Jun 2008 Financial News

GK Foods to take bigger bite of snack market

Jun 11, 2008

GraceKennedy's food arm is positioning for a bigger slice of Jamaica's snack market, saying it has set its sights on an additional 10 per cent share here, but also plans to increase distribution in its major overseas markets.

The company is ramping up its plans to remain strong in a game that, in the past two to three years, has seen the Jamaica Producers Group emerging as a serious contender in the prepared foods and snack markets.

GK Foods was reluctant to reveal the size of the investment being made but said it won't be capital intensive, since the plan includes outsourcing production to Ecuadorian interests.

"We don't have the supply in Jamaica in terms of the raw material and we find Ecuador to be very competitive," said Erwin Burton, chief executive officer of GK Foods, the arm of Grace-Kennedy that turns over most revenue for the group but trails the conglomerate's investment arm in profits.

Faces trade challenges

Burton's reference to raw material would have included bananas, a sector decimated at least three times in the past four years because of hurricanes, but even when healthy, faces trade chal-lenges over market access to Europe.

Ecuador, which produces the fruit more cheaply, has been a central player in the lobby within the World Trade Organisation to deny preferential access to markets such as Jamaica and its Africa, Caribbean and Pacific partners.

GraceKennedy's food services segment last year accounted for 58 per cent of revenue, but only 12 per cent of pre-tax profit.

Not only is the company going after a larger share of snacks, but Burton also wants to ensure a reliable source of supply for the company's external markets - the Caribbean, North America, and United Kingdom.

We''ve found a company in Quito Ecuador, which is a big company and has the capacity," said senior general manager of GK Foods, Ryan Mack, noting that GK Foods had started out with a company in Costa Rica, but turned to Ecuador, which proved more competitive.

"We don't own a factory in Ecuador. We contract a factory that makes chips and tell them to manufacture based on our specifications, which we've developed."

He would not, however, disclose the company's name.

The company is already expan-ding its fleet of trucks to accom-modate a more expansive distribu-tion network here.

Three trucks alone, said Mack, would be about $30 million, but that's as far as the food executives would go to indicate the level of spending behind the plan.

The three trucks will boost the snack fleet to 16.

MADE IN ECUADOR

The snacks will be manufactured and packaged in Ecuador, and exported to Jamaica for distribution here and overseas.

Grace snacks are marketed under the 'Chips a Treat' line and are offered in plantain and banana chips, competing directly with Jamaica Producers Group, whose snack factories are in St Mary, Jamaica and the Dominican Republic, where it operates under joint venture.

Mack estimates the total baked snack market to be a $2.4 billion business.

Grace is looking to build out its Chips a Treat line to add potato, yam and cassava chips.

Burton said the bulk of the investment would be in marketing and distribution of the products, and while supplies would be channelled through the conglo-merate's supermarket chain, Hi-Lo, the GK Foods boss said it would be a small part of the distribution chain.

"With the trucks, we will go to the small shops, schools," said Burton, "Anywhere people are carrying on selling activities, we are going to be."

Essentially, the company, in existence since 1922, will be leveraging a distribution chain that has been built out over several decades, for its expanded foray into the snack market.

"Between Kingston and St Catherine it's about 43 per cent of the population so varying degree of concentration would be needed for those sections," Burton said, addressing the deployment of the small fleet.

For the markets in the Carib-bean, Burton said the Grace brand was very strong, particularly in St Lucia, Antigua and Grenada, but needed boosting in Trinidad.

"We are now in all the Caribbean islands with our snacks and we are doing well," he told Wednesday Business.

For the most part, the company is concentrating efforts in Trinidad, a market that Burton said had been difficult to break into, but made significant improvements in performance in the past year with the help of a Trinidadian marketing manager posted there.


Source:
Susan Gordon, Business Reporter
susan.gordon@gleanerjm.com
Jamaica Gleaner
Wednesday June 11, 2008

http://www.jamaica-gleaner.com/gleaner/20080611/business/business3.html