Kerry considers ditching dairy to pursue health and wellness and sustainability megatrends

By Oliver Morrison

- Last updated on GMT

Kerry is looking to grow market share in healthy and sustainable categories
Kerry is looking to grow market share in healthy and sustainable categories

Related tags Kerry foods

Kerry Group’s strategic review of its dairy production and consumer food assets will allow it to free up money for acquisitions in faster growing areas, say equity analysts.

Following rumours it is considering a sale of its Consumer Foods division​, the Irish consumer foods and ingredients supplier whose major brands include Richmond, Wall's, Cheesestrings and Dairygold, confirmed it is planning a strategic review of its dairy business in Ireland and the UK.

Speaking after the launch of the company’s full-year results, the chief executive of Kerry Group Edward Scanlon said the company is planning a strategic review of its dairy business in Ireland and Britain, which now only accounts for just 10% of the business.

“The Group is conducting a strategic review of its dairy-related businesses in Ireland and the UK. This business has activities across both Taste & Nutrition and Consumer Foods businesses,”​ Kerry said. “We note that there is no certainty that this review will lead to a transaction. Further communication will be made in due course as appropriate.”

A potential divestment of its dairy division could increase the quality of the core T&N platform which is focussed on higher growth, margin and return activities, according to Alex Sloane, an analyst at Barclays. Kerry’s acquisition strategy will likely “continue to be based on a model of acquiring functional food technologies within smaller companies with focus on specific geographies and end categories through smaller bolt-on M&A”, ​he told FoodNavigator. “Kerry has had good success at scaling these acquired technologies across its broad base of customers and food and beverage end market categories – for example Ganeden the probiotics technology company acquired in 2017 has been leveraged geographically and into many new categories.”

Scanlon added that “the acquisitions that you’ve seen in the last year and the acquisition that we announced yesterday [the company bought Spanish probiotic group Biosearch Life] will continue to be part of our strategy​.”

Leveraging the current mega-trends

In a note to investors, the team of Barclays analysts added that Kerry’s ‘increasingly relevant model’ and expertise in food innovation areas supporting health and wellness and sustainability megatrends should underpin Kerry’s Taste & Nutrition unit’s growth targets over the next three years.

“The ongoing pandemic has increased consumer preferences towards immunity enhancement, authentic cooking and plant proteins. This is driving much of Kerry’s innovation pipeline with customers for brands at both retail and foodservice channels,”​ they wrote. The analysts expect the firm to continue investing in innovation and grow market share in healthy categories. “In 2020, the group has revisited its environments ambitions and now includes reductions in the supply chain, which we believe should be a focus along with pursuing certifications like RSPO for sustainability in the supply chain.”

Jason Molins, food and beverage analyst at investment bank Goodbody, added: Against the highly challenging backdrop of COVID-19, the business has demonstrated a high degree of resilience, with its foodservice business improving sequentially and strongly outperforming the wider market. While there is an element of uncertainty on the outlook for FY21, which is likely to see some downward pressure to forecasts, we believe the business is well placed to recover strongly during the second half of 2021 and into 2022."

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