No complacency at Greencore despite rising share price

By Rick Pendrous contact

- Last updated on GMT

Related tags: Business, Food

The horsemeat scandal was isolated pockets of behaviour rather than a systemic failure across the food industry, claimed Coveney
The horsemeat scandal was isolated pockets of behaviour rather than a systemic failure across the food industry, claimed Coveney
Profits may be rising but Patrick Coveney isn’t complacent, reports Rick Pendrous

Key points

Greencore’s boss Patrick Coveney deserves the 2.2M (£1.86M) share bonus he received last December. That certainly has to be the view of City analysts, who reported in glowing terms about the meteoric rise in the own-label convenience firm’s share price since its listing on the London Stock Exchange two years ago.

When I met Coveney just before Christmas, it was about two years plus since I’d last interviewed him and my views about his clear focus and talented leadership skills have not diminished. He remains a very smart chap. He’s now 43 and his latest bonus had just been announced, but we didn’t get around to discussing how he intended to spend it. However, I got the clear impression extravagant displays of wealth aren’t quite his style.

Given the economic crisis that we are only just emerging from and last year’s horsemeat contamination scandal, which Greencore was associated with albeit, in retrospect, probably unfairly he has navigated a remarkably steady route forward for the firm. But it proved a tough time, he confesses.

Greencore’s business has been growing both at home and in its US markets. To illustrate his safe stewardship, when the initial salads and chilled ready meal sales strategy through grocery channels was seen not to be working Stateside, Coveney demonstrated the agility and presence of mind to recognise the fact and switch to the food-to-go sector – which showed growth potential – achieving new business wins with Seven 11 and Starbucks outlets in the process.

“What we concluded was that we needed to fundamentally change the product and channel composition from where we started. And we needed to treble the size of the business,”​ he says.

Food-to-go strategy (Return to top)

It was a bold move and one that wasn't taken lightly. Coveney admits that one of the options considered initially included exiting the US completely. Had it done so, it would have followed in the footsteps of some other UK firms, such as Tesco, which failed to take into account that, while the language might be the same, the ways of doing business, the regulatory conditions and, even more importantly, consumer behaviours are quite different to the UK.

Coveney says that plans are in hand to expand further in the US to increase its geographical reach, with new builds and more acquisitions likely this year, following those of Marketfare and Schau in 2012/2013, as the firm seeks to raise sales there to $0.5M by 2019. “So we are now at a stage where we have a business of pretty good scale, good and improving profitability and a pipeline of growth from here,”​ he adds.

At home, Greencore’s integration of the former Uniq business acquired in 2011 for £113M has been handled very well, according to commentators. The sale of the ‘troubled’ Minsterley desserts business to Müller for £4.3M plus stock, completed towards the end of 2012, removed a considerable millstone around the company’s neck. Food-to-go, currently worth around £500M a year in the UK and accounting for some 50% of Greencore’s business, can be expected to be exploited further here too.

Commenting on the results last year, Coveney says: “We had 8% growth in the food-to-go business in H2​ [second half of the year] and 13% in Q4​ [the fourth quarter]. So we’ve carried that momentum into winter, which has been good.”

He added: “It’s not that we actually want to slow down the development of our prepared meals business or grocery business; we expect our food-to-go business to grow faster and become progressively larger within the UK business over time. Although the channel choices we are making in America are different from those we are making in the UK, the trends are the same: growth in convenience; growth in coffee shops; a desire for immediate consumption; prepared chilled food.”

As 2014 progresses, Coveney expects to see a recovery in Greencore’s UK ready meals business as the anniversary of 2013’s horsemeat scandal – when sales of its beef-based ready meal volumes were badly hit – drifts into the past.

Simplified supply chains (Return to top)

He admits that he isn't entirely sure whether or not the scandal will cause lasting damage to consumer confidence in the processed food industry. However, he notes that both the major multiples affected and suppliers like Greencore have simplified their supply chains considerably and reduced their supplier numbers as a result – by one-half in Greencore's case for beef suppliers.

“Secondly, all our providers have signed up to the ongoing testing protocols that we want. We have also done a proactive risk assessment on all of our protein suppliers, which fed through to the simplification of our supply chain.”

Having a brother – Simon Coveney – who is minister for agriculture, food and the marine in Ireland – whose food safety authority first detected the scandal – he is inevitably reluctant to step into the area of politics when asked whether the UK’s Food Standards Agency’s (FSA’s) role needs to change as a result of the horsemeat incidents, and following the interim recommendations of Professor Chris Elliott.

But he expresses anger that anyone should have attempted fraudulently to substitute horsemeat for beef in the first place. And when pressed on whether Elliott’s proposal of setting up a Food Crime Unit within the FSA, if accepted by the government, would help pick up future cases of food fraud, he goes as far as saying: “Having a stronger deterrent; more focused regulatory regime is a good idea.”

But he adamantly refutes accusations that the UK food supply chain is “fundamentally broken”​ as some detractors suggest.

Fraudulent, deliberate mislabelling (Return to top)

“Yes there were some pockets of fraudulent, deliberate mislabelling going on and that was facilitated by the fact that supply chains were longer and less well understood than they should have been,”​ he says. “And those things have to be tightened up and the consequence in terms of mislabelling should be severe.”

He adds: “I would like to see the force of the law brought to bear on some of these issues, but there is legal process that has to go through. If that could be speeded up, then good. There is a better understanding now that they were isolated pockets of behaviour rather than a systemic failure across the food industry.”

According to most City analysts, Greencore’s future looks rosy. And while much of the success the firm has achieved to date can be attributed to Coveney, the man himself is generous enough to recognise the importance his restructured executive team has played in the process.

“We have a more formal structure of an executive board where each part of the business is formally represented,”​ he says. “Four people run the four divisions in our business: so, three in the UK and America, they all sit directly in my team alongside our HR director, our CFO​ [chief financial officer] and strategy director. So that's the group that runs the business.”

But despite the successes over the past couple of years, where Greencore’s share price has risen from around 50p a share to over 240p (slightly lower than the peak of around 258p on January 22) at the time of going to press, Coveney is determined that “no complacency comes into the business”.​ That means keeping his retail customers happy. He also has personal reasons for ensuring the business continues to thrive. “I own about 1% of the business; I have a big stake in it.”

So, what of Coveney himself? Is it time to move on to new challenges? He’s been with Greencore for about nine years now, having been appointed chief executive six years ago.

At the risk of tempting fate (given recent denials by Sainsbury boss Justin King in a radio interview that he still had much more to do, shortly before announcing his imminent departure), he says, not quite yet … apparently.

‘Excited and engaged’ (Return to top)

“I am genuinely more excited and engaged by the business than at any point since I became ceo,​” he says. “We had a lot of really hard things to do over the last couple of years. Some of them were big strategic changes; big control challenges. The challenge from here is how do we take an increasingly highly rated business by our customers and our shareholders and our employees and really push it on so that we capture the potential of it.”

But I doubt Coveney will become the Alex Ferguson of the food industry either, in terms of how long he stays with his ‘club’ (not least because he points out he’s a Liverpool supporter).

He says: “I can see myself doing this for a long time. When I started this job I saw it as time-bound. But, now, am I getting up every morning wanting to do the job and excited about the business? As long as the answer is yes, then I am very happy to keep doing it.”

But I suspect he’s a man motivated by new challenges and I'm sure there will be many headhunters and others looking to offer them.

With Sainsbury’s King off in July after serving for 10 years as chief exec, is anyone prepared to wager a bet on Coveney doing something similar in 2015?

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