Bakkavor wants to ‘accelerate’ in international markets

By Katy Askew

- Last updated on GMT

Bakkavor wants to ‘accelerate’ in international markets

Related tags Compound annual growth rate Investment Uk

Bakkavor, the leading UK fresh prepared food manufacturer, wants to “accelerate” its growth in “high potential” international markets like China and the US while continuing to benefit from category growth in the UK.

The company detailed plans to launch an initial public offering (IPO) on the London stock exchange this morning (10 October) in a bid to raise £100m (€111.8).

Bakkavor, which was founded in 1986 and has its headquarters in London, is the number one producer by market share in the UK across fresh prepared meals, salads and desserts as well as pizza and bread.

Rabobank and Peel Hunt are managing the IPO.

Agust Gudmundsson, CEO of Bakkavor, said that the move would enable the company to invest to support growth. “This IPO will enable us to continue to invest to ensure we create value for all investors and stakeholders, and bring more great tasting food to our customers,”​ he said.

Leveraging UK market lead

Bakkavor said that it plans to grow its UK business in line with category growth. The company is around four times larger than its nearest fresh prepared foods rival and its key customers include Tesco, Marks & Spencer, Sainsbury's and Waitrose. These retailers account for 86% of its revenue.

bakkavor desserts
Bakkavor is investing in UK dessert capacity

Fresh prepared food sales totalled around £7bn (€7.8bn) in 2016. According to forecasts from OC&C, the category is expected to witness a compound annual growth rate of around 5% between now and 2019, outpacing the overall UK food market.

Bakkavor said that its ongoing UK capital investment programme, worth around £50m (€55.9m) a year, should enable the business to “keep pace”​ with this forecast market growth rate, with the “possible exception”​ of desserts. To address this, Bakkavor suggested it plans to invest an additional £35m (€39.1m) into one of its desserts sites. After the investment, the facility is expected to generate around £45m (€50.3m) in annual revenue.

Expanding in 'high potential' global markets

In order to expand its business further, Bakkavor said it will increase its presence in the US and China, where it claimed to have established itself as a category “pioneer”​.

“The directors believe that the US and China represent highly attractive opportunities for growth,”​ Bakkavor said.

In the US, Bakkavor operates in the meals category, which consists of chilled ready meals, dips, soups and sauces. This sector is worth around £7bn (€7.8bn) in retail sales and grew at a CAGR of 8% from 2011-2016.

“This growth is facilitated by significant under-penetration of the meals category in the US on a value per capita basis compared to the UK (US penetration is about one-third of the UK’s) and driven by the same macro consumer trends seen in the UK, such as preference for high quality, fresh, healthy and convenient food.”

Meanwhile, in China Bakkavor supplies western foodservice chains, a sector that has nearly doubled from 2011 through 2016, according to Euromonitor, which estimated the retail sales value of sector to total £19bn (€21.2bn).

Going forward, Euromonitor has forecast the Western Chained Foodservice market to grow at a CAGR of 10% between 2016 and 2019.

“These markets are particularly attractive for Bakkavor given their size and their ​long term growth rates, which are built on consumers’ growing preference for fresh, convenient and healthy food options. The Directors believe that Bakkavor is well placed to establish a strong position in these regions by leveraging its many years of experience in the UK market,”​ the company said.

Management noted the company is “open”​ to the possibility of making bolt-on acquisitions as relevant opportunities arise. However, it added that this was “in no way a pre-requisite for success in these markets”.

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