Hilton has entered into a five-year supply agreement with Tesco Central Europe. The company will build a new €6m production facility in Poland to manufacture processed fresh foods. Production is slated to start at the new plant in the first quarter of 2019.
Hilton and Tesco have also agreed to sign a further five-year long term supply deal for Hilton to continue supplying Tesco’s Central European stores with pre-packed meat.
Extending category reach
The move enables Hilton to further extend its category reach beyond its core packaged meat business.
It builds on previous Hilton’s first moved into the processed foods sector when it started manufacturing pizzas for ICA supermarkets in Sweden last year.
“Today’s announcement makes great strategic sense,” a spokesperson for Hilton said. “It supports the strategy of providing retail customers with a diversified food offering on a global basis. It cements Hilton’s position in a growing part of the market… Hilton is also committed to growing its meat revenues.”
Hilton has a history of working in close cooperation with its retail partners. The company was established in 1994 as a beef and lamb meat packing facility to supply Tesco in the UK. Since then, it has expanded into 15 markets in Europe and Australia.
In each market, Hilton’s primary business model is to focus on developing its relationship with a key retail customer.
CEO Robert Watson said that the investment would have a positive impact on Hilton’s relationship with Tesco.
“We have a long and successful history of working with Tesco, one of the world’s biggest retailers. This agreement represents an opportunity to enter a growing food segment of the market. We look forward to seeing the positive effect our tried and tested business model will have on this relationship, which will be supported by our flexible and versatile approach to meeting local requirements.”
This sentiment was echoed by Matt Simister, Tesco Central Europe CEO. “We are extending our deep group-wide partnership with Hilton to bring new manufacturing investment and capability to Poland. Our collective experience and expertise will bring new, innovative and high quality fresh and convenient products to our customers in Central Europe”.
Feeding the ‘strategic hopper’
The investment shows Hilton continues to progress its strategy, which focuses on category-based and geographic expansion, Shore Capital analyst Clive Black said.
“We welcome this development as it further broadens the reach of the business within Tesco... Hilton is feeding its strategic hopper nicely,” Black suggested, flagging recent investments in Portugal and Australia where the company has established joint ventures with retailers Sonae and Woolworths.
Earlier this month, Hilton also confirmed it is in “early stage discussions” with Icelandic Seachill owner Icelandic Group over a potential acquisition of the Saucy Fish Co. manufacturer.
Speaking today, Hilton’s CEO Watson confirmed that the group continues to seek further opportunities for “for geographic expansion”. The company declined to comment on whether it is seeking further M&A opportunities to achieve this or whether the focus remains on organic growth.