Wessanen reaps benefits of bold strategy change

A quarter of a millennium after its establishment, food company Wessanen took the radical decision to focus its activities exclusively on sustainable, healthy food in Europe. The drivers behind this strategy, CEO Christophe Barnouin and CFO Ronald Merckx, are now starting to reap the benefits of this change of course, with both the market and the company benefitting from a radical change in our approach to food. “It is an evolution which is gathering momentum.”

Healthy and sustainable food is the subject of much discussion. No one can deny that we should eat more healthily: less meat, less sugar and more fruit and vegetables. We also need to start making food production more sustainable, using fewer pesticides and employing methods that are less damaging to the soil and the environment. Until recently it was often no more than lip service but a change does now appear to be taking place, with a growing number of consumers modifying their buying, eating and cooking habits. This is creating a growing niche market for organic, vegetarian and fair trade foods.

Wessanen is fully committed to this. However, drastic change was needed to reach this point. At the end of the last century a large number of acquisitions had turned the listed company into a vast food conglomerate with a very diverse product portfolio. Lacking focus, however, it spiralled downwards with declining sales and many years of losses. Then, a few years ago, Wessanen decided to make an unconditional commitment to healthy and sustainable food. Subsidiaries that did not fit this profile, such as ABC, Natudis and Izico, were sold in 2014. The choice of quality over quantity panned out, with the share price having tripled in the last 2.5 years.

It is interesting to look at how board members Christophe Barnouin (CEO) and Ronald Merckx (CFO) managed to achieve this. We met up with them at the Wessanen headquarters in Amsterdam, where they spoke frankly about this bold strategy change

 

Emerging trend of interest in health foods

Wessanen_Barnouin portrait
Wessanen_Merckx portrait

Wessanen's CEO Christophe Barnouin and CFO Ronald Merckx

 

The company set its sights on becoming a European leader by applying a new strategy to focus on organic, vegetarian, fair trade and other nutritional foods. Barnouin explains what it will take to achieve this. “We have to grow our core brands in line with and ahead of the market. It is important to engage more consumers. The market for organic food is still fragmented and small in Europe at about 4 per cent. We have to stimulate this growth market, both by influencing the European agenda on food and by innovating.”

He sees innovation as being key both for the market and for his company: “Innovation is the core driver of growth in this market. What the customer wants is simple enough: ‘I don't want conventional food, so please offer me more opportunities to switch to healthier alternatives like organic or vegetarian food.’ We are a key player in terms of offering these alternatives.”

 

Meaningful innovations

The debate about healthy eating is, of course, widespread. Which raises the question of how Wessanen can use this and benefit from it. Ronald Merckx: “This opens up a lot of opportunities for us. We provide consumers with meaningful innovations, for example in organic food. We are also looking at related categories, such as gluten-free foods, where we just made an acquisition. Furthermore, we want to do better in growing the meat substitutes market. It will be very difficult to feed a projected global population of nine billion by 2050 in a way that is sustainable for people and planet. People are starting to understand this more and more and are looking for alternatives. There is also more awareness of animal suffering in factory farming.”

“Innovation is the core driver of growth in this market.”

And then there is the shareholder’s point of view. Does being a pure, green player in a growth market bring benefits for Wessanen? According to Merckx people now look at the company from a different perspective. “Now we are a player in a market with great growth potential. We are also getting more attention as a result of the financial world focusing on investment in socially responsible companies. So funding has become easier. But that is not because we are a pure, green player; it is because of the success of the business after we became a pure, green player. Now our share price has tripled – basically in recognition of the fact that the company is onto a trend that is going to run for a long time.”

 

Growth strategy

So, things look bright for Wessanen going forward. But just how close is the company to actually reaching its goal of becoming a European leader in healthy and sustainable foods? "Already close," says Merckx, with Barnouin adding: “We are one of the few listed companies in Europe focusing on sustainable foods. Market leadership will come one day. But we are not obsessed with size.” On the subject of the growth strategy he says: “It is important that our brands are leaders in their niche. When we look at new brands or assets, we want to be the brand leader or the number two. After that we look for synergies. Brands that are successful in one European country are deployed to other European countries.”

Clearly this expansion means crossing cultural barriers as well as national ones, but this has proved to be no obstacle to Wessanen, explains Barnouin. “We can sell the same products all over Europe. While taste profiles may differ, consumer needs are very similar. Consumers approach food in a functional way: if you are looking for an alternative to milk you look for a rice drink, or a soy drink. The market segmentation and the channels – supermarkets and organic shops – are also the same across the various markets. Sometimes we need to adjust a brand, but there is quite a lot of scope for cross-fertilisation.”

 

Healthier food, healthier people, healthier planet

Wessanen developed a new mission, vision and strategy, based on three sustainability pillars: healthier food, healthier people, healthier planet. But how did they incorporate the new strategy into their business culture? Barnouin says this was not difficult. “If you ask your people: would you rather sell food that respects nature or snacks made from questionable meat, you can predict the answer. It is easier to motivate employees if they see that their work contributes to health and a better society.”

Sustainability was already part of the company’s DNA. Merckx: “The conscious strategic choice we made helped reinforce that DNA on a local level, where businesses were already focused on sustainable and healthy foods. At corporate level it felt like a bigger change. Selling non-core businesses and acquiring companies with the right footprint – such as Clipper (organic and fair trade tea), Alter Eco (organic chocolate) and Abafoods (organic vegetal drinks) – helped make it real for people. The business culture has changed a lot and people are living our purpose now. They are living green behaviour.”

 

Organic buyers not just buying a label

Can Barnouin give an example of ‘living green behaviour’? “The vegetarian lunch I had today, for instance. We encourage our people to have at least one vegetarian day a week, on Veggie Thursday. We also encourage them to exercise regularly. And we have changed the company's energy sources so that today 94 per cent of the energy we use comes from renewable sources.” He also stresses the importance of ‘living the purpose’: “After ten years in organic food, I know that people who buy organic are not just buying a label; they want to know more about the company. How does its leader behave? How does the company treat its employees and how does it interact with its ecosystem? Does it encourage fair trade? How does it treat suppliers?”

Barnouin is quick to give a specific answer to the supplier question: “We have an integrated European sourcing team that assesses the sustainability of our suppliers along with other criteria and performs audits where necessary. Where possible, we engage further up in the supply chain, building long-term, sustainable relationships with farmers and cooperatives. We try to move away from a trading culture ('we buy, we sell') towards a more sustainable approach. Companies that are serious about sustainability are not supposed to squeeze suppliers.”

 

Inspired by sector knowledge

The banks played a crucial role in the transformation of Wessanen and Merckx is very positive about this. “The banks really helped us make it happen. The availability of funding was quite important at the beginning of the process. Furthermore, we asked for feedback on how the transformation would be perceived by the markets. The banks also advised us on the divestment of non-core assets, which was mostly done through private equity partners. Banks can help you with that, because they work with both sides.”

"In the process of buying new assets, our banks helped us with deal tactics, structuring and with sourcing potential buyers.”

In fact, the company's banks helped build the new business. “In the process of buying new assets, our banks helped us with deal tactics, structuring and with sourcing potential buyers. They also inspired us with their sector knowledge. Their insights into the agrifood sector were very useful,” says Merckx.

 

Helping people improve their diet

With a dynamic future ahead, the question arises as to what Wessanen’s expectations are. Merckx gives a brief and upbeat description of the company's outlook: “We have a tailwind at the moment and our markets are growing. But we also live in volatile times. Just look at Brexit. Fortunately, food stocks are less vulnerable to crises. And good food and looking after your health is becoming increasingly important to people.” The company still has a lot of growth potential, for example in online sales. Barnouin expects these to grow fast, especially amongst young consumers: “We don’t do online sales ourselves, but instead work with online retailers. We cooperate with the experts. The main thing we have to do here is tell the stories behind our food and be as transparent as possible about the ingredients.”

Merckx is really confident that Wessanen is riding a long-term trend in the food market that is set to continue for years to come. He sees this trend as an evolution which is gathering momentum, rather than a radical revolution. “Consumers can change their habits. You can compare it to smoking: thirty years ago, it was perfectly normal to smoke almost anywhere. Now that is no longer acceptable. Something similar will happen in the food market. When people realise the negative effects of eating bad food and unsustainable production, more and more people will switch to healthier alternatives. We aim to make a substantial contribution to helping people improve their daily diet.”