, after exact lot-size planning, collects and transports them to strategically situated distribution terminals.

"We consolidate distribution and freight so that we can ship all over the world, though always trying to source as much raw material as possible from host countries," Raymond M. Cesca, managing director of McDonald's International, pointed out during the 1999 Convention of the International Association of Refrigerated Warehouses.

It sounds simple, and so it is once you know how. And that is the operative phrase -- know how -- in warehousing and as well as refrigerated deliveries.

Orders from each McDonald's restaurant in Europe are received by the designated regional warehouse, and distribution and invoicing of the deliveries are made according to specially developed systems. Outlets are supplied as frequently as needed, according to fixed routings. Upon reaching the restaurants, deliveries are immediately taken into on-premise refrigerated chambers.

Frigoscandia's regional head office in Duisburg, Germany, is responsible for overseeing the operation. "Integrated Solutions for Advanced Logistics" is the theme there and throughout the Frigoscandia cold chain.

The strategic basis for a progressive and customer-oriented service package implements a holistic approach to stock keeping -- from receipt of order by data telecommunication on to picking and final disposition.

"Our job is to make sure that the customer's product reaches the plates of consumers just as perfectly and just as appetizing as when it left the production plant," commented Dirk Reinecke, Frigoscandia's managing director for Central Europe.

Efficient, concerted action and proper interfacing between physical and administration systems guarantees that this is accomplished despite changing market conditions.

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RELATED ARTICLE: Years of Monumental Transition: Dawning of the Modern Age of Frigoscandia

In 1968, the company name was officially changed from Helsingborg Frys to Frigoscandia. In the beginning of the 1960s, in addition to the conventional refrigerated warehousing business, Frigoscandia developed cold storage-related equipment activities with industrial in-line freezers, such as the fluidization freezer FLoFREEZE and the spiral freezer GYRoFREEZE. That business was later named Frigoscandia Equipment.

In the 1970s, the drive for expansion of Frigoscandia accelerated further with the building and operation of facilities in Italy, Switzerland, Australia, Brazil and Denmark, and in Austria and Iran via joint venture agreements. In 1978, the Swedish industrial gas company AGA acquired Frigoscandia from the Malmros Group in order to expand its presence in the food industry. At that time, Frigoscandia had 2,200 employees in 15 countries.

In the 1980s, Frigoscandia sold its warehouses in Italy, Australia and Switzerland. In France, the company's 63 sites were exchanged for shares in the listed French company CEGF. In the years between 1988 and 1993, Frigoscandia went on buying sprees in Denmark, Norway, Germany and France. The largest was the purchase of the remaining shares of CEGF.

In June 1994, Frigoscandia was spun off to the existing shareholders of AGA and listed on the Stockholm Stock Exchange. Owing to over-capacity in refrigerated warehouse space and high price pressure particularly in France and Germany, financial results did not develop as planned in its first year on the stock market and the share price of Frigoscandia under performed. In August of 1995, ASG launched a public offer for all Frigoscandia shares and succeeded in gaining control three months later. The takeover by ASG aimed to expand its presence in the food sector, use Frigoscandia as a spearhead into continental Europe and benefit from synergy effects in Scandinavia. A structural plan was implemented immediately, including new management, drastically reduced head office staff, the divestment of the head office building, processing factories in the United Kingdom and unprofitable assets in France. In 1996, Frigoscandia Equipment was divested as it was regarded as non-core to the remaining temperature-controlled food supply chain services. In the same year, Frigoscandia acquired Nordan (name changed to Frigoscandia Transport), the second largest transportation company for chilled and frozen foods in Norway.

Frigoscandia improved its financial performance rapidly while ASG's core business under performed. The identified synergy effects between Frigoscandia and other ASG divisions proved to be difficult to realize. Therefore, in October 1997, ASG decided to divest Frigoscandia. Two months later the new ownership was settled and Security Capital Industrial Trust (later renamed ProLogis) acquired Frigoscandia.

The takeover included the whole Frigoscandia Group, except Frigoscandia Transport AS (formerly Nordan Transport & Spedisjon AS), the Norwegian transport operation, which remained within the ASG Group.

ProLogis was founded in 1990 in Aurora, Colorado, and has already grown to become the largest publicly held owner and leading operator of distribution facilities in the United States. ProLogis is quoted on the New York Stock Exchange.

Frigoscandia is a cornerstone in ProLogis' ambition to build the first global refrigerated distribution network.