Total commitment

For Seamus Mulvenna, January 2007 was a momentous month. “The demerger was a big thing in itself,” he admits. “For me, leaving Fyffes after 18 years was a little bit like leaving home. And two weeks after that we completed the deal with Redbridge, so it was like leaving home and getting married all in the same month.”

He was not entirely surprised by events, as you might expect. The courtship had been long, stretching back in retrospect to the day when Fyffes and Redbridge decided to form a joint venture for their respective wholesale operations in Glasgow seven years ago. “That worked very well for us from the start - we each had underperforming companies in the market and by coming together we created one very successful company,” says Denis Punter. “We got to know each other, worked well together and enjoyed it, and after board meetings, inevitably we had discussions about trying similar arrangements in other cities where we overlapped. In time, this led to the wider discussion of pulling the two businesses together.”

The argument in favour of such a move became “so compelling”, says Mulvenna, that it became “a deal that just had to be done”. And, unlike the vast majority of major merger and acquisition activity in this industry in recent years, it was a deal that had its roots firmly set in the traditional side of the fresh produce business.

Both Fyffes and Redbridge had originally built their power base on wholesale market businesses - in the case of Redbridge, of course, initially as Francis Nicholls. “The biggest single driver for the move in Glasgow in 2000 was that both companies fundamentally believed in the future of the non-retail trade in the UK, contrary to many people’s negativity about the wholesale sector in particular,” says Punter. “We had the shared vision that to be a significant player it takes scale, and that left us with only one option.

ONE GIANT STEP

“In one big step, we created what both companies had previously been attempting to create with lots of little steps. Both companies were doing their own thing, acquiring businesses for a couple of million quid here and there, but realistically, we were both just nibbling around the edges. Eventually we jointly recognised that if we didn’t come together we would be mad, and that somehow or other we had to get the deal done.”

Mulvenna adds: “The risk in real terms was fairly small. Redbridge had such a large spread of businesses and a large retail and non-retail customer and geographical base. It was probably the only target acquisition in the UK of that scale that was not dependent on a small multiple customer base.”

The decision made sense from Fyffes’ perspective too. “The produce side of [Fyffes] business had arrived at a point that the banana business represented just 25 per cent of turnover, whereas 20 years ago that figure would have been more like 75 per cent,” Mulvenna explains.

The changes made to the European banana regime at the beginning of 2006 had palpably created a more volatile price structure, and therefore destabilised future profitability projections in that category, whereas the general produce side of the business remained relatively predictable, albeit with small margins. “It was recognised that to get the required focus into the two parts of the business and to make full use of the scale we had arrived at, the demerger was the best way forward to enhance shareholder value,” says Mulvenna. It also followed the demerger of the Fyffes property portfolio into Blackrock Investments in the spring of 2006, a move made with the same objective.

“For the most part, the experience to date has shown that to be the case,” says Mulvenna, and he was backed up by the six-month results released by Total Produce last week. The company was billed as “the first UK-based £400 million fresh produce business” when the demerger was announced, but this figure was evidently somewhat short of the mark, as in the six months ended June 30, sales revenue growth, including joint venture, share rose 33 per cent to £830m and operating profit was up 14.8 per cent to £16m. Profit before tax and amortisation was 13 per cent up at £14.6m. Having suffered with everyone else in the recent downturn on the stock exchange, the firm’s shares rose six per cent on the news and Punter says: “[The results] are as good as you are likely to find in this industry. The trick now is to keep the momentum going.”

The ambition of Total Produce’s ceo Carl McCann is to double turnover of the company as a whole in five years, which is a tall order from a starting point of €2 billion. “I like to think we’ve played our part in the UK this year,” says Mulvenna. “We are actively pursuing acquisitions in all sectors, not only wholesale.”

SHAPING UP

Before the new venture took shape, back at the end of 2006, the demerger of Fyffes’ general produce business was slightly delayed in order to put the final bricks in place, which gave the management of Total Produce a little additional planning time to consider the way in which the businesses would be merged. “From day one we had a very clear vision of the shape of the company we wanted to end up with,” Mulvenna says. “And that allowed us to move very quickly - it was evident to us that the synergies that existed had to be achieved rapidly, and we felt that it would be better to deal with all of those areas within the first 12 months and have a settled business as quickly as possible, to avoid having issues hanging over our heads unnecessarily.

“It has gone remarkably smoothly - and that is not in any way to diminish any problems that we have had. Our working relationships are such that we have worked very well through every issue. We are absolutely on target - probably ahead of where we expected to be at this stage,” says Mulvenna.

Total Produce can now count 23 facilities in the UK, and more than 30 trading companies. In areas where the Fyffes and Redbridge businesses and facilities overlapped, Total Produce has merged those firms - including wholesale businesses in Liverpool and Cardiff and retail-facing import businesses in London. Further acquisitions have led to mergers in Nottingham, Leicester and Stoke. Total Produce also bought Wholefoods Wholesale in July.

“Where we have merged businesses, we have rebranded as Total Produce, but having a single corporate identity is not a major issue; it will probably happen down the line as part of the natural evolutionary process, but there is no rush,” says Mulvenna. “Redbridge had invested a lot of time and money in building the reputation of its supermarket business - why waste all that?”

Punter says: “The other single biggest change has been moving the financial control from Redbridge’s centralised system into the individual branches, which will all be managed and run on a semi-autonomous basis - as was the case historically with Fyffes’ businesses. Redbridge had gone through the stage, while we grew with very little resource at a local level to manage businesses, that required us to centralise management to support each business, but we always felt there would come a point in time when that approach would run its course. The logical next step was to decentralise and give each business greater freedom.”

In most cases where mergers have taken place, two £5m-plus businesses have been brought together, creating the critical mass to support itself management and system wise. “We have effectively devolved the power to the coalface,” says Mulvenna. Regional managers have been appointed from within the existing management structure, and the regional structure and focus is intended to enhance procurement capability and access to services and bring greater levels of efficiency to the logistics process - for example, putting full trucks on the roads where part-loads would have been the norm. “In time, we believe that as the management teams around the regions develop, they will be better placed [than central management] to identify potential acquisitions and bolt-ons, as well as to tell us how their businesses can grow in their areas,” Mulvenna explains.

“You tend to find in wholesale that each business has its particular strength or strengths in terms of products,” says Punter. “But what we are finding now is that having pooled our businesses together, we have strength across the product portfolio in all companies, which should ensure organic growth in the future.

RETAIL FLOURISH

“Our supermarket business has flourished. Our soft-fruit business alone has increased by 25 per cent - and the financial muscle that Total Produce gives us means we can invest further in developing our grower base and in varietal development programmes. We launched two new varieties this summer, and there will be more new launches during the forthcoming winter.

“We have a new agenda with retailers now. With Redbridge, the conversation would often have purely revolved around soft fruit. Now it is much broader, and we already have new customers in new categories. We have sold citrus, herbs and top fruit into new retail customers this year and we’re positive there are more opportunities. Virtually every customer is asking what we can do, and we will explore those avenues; sensibly, of course.

“The one negative aspect so far was the loss of the Iceland account, but by the end of the year we expect to have more than compensated for that.”

The team from Hart & Friedmann (H&F) moved into Total Produce’s Tolworth office with the Redbridge team last month. “We have brought together our import and supermarket businesses on one site in Tolworth to create a more significant joint business. We wasn’t to encourage as much of our market procurement as possible to go through our import business, and now we have a team on one site with the muscle and ability to purchase whatever volume of product we need,” says Punter. “It is another perfect marriage, as H&F has always been stronger in certain areas that the Redbridge business didn’t have.

“I’ve said this before, but any company is only as good as its people and we believe we have the best in the business. Winning the hearts and minds of the people who work with you was always going to be the biggest cultural issue - telling people what you are planning to do is one thing, but if they don’t want to do it, you have a problem. We have been very fortunate - from day one, everybody has said ‘this is the right thing to do’. Once you have got that, the practical side of things slides into place.”

Mulvenna agrees: “The clarity of our vision and message and the way it was communicated was always going to be key. And one of the most gratifying outcomes of the most difficult decisions we have had to take has been the almost immediate improvement in performance and the vibrancy of the new businesses, to the benefit of everyone.”

CORE FOCUS

Training and career development for young people will be a core focus of the company once the dust settles on this year of internal construction. “Unless you’re bringing in young people and developing them, you have no chance,” says Punter. “We are very lucky to have an extremely committed and relatively young team, for this industry, and we recognise that if we are going to make the most of this competitive edge, we need to enhance our ability to progress people within Total Produce and to retain all key personnel.”

Mulvenna says the takeover culture of Total Produce lends itself to harmonious working relationships. “A lot of our businesses are still family-run and many involve fathers and their children. A takeover can often feel like an invasion, but we haven’t approached it like that and everyone has been very happy working with us. Our way is to buy the business, agree plans and targets and then step back and allow them to get on with it. There is still the same focus on the bottom line, but there is not the pressure to make huge changes. If you pick the right people, trust them and value them, we believe they will respond - generally our experience is that you end up with highly motivated people who perform very well.

“The most important thing when you bring companies together like this is that people listen to each other and recognise that we can all learn from each other, and I think that has certainly been a feature of the first few months.”

Corporate giant or not, Total Produce customers will not lose out on the personal touch, says Mulvenna. “Our customers are not dealing with Total Produce - they are dealing with Gerry in Glasgow, Steve in Liverpool or Micky in Nottingham etc… All of our managers run the business as if it’s their own.”

But how does Punter think the Total Produce venture, and his part in the creation of the UK’s biggest fresh produce entity, has been seen by the industry? “It’s an industry full of rumours, and when there are smaller companies bought and sold it always causes a ripple. When a significant happening like this takes place, the reaction is bound to be more pronounced. I think the one thing that has happened is that it has made people sit back.

“A lot of people have asked me why I’ve done this and I think my response has made a lot of people ask themselves what the future of the industry will be like, how they fit into it and what they should be doing now to ensure their place in that future.”

“I think we have kick-started a new round of consolidation within the industry, and it is ripe for it,” Mulvenna says. “We have made a number of acquisitions and more are in the pipeline. One of the great benefits of that is that consolidation is creating more robust businesses, which is good for customers and suppliers, but most importantly for the core of every business, the people within it. Existing employees are given a more secure future and successful businesses will have the effect of attracting more young people into the industry at all levels.

“Our customers have reacted extremely well and I honestly don’t believe the industry has any issue with us. We make a very good competitor in any marketplace, in my view,” Mulvenna says. “We are not a discounter, we understand our costs and we take a fair profit. We are also prepared to invest when we see the opportunity - our new facility in Edinburgh is stunning, for instance. We want to invest to reach a size that gives us a real sense of security - if you don’t have that as a company, there will always be an element of hesitancy in your decision making.”

Punter says that, by showing belief in the sector, Total Produce is putting out the right messages. “The general view, even of many within the markets, was that they were in terminal decline. But looking at the level of investment we have made, people must be starting to see a future where they didn’t believe one existed.

“We feel that not only is there a future, but that it will be buoyant - albeit in a sector with fewer players. If one player raises the bar, the others have the choice really of raising their own game or getting out. There has been a lot of uncertainty in recent years and there has been a reluctance to invest, particularly on council-owned markets, some of which are very tired. That disappoints us, because our preference is to be in a market environment rather than on stand-alone sites, where it is very difficult to replicate the vibrancy of a market.”

RELATIONSHIPS

“Maintaining long-term relationships with our suppliers - in many cases stretching back generations - is our modus operandi,” says Mulvenna. “The same was true of both Redbridge and Fyffes.”

Punter says: “As far as the wholesale markets are concerned, we see ourselves as category managers. Customers come to us with tight specifications and we deliver that and add significant value for them - allowing them to get on with the things they do well. The only way you can do that effectively is to have a procurement department that is very well structured.”

With that in mind, Punter says one of the disappointments of the year to date has been the low number of suppliers beating a path to Total Produce to offer their products and partnership ideas. “As a business, we are very open to supplier initiatives, but very few growers have been banging on my door telling me they recognise that this is a fantastic opportunity and asking how they can get a larger slice.”

It may be merely a question of perception, he adds. “If retailers merge, suppliers are all over them like a rash, but I don’t think growers necessarily see the UK wholesale markets as a must-have customer anymore. I think in the past, too many wholesalers settled for sub-standard products and sold them at low prices, but that has changed enormously in the last few years and it is time for growers and customers to reassess the role of the wholesale sector in their businesses. There are many growers around the world that are, because of the nature of the business, effectively excluded from supplying UK retailers - the wholesale sector can provide a viable alternative. But it has become hard to convince growers that they won’t be screwed if they just sell into the wholesale market.

“Ultimately, one of the areas where our business differs from many of our competitors is that we procure specifically for each of our businesses, rather than concentrating on one particular sector above all.”

For Punter, moving into the Total Produce fold means a degree of the pressure from the fresh produce industry’s vibrant rumour mill has been lifted. “From a Redbridge perspective, in the last 10 years we had done an excellent job of improving our balance sheet. But there were always rumourmongers out there saying Redbridge was about to fall over. We didn’t. I haven’t heard anyone yet say that Total Produce is about to fall over,” he says.

The early days have perhaps gone even more smoothly than expected, which is enabling management to fix its eyes on future plans ahead of schedule. “I’d say we are 99 per cent of the way to where we wanted to be by the end of this year,” says Mulvenna. “We have swallowed an awful lot already and we haven’t got indigestion, which is good because we want to swallow a lot more. We are extremely ambitious and will continue to be, and we have the foundations in place to take things forward, both in the UK and in Europe.”

“The depth of our product knowledge at all levels is very important,” says Punter. “In the past, I have worked for companies where you would spend most of a meeting telling the ceo what produce is all about before you get to the real issues. We don’t have to do that - everyone on our board is a produce person.”

Mulvenna concludes: “I think you have to look on Total Produce as a young, old company. It may only have been around for eight and a half months as an entity, but the people running it have been in the industry for a long time. There is no doubt in any of our minds that we will deliver the results we are promising.

Leaving home and getting married wasn’t so bad, he says. “This is the most exciting thing I’ve done for years.”

ALL TOGETHER NOW IN BELFAST

Total Produce Belfast - the merger of DP Hale and Benner Torney - moved to new premises last month. Brian Doyle, joint director alongside Eammon Shiels, gives FPJ his insight on progress at the firm’s new home in Dunmurry, between Belfast and Lisburn.

Talk us through the process that has led to the creation of Total Produce Belfast - what has happened this year?

Both DP Hale and Benner Torney already belonged to the Fyffes group, and even prior to the demerger and the formation of Total Produce, we had actively been looking for a site for a new facility for 3-4 years. It was logical that the two companies would merge together, immaterial of the demerger - to spend £7 million on new premises and then compete with each other would not have made any sense. We opened the doors of the new building, which is five minutes drive from the old Balmoral Road market site, just off junction 3 of the M1, on August 22.

What does the new facility offer that is different to the previous facilities and how will this benefit the business?

We have 45,000 square feet of purpose-built, state-of-the-art, temperature-controlled facility, which was built in around a year. It brings together the operating efficiencies of the two companies and all of our products under one roof. At the old market, some of the product would have been outside and exposed to the elements, and we also have the space now to lay product out so people can see things more clearly. There is no central racking system taking up space.

We have taken 20 local farmers with us, who are currently selling their wares outside the front of our new building and will eventually trade from the back of the building. That creates a market flavour and ambience. We are calling it a new market - we have lifted the market from Balmoral Road and put it in Dunmurry.

How has the Total Produce venture changed the business in Belfast?

We are still working in exactly the same way as we have done for years - there has been no discernible difference internally. The two companies have got on and done things as before, only on a much grander scale. Business has already improved remarkably. Existing customers are buying more from us and the amount of plaudits we have received from customers has been overwhelming - they have been extremely enthusiastic about the whole process.

What does this mean for the wholesale trade in Belfast and its customer base - are we seeing a seachange?

What we have done is to invest in and provide a purpose-built facility for the wholesale customer in Northern Ireland, and we have shown our confidence in the future of the business here and our customers. We are extremely committed to investing in the future of our business and I think people have seen that now.

Since the Balmoral Road market was opened in 1975, there have always been two competitors who were not part of that market. Both Fagan Bros and the Northdown Group operate from outside the market, so while [our move away from the market site] is a seachange, it is more a move by us, on behalf of the people of Belfast, to illustrate our ability to drive the business forward.

We have total confidence in what we are doing and in our environment, and that can hopefully only exude positivity.

CAPITAL INVESTMENT IN SCOTLAND

Total Produce’s Edinburgh division has been grabbing its own column inches and is on the lookout for new challenges, following the move to a new 33,000 square foot state-of-the-art facility in Sighthill.

“Anyone that’s been to visit our new facility has been overwhelmed; it is far in advance of anything else in Scotland and really sells itself,” says Robin Spinks, general manager for Total Produce in the Scottish capital. “We’ve had a settling in period over the past few months and we’re now ready to move forward.” The new facility is equipped with up-to-the-minute technology and is home to a 1,000sqft ripening facility room that can handle 24 pallets. The latest refrigeration controls have been installed in the warehouse and chill cold rooms.

The company is looking to take advantage of its top-notch surroundings and favourable location to build more relationships with locally based suppliers and increase the ratio of Scottish-based produce it markets.

“We are currently working with 12-13 Scottish growers and we’re looking to raise awareness,” Spinks says. “Lots of the growers here are in partnerships with retailers, but there are still some smaller producers who supply Total Produce.”

Given that much of Scotland’s fresh produce is concentrated in root vegetables, mushrooms and soft fruit, it is unsurprising that Total Produce is currently in talks with a potato grower to supply a full range of product.

“More and more of our customers are asking about the percentage of locally grown produce,” says Spinks. “If we get more fruit and vegetables from Scotland, this means we don’t have to source as much from the rest of the UK, which reduces road miles.

“It’s far better to form a partnership with growers and negotiate prices that are conducive to both parties, which will allow the growers to invest. This will encourage better specifications and higher quality produce.”

Edinburgh may be hundreds of miles away from Total Produce’s headquarters, but Spinks says each division has significant control over its day-to-day operations. “We enjoy the best of both worlds,” he claims. “We have the financial backing of a large company and the collective strength that goes with it, but Total Produce in Scotland runs as an independent unit; we are given a lot of independence.”