Food manufacturer Kailis & France Foods is planning to increase its size and diversify its business in response to margin pressure from Australia’s big supermarket chains.
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Food manufacturer Kailis & France Foods is planning to increase its size and diversify its business in response to margin pressure from Australia’s big supermarket chains.
The company has an energetic growth focus that is also driven by its new ownership structure, following its sale early this year to two venture capital firms and to management.
“It changes the way you approach the future,” managing director Geoff Leding-Wilton told WA Business News.
“The opportunities for growth and expansion are greater.
“We have also decided to diversify our business to ensure our share-holders are rewarded.”
Kailis & France Foods is one of Australia’s largest manufacturers of frozen prepared meals and coated fish products and currently has 350 staff.
The constant push by big retail groups such as Coles Myer and Woolworths to squeeze savings out of their supply chain provides the strategic backdrop to its future planning.
Coles Myer, for instance, is targeting cost savings of $300 million by the end of 2004, while Woolworths has a five-year target of reducing costs by at least 1 per cent of sales.
Perth-based grocery wholesaler Foodland is also reviewing its supply chain management to become more efficient.
Despite the scale of its current operations, Mr Leding-Wilton believes Kailis & France Foods needs to get bigger.
“We need to be a larger player to meet the opportunities that arise with consolidation of the industry,” he said.
Mr Leding-Wilton’s comments will send a chill down the spine of many smaller food manufacturers, who would believe Kailis & France is a big supplier already.
He points to the English market as a likely guide to future trends.
It has a much closer alignment of retailers with manufacturers, most of which have just one or two big customers.
“There will be greater involvement between retailers, manufacturers and suppliers, in the interests of continuity of supply and efficiency of supply,” Mr Leding-Wilton said.
Kailis & France is pursuing growth in both domestic and export markets.
It launched its Seaways fish brand into the Asian market nine months ago and already has become the number one supplier to two supermarket chains.
Mr Leding-Wilton said Kailis & France’s new ownership structure ensured it had the financial capacity to pursue growth opportunities.
It was acquired in January by venture capital firm CHAMP Ventures, which is the largest shareholder, and Foundation Capital.
“VCs always have access to capital and they are keen to invest. Having ready access to capital is very exciting,” Mr Leding-Wilton said.
Mr Leding-Wilton and two other managers also acquired a shareholding in the company.
He said management’s direct shareholding provided a very direct incentive to perform and aligned their interests with the venture capital investors.
Mr Leding-Wilton emphasised that venture capital and management buyouts involve increased use of borrowings in order to generate a high, tax effective return on capital.
“It’s a debt-driven strategy so cash is king. You need cash flow to service the debt,” he said.
Mr Leding-Wilton said he had an open mind on diversification, which could take the form of vertical integration, joint ventures, acquisitions or even the export of know-how and expertise.
“My limit is where there is a business case that supports investment in that area.”
Kails & France Foods was founded in 1974 by George Kailis, Theo Kailis and Murray France.
They sold the food manufacturing business as part of a restructuring to allow further expansion of their fishing interests, which already extend to the northern prawn, southern toothfish and lobster fisheries.
KAILIS & FRANCE
- Kailis & France Foods’ expansion plans aim to make the company more competitive as the industry consolidates.
- Growth targeted in domestic and export markets.
- The company’s Seaways fish brand has made significant inroads into Asia just nine months after market entry.
- Closer alignment of retailers and manufacturers, as with the English market model, could be a future trend in Australia.