The company, the number one branded consumer goods group in the Nordics and Baltics, is moving with the times by creating new brands in response to a seismic shift in consumer attitudes.
“We have a saying in Orkla that [if] we want to grow, we have to grow the core but still also adapt for more,” CEO Peter Ruzicka explained.
With an idea to the “big things” of the future, Orkla plans to build new brands that will prove blockbusters in the next ten to twenty years. “When we do that, we are looking at the prevalent consumer trends that we see. And one of the trends that is very strong is a new market for food that is really good for you, but at the same time also good for the environment,” Ruzicka observed.
“We see a consumer trend, they are demanding healthy, natural, convenient food that tastes good, of course, and produced in an ethical and environmentally friendly way. And this is a trend that is getting stronger and stronger.”
Four ‘eco’ brands
Orkla is developing four key brands within this area: Naturli, Anamma, Paulúns and brand new confectionery brand Vill.
Naturli plant-based drinks, spreads, sweets and ready meals are 100% natural, vegan and organic. Growth of the brand has been supported by like-for-like growth in existing SKUs but also through line extensions, the company revealed.
In December, Orkla entered into a partnership with McDonald’s to develop a vegan burger via its Swedish Anamma brand. The company, which acquired Anamma a few years ago, has experienced “very strong growth” in sales of vegetable-based products. Ruzicka said that the McDonald’s tie-up has been “very successful”.
“So far, [the McVegan] has been launched in selected McDonald's restaurants in Finland and in Sweden. And during one month, we have sold 150,000 vegetarian burgers, McVegan burgers, in those restaurants. So that is quite good start of a very, very exciting cooperation with McDonald's,” he revealed.
“People want to eat more plant-based food, partly because of health reasons, but also because of environmental reasons. Less climate impact than a regular burger made of meat… And this has received a lot of attention worldwide. This is a trend, of course, not only in the Nordics.”
Elsewhere, Orkla continues to invest in innovation behind Paulúns, a good-for-you brand launched in Sweden in 2005. The brand was originally focused on breakfast cereals and has since extended into other areas as well.
“It's convenient, it's all-natural, it tastes fantastic and it's loved by the consumer… We have seen very strong organic growth. And during the last couple of years, it was launched in Norway, Denmark, Finland and Latvia sometimes under the same brand, but in some cases, under a local brand.”
Finally, Orkla has commenced the rollout of a new confectionery brand, Vill, in Norway. Vill, which translates to Wild in English, also comes in response to demand for healthier, natural products made with local ingredients. “This is dark milk chocolate made with more cocoa and with less sugar and, of course, with milk, local milk, from Norwegian cows. It's soft fruit centers covered in dark chocolate in two variants, blueberry and raspberry.”
Don’t underestimate the core
While Orkla is building new brands to tap into consumer trends that it believes will benefit from long-term momentum, the firm also wants to grow its core brands, which range from pizza to confectionery.
“By growing the core, we mean that we have to focus on the really big SKUs, our really big brands, because the most profitable thing we can do is selling more of the same stuff where we already have built the brand, we have done the innovation and we have done the investments in production facilities,” Ruzicka said.
The executive noted that 2017 was a “record” year for Orkla’s frozen pizza beand in Norway, Pizza Grandiosa, taking its market share to above 50%.
The group’s Smash! Brand was the “most sold” chocolate bad in Sweden at the end of last year.
Meanwhile, one of Orkla’s oldest brands, Möller's Tran, Möller's Cod Liver Oil, was able to increase export sales by 83% in 2017. During the last two years, the company has doubled its production volumes to keep pace with demand.
“These are just a few examples of how we are growing the core,” Ruzicka insisted.
By developing new brands and expanding established ones, Orkla was able to report organic growth of 2.8% for the final quarter of 2017. For the full-year, to end-December, organic growth stood at 1.6%.
Twelve month operating revenue increased to €4.05bn (NOK39.6bn), up from €3.9bn (NOK37.8bn) in 2016. Operating profit was also higher at €470.1m (NOK4.6bn) versus €429.2m (NOK4.2bn).
Organic growth is not enough
While Orkla grew largely in line with its markets during the fourth quarter, the company suggested that this underlying sales performance does not match its growth ambitions.
“Given its portfolio of businesses and markets, we do not think investors can reasonably expect much more than the +2.8% branded consumer goods organic growth that Orkla delivered in Q4,” Bernstein analyst Andrew Wood suggested. “Our thesis is that organic growth will always be complemented by M&A, and indeed Q4 saw a positive impact from M&A [of] 1.4%.”
Indeed, Orkla signalled it will continue to eye acquisitions as a route to growth.
Ruzicka elaborated: “We still see a lot of attractive acquisition candidates out there. And we are monitoring the market closely and looking for companies that fulfil one of three criteria."
The first is expanding Orkla’s presence in the markets in which it already operates to leverage economies of scale. The second is to acquire businesses that expand Orkla’s reach outside of food retail channels.
“The reason for that is that we see food retail growth is quite low, while we see much higher growth in other channels like, of course, online, specialty stores… We want to strengthen our presence in these channels, not only because we see higher growth, but also because we see that consumer trends are changing, where consumer are looking for our products is changing, and we have to be present in all channels where consumer expect to find our products," Ruzicka said.
Finally, Orkla wants to strengthen or build niche positions in a broader geographic area, like ice cream ingredients where it is now the market leader in Europe.