Prior to launching the inaugural issue of this newsletter, a number of leading movers, shakers and top executives from the international frozen food industry based in North America, Europe and Asia were visited by FrozenFoodsBiz (FFB) editors and advertising personnel, as they sought opinions on the need for a digital platform to provide the sector with global coverage and analysis — initially on a fortnightly frequency basis. Among the first to be personally consulted in this regard was Allison D. McCain, chairman of McCain Foods Limited. The setting was his corporate headquarters office in Florenceville-Bristol, New Brunswick, Canada, situated along the picturesque Saint John River, where residents take pride in calling their town the “French Fry Capital of the World.”
The chairman’s frank assessment of FFB’s plan was as follows:
“By all means, do go ahead. There should be a receptive audience as long as you deliver timely, original content, rather than present a collection of already published articles. There’s enough, if not too much, of that sort of thing in circulation already.”
Well, here is the first example of the kind of original content that FrozenFoodsBiz is creating and sending to the e-mail in-boxes of select readers around the world. This exclusive interview with Allison McCain touches on a number of subjects near and dear to the chairman, who heads up one of the world’s leading frozen food manufacturing and marketing companies. Operating more than 50 factories on six continents, the privately-owned firm packs a wide assortment of products ranging from frozen potato specialties and appetizers to pizza, Chinese- and other ethnic-style dishes, desserts and more. It rang up consolidated annual sales of approximately $7 billion in 2012, and employs some 20,000 people. Founded in 1957, McCain Foods is also engaged in the logistics business, through its wholly owned and operated Day & Ross Transportation Group, which ranks as one of the largest trucking companies in Canada.
FrozenFoodsBiz:
What’s the percentage of potato vs. non-potato business transacted by McCain Foods these days?
Allison McCain:
Potato products definitely continue to count for more than half of our revenue, and this has been pretty steady in recent years. I expect that sales will continue to rise, spurred by acquisitions. We have a growth agenda, and our president and CEO, Dirk Van de Put, is enthusiastic about meeting and exceeding goals. He is very much focusing on growing McCain business around the world.
FrozenFoodsBiz:
Indeed, McCain Foods recently grew its already commanding frozen potato business in Europe — where it buys potatoes from more than 1,700 farmers — with the purchase of Van den Broeke- Lutosa in Belgium from the Pinguin Group (whose holding company is now doing business as Greenyard Foods) for EUR 225 million.
Allison McCain:
Yes, it was about time we increased our presence there in a major way. Belgium has been going gangbusters in recent years, with new factories coming on line and capacities rising dramatically at existing plants run by competitors, some of whom are fundamentally French fry traders rather than marketers. They are adept at moving in quickly to make deals when conditions are ideal, earn money and then leave town when the market reverts to normalcy. McCain customers, on the other hand, are assured that we are going to be there for them 365 days a year, year-in and year-out. Naturally, some years are better than others, which make it well worth being committed to the long haul.
FrozenFoodsBiz:
I would imagine that visits to McCain operations in Europe, and particularly to Leuze-en-Hainaut, Belgium, are on your schedule in the near future.
Allison McCain:
Yes. I haven’t been to the Lutosa facilities yet, preferring to wait until after the acquisition was finalized. But now that they’ve been bought, I am looking forward to visiting Lutosa and meeting our people there.
FrozenFoodsBiz:
A lot of folks were surprised that in the end it was McCain that acquired Lutosa, rather than one of the other suitors. In fact, as you know, a local newspaper even published a story that proclaimed an American company had made the winning bid. McCain Foods must have offered the right price at the right time to seal the deal.
Allison McCain:
I thought it was our smile.
FrozenFoodsBiz:
So, six years or so after being linked intimately to a vegetable company, Lutosa is again owned and operated by a parent with potato roots.
Allison McCain:
We think it will prove to be quite a success.
FrozenFoodsBiz:
Meanwhile, are you looking for additional acquisitions in the potato sector?
Allison McCain:
Yes, I think so. If there’s a potato business for sale, we probably should at least have a look at it. Potato processing is in our DNA, and we will be in this business for a long time to come. But we are also interested in other areas which will provide a little more diversity and enable us to bring something to the party by adding value. That’s why we acquired Kitchens of Sara Lee in Australia. It specialized in bakery and dessert items, and we have been producing desserts in Canada for a long time. This is a high quality business which we are pleased to be part of.
FrozenFoodsBiz:
McCain Foods has been producing frozen potato products in Poland for about 15 years now, initially investing more than $78 million to build a French fry production facility in Wroclaw. Much of that output goes to Russia. Are there any plans to invest in building a factory in Russia?
Allison McCain:
It might make sense at some point, but not now. Our business is growing in Russia, and of course potatoes are a very important part of the national diet there. The popularity of frozen foods is rising in Russia, but at the moment our factories in Poland and elsewhere in Europe can more than meet the demand.
FrozenFoodsBiz:
Timing for capital investments is very important, that’s for sure. And historically McCain has been pretty much on the money when the time was right to build new factories, which are always situated within or near markets targeted for expansion.
Allison McCain:
In simple terms, buying and processing raw materials in one market and selling the value-added products made from them in another market involves higher risks. And whether it’s currency or other cost issues, the bottom line is impacted. However, with factories and sources of supply in the right locations, you can better manage transportation costs. And when it comes to ocean freight, it’s tough to beat Rotterdam. Today shipping to Brazil from Europe is cheap because the tremendous number of refrigerated containers carrying frozen chicken to the EU have to return to their point of origin to take on new loads.
FrozenFoodsBiz:
Being close to your source of supply also enhances the monitoring of sustainable farming practices and food safety, and affords greater, if not total traceability.
Allison McCain:
There’s no doubt about it, and this is especially important for major QSR operators in developing markets who can’t afford to have supply lines interrupted. While neither McCain Foods nor anybody else can guarantee 100% that there will never be a problem, we can assure buyers that they will be better off doing business with us as opposed to having bought product from an XYZ potato company that may have recently entered into the industry in search of a fast buck. We feel the same about our own suppliers. Not only are audits conducted on them regularly, but we insist that they have a solid reputation to start out with.
FrozenFoodsBiz:
What is your take on the state of the frozen food industry today?
Allison McCain:
Frozen foods continue to play a hugely valuable role in terms of convenience, preservation of nutrients, flavor and overall quality, plus they have the added advantage of product storage and distribution safety. Yet too many consumers think that fresh or chilled products are inherently better for some reason. I struggle to understand that rationale, especially since quite often shoppers take the product home and, if not consumed the same day, freeze it in their home freezer for later consumption.
FrozenFoodsBiz:
The ongoing campaign to educate consumers about the fact that quick frozen foods are usually fresher than so-called fresh foods — with the exception of just-picked produce or just-caught fish — is never ending. The industry can’t emphasize enough the point that vegetables, fruits and potato products frozen at their peak of perfection, within hours of being harvested from the field, are second to none in terms of quality. The same goes for sea-frozen fish, poultry and red meats.
Allison McCain:
You are entirely correct, but it remains bothersome that too many people, who admittedly enjoy frozen products, when asked about the quality, often remark: “Not bad for frozen.” Had they not been aware it was frozen, they would assume it had been freshly prepared.
FrozenFoodsBiz:
McCain Foods’ extensive global presence provides its management with fingers on the pulse of virtually every market on the planet. How do you see prospects for continued expansion and rising consumption of frozen food products down the road?
Allison McCain:
That’s a good question, which is perhaps best answered by analyzing numbers. In the United States and Canada the population is approximately 350 million, while in Europe it’s over 740 million, and in Japan it’s about 128 million. Add another 28 to 30 million in Australia and New Zealand, plus a few million or so more in other industrially developed countries, and what do you have? Let’s round it off at 1.5 billion people that live in areas where there exists a reasonably good to highly sophisticated frozen food distribution system.
Well, since it is estimated that there are now over 7 billion people in the world, of which 1.5 billion are able to enjoy the convenience, wholesomeness and good flavor of frozen foods, it stands to reason that many of the remaining 5.5 billion persons, given the chance, would also like to consume frozen products.
FrozenFoodsBiz:
China is a perfect example of your analysis. A generation ago, people living in cities there who had small freezer compartments in their refrigerators mainly used them to store chicken bought in wet markets. The birds were slow-frozen at home for later use. Today many home freezers typically contain a variety of value-added items, including ice cream and frozen dumplings.
McCain Foods has been producing frozen potato products in Harbin, in northeastern China’s Heilongjiang Province, since 2004. Please elaborate on prospects in China which, by the way, is the world’s largest producer and consumer of potatoes.
Allison McCain:
From the beginning, my view was that China would be a good market for us. The only question was: Would it evolve into a great market?
Just looking at the scale of China and consumer demand there suggests that, if one has something worth buying, it should sell — and hopefully profitably. But if Chinese consumers really get behind the product, look out ¬ – because you may not be able to build factories fast enough to keep up with demand. It’s a question of whether they adopt the French fry as an everyday product. In China right now the frozen French fry market is dominated by quick service restaurants (QSRs). Maybe we can also succeed at introducing other products there, as in India, where we built production facilities in 2005.
FrozenFoodsBiz:
The key to further penetration of the Chinese market will be to get more French fries menued and served routinely in non-QSR establishments, ranging from hotels and tourist destination snack bars to university dining halls, factory canteens and family restaurants.
Allison McCain:
Yes. Wherever there are preferences or an interest in Western cuisine, we have a good chance to boost sales of French fries and other value-added frozen products. Business- and tourist-oriented hotels are in the forefront in this area. One reason for this, other than demand, is that they are well equipped to prepare frozen products and have access to cold storage facilities which maintain product integrity by assuring that each link of the cold chain remains unbroken.
FrozenFoodsBiz:
Demographics, of course, bode well for your business in China. A significant portion of today’s generation of young people have grown up being treated to meals at KFC, McDonald’s, Pizza Hut and other QSRs. Soon they will dote on children of their own and bring the second generation of “little emperors” and “little empresses” to popular fast food restaurants.
Allison McCain:
Right, and keep in mind that the higher growth rates for our business are found in the developing markets of China and other Asian countries, as well as the Middle East. They are all growing faster than the so-called mature markets. Still, the volume is relatively small compared to our overall business in the developed countries of Europe and North America. It may be difficult to make money in developing markets at first. It takes a lot of investment and is not easy, but the rewards can be worth it.
FrozenFoodsBiz:
So, you are optimistic that the future for the frozen food business is bright.
Alison McCain:
Yes, I’m optimistic. It would be tough getting out of bed in the morning otherwise.
FrozenFoodsBiz:
Would you care to comment about managing the ups and downs of exchange rates?
Allison McCain:
In the last few years currency value fluctuations have played a larger role in commerce. Exporters in Canada have been challenged, either by a stronger Canadian dollar or a weaker US dollar. This development has made it much more attractive for us to produce in the US, where we have a number of plants. We are now expanding our factory in Burley, Idaho, which will give us more export capacity out of the Pacific Northwest to Asia.
FrozenFoodsBiz:
Let’s talk about the private label sector for a moment.
Allison McCain:
McCain Foods is largely a branded company, and the private label business requires a different approach. You have to think differently in that sector and operate with a little different price structure.
FrozenFooodsBiz:
Lower-cost production, you mean?
Allison McCain:
Yes and no, and this applies to private label as well as our branded lines. When one speaks about the importance of being a low-cost producer, I don’t think that McCain Foods is necessarily the lowest-cost producer. I’d like to think we are the most efficient producer. I know a number of things we do have nothing at all to do with lowering our costs. In fact, they add to our costs. But we think it’s the right thing to do, whether it’s related to food safety, packaging or something else.
FrozenFoodsBiz:
Whether you are making and selling French fries, other frozen potato specialities, appetizers, pizza or Chinese dishes under McCain’s Wong Wing brand in Canada, consistent quality in value-for-money products is at the top of the production list.
Allison McCain:
Absolutely!
We had a sales director years ago in the United Kingdom who was fond of telling me: “Listen, everybody wants to buy McCain products. It’s just a question of what they will pay for it. If we’re the same price, they will take us.”
I think there’s some truth to that. So we have to figure what the optimal point is between the price differential and their desire to consume what we are selling. In the end, it’s clearly a value-for-money decision that shoppers make.
FrozenFoodsBiz:
McCain Foods’ supply of French fries, onion rings and appetizers is big on both the foodservice and retail fronts. And thanks to the proliferation of fast food restaurants around the globe, and their reasonably-priced menu offerings, your foodservice business continues to grow steadily. How about the retail sector?
Allison McCain:
Well, frankly, the frozen food business as a whole is not seeing major growth in pizza and vegetable sales, and both of these are categories in which we are active at retail. We are no longer engaged in the juice sector in Canada, and have sold our prepared meats business. We had a good share of a small, regional market for pate in Quebec, principally. It was an interesting business, but we were not specialists in it.
FrozenFoodsBiz:
How about the ready meals segment? Is there any notion of re-entering it in a significant way?
Allison McCain:
We are in the ready meals segment in some regions and are doing quite well, but we have no plans to expand at this time. We prefer to stick with what we do best and continue to be largely regarded as a potato company.
FrozenFoodsBiz:
A point well taken, as is the fact that for 56 years or more McCain Foods has remained a privately-held, family-owned company.
Allison McCain:
Yes, we are still a family company, and take a lot of pride in it. And it will remain that way for some time to come.
FrozenFoodsBiz:
How about the next generation of leadership? Are any grandchildren of founders Harrison, Wallace, Andrew and Robert McCain waiting in the wings to carry on the McCain family tradition of executive service?
Allison McCain:
That “next generation” is getting older, and I would like to think that at some point in time there will be some interest there.
FrozenFoodsBiz:
Thanks very much for your time and candid commentary, Allison. It was a pleasure interviewing you. Let’s do it again sometime, perhaps after McCain Foods consummates another major acquisition.
Allison McCain:
Sure, John. And best of luck to you and the team at FrozenFoodsBiz. There is certainly a need for reliable and credible information for and about the frozen food business, provided by those who know the industry well.
