Olam Food Ingredients CEO talks ‘transformative’ Olde Thompson acquisition: ‘We are creating an end-to-end, unique spices supplier’

By Katy Askew

- Last updated on GMT

OFI grows its spices business with 'transformational' deal / pic: GettyImages-oleksajewicz
OFI grows its spices business with 'transformational' deal / pic: GettyImages-oleksajewicz

Related tags Olam International Olam Food Ingredients

Olam Food Ingredients has accelerated its growth strategy with what it described as the ‘transformative’ acquisition of private label spices supplier Olde Thomson. OFI CEO A. Shekhar speaks to FoodNavigator about the strategic rational, financial return and global ambitions.

OFI, the ingredient arm of commodities giant Olam International, is acquiring US private label spices and seasonings manufacturer Olde Thompson at an enterprise value of US$950m.

While OFI is not providing any ‘forward guidance’ with respect to return on investment, A. Shekhar revealed the company expects a ‘material’ boost to earnings.

"This is a fairly material transaction from a financial perspective. Our 2020 numbers for OFI put earnings at around US$770m and Olde Thompson in 2020 was $80m. So in terms of the current standalone business of OFI it is fairly material in terms of earnings.

“In terms of synergies we can add at least US$25-30m to earnings. Put together the current standalone business and synergies, that's $110, which is a fairly significant material increase in our earnings,​” he told FoodNavigator.

The company also expects the deal will provide a margin uplift because the spice category is higher margin than some of OFI’s other core areas – cocoa, coffee, nuts and dairy.

Creating a ‘global leader’ in value-added ingredients

If the numbers behind the acquisition stack up nicely, the strategic rationale is also compelling.

Shekhar explained that the acquisition should be viewed in the context of OFI’s ambition to be a ‘leader’ in value-added solutions globally across its five platforms.

"This particular transaction fits into the strategy and portfolio. It is a core category, in a core market - spices in the US,”​ he said.

“The consumer trends driving spices in the US and globally are consumer preference for bold, authentic, natural, taste and flavour... Consumers want to experiment with ethnic cuisine and experiment. Taste and flavour are a very important component - along with health and wellness and sustainability and traceability. That whole consumer trend is driving high growth in spices globally, 4-5% growth.”

Expanding in private label, alongside the core areas of food manufacturing and foodservice, is also an appealing prospect for OFI.

“Private label is growing very rapidly and the penetration rate in the US is much lower than in Europe. Therefore, you have a 15% growth rate over the last 4-5 years and it is still only at about 25-26% market penetration within the spices business.

“When you look at the spices category, this is one vector within the category's ambition. Today, we are already a very strong supplier to all the major brands and food processors. We are also a large supplier of the food service sector. This adds a third leg to that stool.”

In summary, the executive concluded: “The reason why this is transformational is it hits our core category, it sits in the heart and centre of consumer trends, is driving a channel that we want to expand - not just for spices but across all the five platforms, and it is in an attractive, large growing market.”

Complementary businesses 

The combination of Olde Thompson OFI also offers up a more compelling proposition to customers, the CEO believes.

OFI has worked with Olde Thompson for the past 15 years and currently supplies around 40% of its raw material. Developing an integrated value chain ‘from farm to can’ for spices feeds into significant customer concerns around transparency, traceability and sustainability. The combination creates an ‘end-to-end unique solutions provider’ for large retail customers, Shekhar told us.

“We are one of the few suppliers who have the capacity to deliver these natural, sustainable, traceable, raw materials right from the farm, combining them with our product science and product development capacity in the form of ingredient solutions or category solutions. That's what differentiates us.”

Following completion of the deal, the enlarged business will become “one single company providing end to end traceability and sustainability and adding on the capacity to do more blends.”

Olde Thompson will benefit from OFI’s R&D capability, which will allow it “to develop more product formulations, better options, so we not only do sustainability traceability but also provide more product applications in spices. That will enable us to provide a unique differentiated proposition.”

Boosting growth in Europe and Asia

The immediate impact of the deal will be to beef up OFI’s presence in North America. But, Shekhar said, the move should be viewed in the context of OFI’s global ambitions to grow in the private label segment alongside foodservice and e-commerce.

“The access to some of the customers that Olde Thompson will bring in will open up access to global markets… The capability set that Olde Thompson brings in will enable us not only to expand our business in North America but potentially outside. For that we will take it one step at a time.”

While a large portion of OFI’s spice business is currently based in the US, the company is prioritising growth in Europe and Asia.

The highly fragmented nature of the spices market in these regions means that further M&A looks unlikely to play a major role in the group’s expansion, however.

“It is a fragmented sector - there are not very many scale options. We'd never say this would be the last acquisition but it is one of the larger opportunities. Growth has to be organic and inorganic. You have to be clear about what you want to build: capabilities, assets, market access.

“A large chunk of our spice business has been in North America because that is where we started, where we have significant scale and scope. But increasingly there has been a focus over the last few years to grow our business in Europe and Asia. Those are big growth markets for us in spices. From a geographical perspective that's the two additional areas of focus that we have.”

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