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Big Potato Processors Getting Bigger In Fiercely Competitive Marketplace.

New factory construction and modernization, along with acquisitions of independent companies, shape developments. Consolidation trend likely to continue in 2001. Will Europe soon go the USA way, where only three or four major frozen french fry packers are on the scene?

Is there about to be a clash of the titans among frozen potato manufacturers and marketers in Europe? The major players appear to be gearing up for a showdown, as they proliferate through factory expansions and acquisitions. Heavy investments continue at a steady pace, as efficiencies become all the more important in a sector where margin squeezing has become a way of life -- and death.

"In the last year or so this business has changed from being very competitive to becoming extremely fierce," said Bert-Jan Loman, vice president of marketing and sales for Aviko BV. The Steenderen, Holland-headquartered company (Fax: 31575-458380) claims a 20% share of continental Europe's industrial french fry market.

The management board of Aviko welcomed J.W. Gerritsen as its new chairman on Sept. 1, following the retirement of Jan Zikken. Gerritsen rose from the ranks of commercial affairs manager, a position which Peter G. Dekker has assumed. Dekker will serve on the management board level as well as take responsibility for commercial affairs.

Loman told Quick Frozen Foods International that Aviko's board is positioning itself to respond rapidly to opportunities. "We are in an extremely fast moving business where nothing stays the same," he commented. "Changes are happening more and more quickly. Today we must anticipate future events and trends and be proactive in our approach to winning new business."

The processed potato segment as a whole is facing challenges like never before, as the scale of retail and catering customers increases -and with it a shift in the balance of power between buyer and seller. Losing or gaining a large customer today can spell the difference between running a factory profitably at full tilt tomorrow or operating in the danger zone at half-capacity. In order to remain competitive, producers have been forced to creatively sharpen their pencil points to half-millimeter thickness.

So it comes as no surprise to see manufacturers maneuver to bolster economies of scale in a still-growing marketplace where ever larger volumes are procured by a shrinking number of buyers.

In France, market leader McCain Foods -- which claims a 31% global share -- is putting the finishing touches on a new french fry plant in Matougues that will be able to process 25 metric tons of finished product per hour. Approximately $114 million has been invested in the facility, which is expected to be up and running by June [see details in box on opposite page].

McCain operates seven french fry factories in continental Europe, plus another four in the United Kingdom. Worldwide it has 29 potato processing plants, including l0 in North America, two in Latin America and four in the Asia-pacific region.

Aviko, which spent approximately $40 million last year to build a state-of-the-art plant in southern Germany, is currently modernizing and expanding its factories in the Netherlands. Worldwide [including output from a plant in the USA], the company packs approximately 700,000 tons of french fries and specialty items per annum.

Elsewhere in Holland, Kruiningen-headquartered Lamb Weston/Meijer's purchase of the Vriezo BV operation in Oosterbierum makes an additional 90,000 metric tons of volume available to the American/Dutch joint venture company, giving it 350,000 tons of annual capacity in Europe. Furthermore, the anticipated acquisition of Bergen op Zoom-based Fri-d'Or BV from Danisco -- a definitive agreement had been signed at press time, with closing expected to take place on January 15 -- would add another 190,000 tons, thus catapulting Lamb's capacity to 540,000 tons and thereby securing it the No. 2 production position on the continent.

"With demand for products growing steadily during the past several years, our flagship factory in Kruiningen has doubled output to 260,000 tons. But that is not enough to meet today's requirements," Kees van Loo, marketing manager, told Quick Frozen Foods International.

Proud of its role in providing American-style potato specialties to the European market, Lamb Weston has enjoyed success with the introduction of large-cut Wedges. "They gained popularity after a major fast food chain began promoting them," said Kees van Loo.

Other potato processors took notice of the trend and moved quickly to "wedge" their way into the market with similar products. Being first with a winning formula invites imitation, according to the marketing manager. "Exclusivity can have a short life cycle, so we must constantly innovate to stay ahead. That is why new product development is our number one priority."

Lately, some of that innovation has strayed past the potato field. Five appetizer items, unveiled at the SIAL exhibition in Paris, went into distribution in Europe this month. Not one is a potato-based product! The Munchers[R] line features sticks of mozzarella cheese coated in Italian seasoned bread crumbs, beer battered onion rings, and jalapeno pepper halves stuffed with either cream cheese or cheddar cheese.

Lamb Weston has already scored well with "finger food" items in the USA foodservice market. While these kinds of appetizers were once primarily marketed in the United States as "bar food" to accompany drinks, they are now menued in virtually all types of restaurants as starters, side dishes or snacks. Indeed, a number of American fast food chains are currently featuring such products. Though they are not necessarily positioned as alternatives to french fries, it seems prudent for potato processors to maintain and expand their "share of stomach" among consumers by offering line extensions that go beyond the traditional.

Meanwhile, Lamb Weston/Meijer has introduced heat and serve Mashed Potatoes Medallions. The product is said to offer "real homemade taste and texture, with none of the blandness of dehydrated flakes or harsh aftertaste of refrigerated products." Extended shelf life portionable pellets come in one-kilo bags. No water or milk is required for formulation, thus all that foodservice operators have to do is heat up the pellets.

As the big get bigger, what is a mid-size company to do? The fact is there are not many frozen potato producers that can be categorized as "mid-size" anymore. These days, it seems, there is little room left for those other than full-range giants and a smattering of entrepreneurial, niche-market private label specialists adept at steering clear of the Goliaths.

Of the two-dozen or so industrial firms producing french fries in Europe, Van den Broeke-Lutosa (Fax: 32-69-668200) is among the dwindling few that may still be classified as falling within the middle grouping. But perhaps not for long, as it aims to increase output substantially.

An investment of about 30 million euros is being made to build a new production line in Leuze-en-Hainaut. Scheduled to come alive this autumn, the facility will be capable of pumping an additional 80,000 tons of finished product into the marketplace, thereby boosting total capacity to 300,000 tons.

"We have long been considered either the biggest mid-size potato processor or the smallest big one," said Dirk Desloovere, sales and export manager. "With annual production capacity of 300,000 tons of finished product, we will be among the top five players in our sector in Europe."

Owners Luc and Guy Van den Broeke prefer to grow the company organically rather than through acquisitions, according to Desloovere. "We have ample space and facilities to expand here. Indeed, when the site's excess-capacity water treatment plant was initially built in 1986 it was the largest privately-owned utility of its kind in Belgium. Van den Broeke has demonstrated time and again a clear vision for the future."

Reinvestment of profits is an ongoing process intended to keep the company highly competitive. Just last year a monumental, 32meter-high coldstore with 20,000 pallet positions was opened at the Leuze complex. It cost more than 8.6 million euros to build the fully-automated, computer-controlled facility, which stores finished products at a temperature of-25 [degrees] C.

Lutosa now has total cold storage capacity of 56,000 pallets at two production sites, which include the S.A. Primeur (frozen fries and instant mashed potatoes) and Vanelo (prefried chilled chips) plants.

With plans for plenty more tonnage entering the pipeline in 2001, where will it all go? While much is likely to be distributed among traditional customer bases in Europe, the company is earnestly prospecting for new accounts further afield. Customers in North America, China and Russia are specifically being targeted.

Desloovere believes that the United States -- where Lutosa plans to open an office soon -- could be especially receptive to high quality specialty products. "Our value-added offerings went over well at the Fancy Food Show in New York last July," he said. "So did original Belgian french fries. One major foodservice account in Las Vegas is now ordering them by the container load every few months."

Lutosa has enlisted the talents of master chef Joel Robuchon, whose name and image appear on 400g retail boxes of frozen mashed potatoes. His haute cuisine recipes may be served up in many forms, ranging from mashed potatoes with extra virgin olive oil to internationally-flavored spuds a la Mexico, Mediterranean or North Africa.

Other specialty items in the Lutosa line include Pom'Dauphine (prepared with eggs, flour and potato puree), Gratin Dauphinois (sliced potatoes with fresh cream and emmentaler cheese), Tartiflette (a Haute Savoie festive gratin featuring melted Reblochon cheese, cream, cocktail onions and smoked bacon strips) and Cottage Pie (a preparation of potato puree with spices that has substantial plate coverage).

Potato product designer shapes are also on offer, ranging from animal and fish figures, to numbers and letters, to the Pom'Party collection of Christmas trees, snowmen and twinkling stars.

No Time for Resting

"Normally toward the end of the year things calm down, but instead it is very hectic at the moment," Geert Demeester of Clarebout Potatoes (Fax: 32-57/44 69 06) told Quick Frozen Foods International on December 5.

"That's because so-called `yearend' activities start later and later among retailers," he continued. "Previously frozen potato products stopped going into stores by the end of November. Now we are still shipping through mid-December."

With capacity of 125,000 tons per year, Demeester's Nieuwkerke, Belgium-based company is considered to be a relatively small-size private label french fry specialist. How does it manage to survive in a world where the big are getting bigger?

"Finding niches and knowing our limitations is paramount," said the managing director. "It makes no sense to confront the big boys directly. You might be successful in a David vs. Goliath scenario once or twice, but no more. Fortunately, there are enough niches out there for us to cater to."

Recognizing that the local market is terribly crowded at the moment, Demeester is looking elsewhere for opportunities. "We are stepping back from the Western Europe scene in terms of exhibiting at trade shows, and instead investing more time and money overseas," he commented.

China is one country in particular that has been eyed for a number of years now. Demeester fully recognized the potential there after taking part in a QFFI Study Mission to Beijing during 1996. Patience is important when doing business in the PRC, and the managing director is a patient man.

"At last, we have won an order secured with guaranteed payment. The container load leaves this week, destined for distribution in the foodservice market," Demeester said.

Mindful that one swallow does not necessarily herald springtime, he aims to redouble efforts to further cultivate budding business in China and other emerging marketplaces. "Extending geographical reach for our products will be an ongoing priority," stated the Clarebout executive. "Pursuing retail prospects outside of Europe is particularly interesting. I like the idea of supplying supermarkets without having to pay slotting fees to get past the door."

Warm, Wet Weather

Elsewhere in Belgium, Dirk De Pandelaere of Proven-based Eurofreez NV (Fax: 32-5730-1308) told QFFI that no more than 10% of the national potato crop remained in the ground by the first week of December.

"This is the first time in 20 years that there's been no freeze in November," he stated. "The wet weather has made lifting the remaining potatoes problematic [See related story "Potato Raw Material Prices Stable; Pressure on Producers".]. But the quality of that which has been harvested is good."

The managing director reported that the year 2000 was relatively stable for Eurofreez, which met its goal of packing 45,000 tons of french fries and 5,000 tons of specialty items including frozen sauces and cheese products.

"Having done quite well in Belgium with cheese croquettes, we are concentrating more on finding ways to penetrate other markets in Europe and beyond," said De Pandelaere. "The key may lie in adapting recipes for microwave oven preparation. This is not so easy to perfect with breaded foods, but we are working on it."

On the organic front, the managing director is cautiously optimistic. "The question asked by everybody in the frozen potato and vegetable segments is: `Will there be enough sales to justify investments?'. We are offering several organic potato items and a number of non-potato products. Demand from retailers will dictate if this segment expands."

Approximately 80% of Eurofreez's business is transacted in Europe, and starting on January 1 it will invoice all EU customers in euros. Meanwhile, the strong US greenback has been good for exports beyond the continent.

"I hope the dollar's value remains high against the euro," said De Pandelaere. "This certainly makes its easier for us to make sales in Latin America."

Such sales by European producers, of course, come at the expense of North American suppliers. There was record production in the USA and Canada last year (see "Another Record Potato Crop in Canada Fuels Greater Exports to United States"), little of which is likely to find its way into the EU due to an apparent surplus there and the expensive dollar. Therefore, look for the Americans and Canadians to ship greater quantities to East Asian export markets, where they enjoy a transportation cost advantage.

View from Farm Frites

"All things considered, we must be satisfied with results realized during 2000, because it was a year of challenges during which margin erosion was coupled with rising costs for fuel, packaging and personnel," summed up Albert van der Vlies of Oudenhoorn, Holland-headquartered Farm Frites (Fax: 31-181-46-1350).

Looking ahead, the director of marketing and sales does not foresee any near-term relief for the price pressure headaches which are afflicting frozen potato processors. "That's because there still are, unfortunately, some people in our sector who feel they must undercut prices to keep their factories running."

Phillip Houtman, marketing manager for foodservice in Europe, said that Farm Frites will introduce a number of new products this year to stimulate interest among customers. "We generally invest millions of guilders every year in new product programs, and 2001 will not be an exception to this rule."

The company will continue to focus on emerging country markets. "We are seen as the number one french fry brand in the Middle East, though there are local competitors," said Van der Vlies. "Elsewhere, exports to Latin America are steady. We are currently more competitive than the Americans in that part of the world due to the euro's exchange rate advantage over the dollar."

While the Farm Frites flag will still fly high as a sponsor on the European bicycle racing circuit, don't expect to see it waving at major trade shows this year. "Big exhibitions are less interesting and more costly in terms of time, personnel and money. We prefer instead to focus on customers more directly," explained the director of marketing and sales.

Meanwhile, more than one year after the announcement of a global potato alliance between Farm Frites and USA-headquartered J.R. Simplot Co. (world's third largest frozen potato producer), the strategic relationship is working according to plan. The coalition is aimed at enabling both companies to further penetrate emerging markets outside of Europe and North America, as well as focus on global retail and foodservice accounts, plus defend and improve positions in primary "home" markets through technology and information exchanges.
COPYRIGHT 2001 E.W. Williams Publications, Inc.
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Comment:Big Potato Processors Getting Bigger In Fiercely Competitive Marketplace.
Publication:Quick Frozen Foods International
Article Type:Statistical Data Included
Geographic Code:4E
Date:Jan 1, 2001
Previous Article:USA Seafood Supply and Per Capita Consumption Set to Increase.
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