“Over the last decade, we’ve learned to be very focused on what’s happening at consumer level,” said Kerry Group chief executive Edmond Scanlon, who was the keynote speaker at this week’s launch of the 2018 Agribusiness Report, published by the Irish Farmers Journal in conjunction with KPMG.

According to Scanlon, Kerry Group has evolved to become more consumer-focused and consumer-connected in a bid to manage the disruption in a global food industry that is changing at a relentless pace.

Sitting before a packed audience of 130 leaders from across the Irish agri-food industry, the Kerry chief said the modern consumer is driving change in the food industry at an unprecedented rate and companies needed to be agile to react. Ultimately it’s the consumer that’s driving that demand for newness. Everywhere in the world people want to consume products that are a little bit better. I think it’s about going back to improving the nutritional profile of products. To me that’s the fundamental trend in the food and beverage industry right now,” said Scanlon.

“The pace of change in the industry is relentless. The days of taking one, two or three years to develop a new product are over. Companies are going to be left behind if they don’t move first,” he added.

Alternative protein

This consumer-focused strategy has seen Kerry move into emerging sectors such as alternative proteins. New consumer categories such as flexitarians (people with a primarily vegetarian diet who occasionally eat meat or fish) are driving this demand. These consumers are looking to reduce their intake of animal-derived protein and replace it with alternative sources said Scanlon.

Earlier this year, Kerry Group paid in the region of €20m for Ojah BV, a Dutch company that manufactures substitute meat products from plant proteins such as peas and soya.

For Scanlon, this acquisition was about acquiring the technology in that business and scaling to meet the needs of a global customer base.

Investment

“We feel it’s important for us to invest in this sector because we can take alternative protein products like that in many directions and make them acceptable to consumers,” said Scanlon.

“Alternative proteins are not going away. It’s a sector that’s absolutely going to continue to grow. Time will tell how big it will be compared to traditional protein sources,” he said. Scanlon believes demand for traditional meat and dairy will continue to grow.

To keep ahead of the latest consumer trends, Kerry Group has always invested heavily in R&D. According to Scanlon, Kerry typically spends between 4% and 5% of revenues on R&D annually, which equates to an annual spend of €250m to €300m.

Differentiating technology

“Of the 11 acquisitions Kerry Group made in 2017, I would say eight of them are bringing new or differentiating technology to Kerry,” said Scanlon. “We have about €3bn worth of intellectual property, know-how and technology on our balance sheet which we continue to deploy across multiple end use markets and multiple geographies. That’s a key underpin of our business.”

Despite the considerable scale of Kerry Group, valued today at more than €14bn, Scanlon says he doesn’t see Kerry as big company. While the company has developed a business model that’s scaled, Scanlon believes it’s more important for Kerry to be a very agile company and able to react to changing customer needs.

“Complacency isn’t in our DNA at Kerry Group,” says Scanlon.

On Irish dairy

Asked if Ireland is right to continue to expand its dairy output, Scanlon said the approach to expansion has to be balanced.

“The reality is the basket of dairy products that we manufacture in Ireland is very much commodity-based. With the level of investment that is going to be required to process the expected growth in the milk pool over the next five to 10 years, it’s going to be very difficult to make that work from a return on investment standpoint,” said Scanlon.

The Kerry boss warned that Ireland’s dairy processing industry was really going to have to think very hard about the next phase of investment in building processing assets.

“The industry needs some joined-up thinking on how to best go about putting the next phase of assets on the ground because I just don’t see how an adequate return is going to be gained from the current level of assets that are being spread all over the country,” he said.

On China

Scanlon, who spent three years in China as chief executive of Kerry’s Asia-Pacific division, described himself as a “huge believer” in the Chinese market. However, the Kerry boss cautioned that it is changing at an enormous speed and will continue to evolve.

“China is a market you have to have patience in. Companies need to be resilient and relentlessly focused on what they’re trying to achieve from the Chinese market. It’s very competitive out there,” he said.

“Kerry Group have been in China since the 1990s but we feel we’re only now getting started there. We have six facilities in China but five of those are located in the greater Shanghai area.”

Scanlon’s advice to Irish companies looking to China was to forget about the 1.4bn population and focus on one or two key regions where they can make inroads. He added that companies shouldn’t be entering the Chinese market thinking they will change how consumers eat to more western diets.