Recession Opportunities

Seven presentations were made during the seminar.
First presentation by Iain Webster, Partner – Johnston Carmichael.

GROWTH IN A DOWNTURN. This looked at opportunities for Acquisitions and Investment.

Iain touched on changing patterns of consumer demand for healthier foods but also value for money. This leads to three drivers for most businesses:-
• New product development
• Cost reductions
• Acquisitions

Reasons to acquire:
• Size – to gain market share
• Efficiency – achieve economies of scale
• Competencies – management/production
• Technology – improved product development

He concluded that best opportunities might be to acquire weak businesses for on average 20% below the market value.

DEBT FUNDING DURING A RECESSION
Graham Cunning, Regional Director, Acquisition Finance, Clydesdale Bank

Why is it harder to get bank finance?
• Money supply greatly reduced “¦”¦
• …… at the same time businesses need more funding help.
• The economic downturn has caused lenders to be more cautious.
• The cost of funding.

What Types of Businesses Are Banks Looking To Lend To?
• Good management, with a proven track record.
• Strong internal controls and timely/good quality Management information.
• Preferably stable cashflows and good visibility of earnings.
• Asset security helps, but cashflows are more important.
• Non discretionary spend, strong competitive position.

How To Maximise The Chance of Getting Funding
• Do your homework – presentation is important !
• Look at it from the funders's viewpoint.
• Be honest and realistic.
• Avoid “cold calls”.
• Leave plenty of time.

Other Potential Sources of Funding
• Capital For Enterprise Fund
• Enterprise Finance Guarantee Scheme.
• Small Firms Loan Guarantee Scheme.
• Equity / Other sources.

Conclusions
• Getting bank funding in the current economic environment is harder, but not impossible.
• Money is in shorter supply, and lenders are being more cautious.
• Banks still want to lend money, particularly to trading businesses.
• Well managed, tightly run businesses are very much of interest to funders.
• Security helps, but stable cashflows and good quality of earnings are key.
• Be prepared and have enough time.
• There are other sources of funding out there.

EMPLOYMENT LAW: TOP TIPS FOR SURVIVING THE RECESSION
Chris Phillips, Partner, Maclay Murray & Spens

In a recession the first knee jerk reaction is to cut costs but axing jobs. Chris introduced some alternatives to redundancy:-
• Recruitment freezes and freeze on wage increases
• Restrict overtime and non cash benefits so long as there are no contractual obligations.
• Right to take unpaid leave
• Communication is key so that employees “buy into” the strategy.
• Short term and flexible working. (this would need a contractual right or negotiated agreement.)

HOW TO USE YOUR BRANDING AND INTELLECTUAL ASSETS TO WEATHER THE STORM Alison Bryce, Partner, Maclay Murray & Spens

Alison warned against losing your intellectual property rights especially where recipes were concerned. She used Coca Cola and Irn Bru to give examples of closely guarded secrets. IP can be company identity, research and development, human resources, relationships or processes.

THE CURRENT CLIMATE FROM A RETAILER PERSPECTIVE,
CONSUMER TRENDS AND WHAT THEY WANT FROM SUPPLIERS
Tony McElroy, Corporate Affairs Manager, Tesco

This was the most interesting presentation. When Tesco open in Kilmarnock on Monday 18th June 2009 that will bring to 138 the number of stores they have in Scotland. They employ over 26000 people in Scotland, have over 2 million customers weekly, a £300m annual turnover in Scotland and 156 Scottish suppliers.

Tony said that customer expectations were ever increasing, they sought greater availability, rewards for loyalty and fantastic customer service. Customers were now much happier to shop around, some were trading down, premium lines had become more popular rather than eating out. Frozen food sales had increased and cooking from scratch was on the rise. Customers had an aversion to food waste and sales of Tupperware containers had increased accordingly.

How was Tesco responding? They were investing in price and availability, customer loyalty and expanding customer offer such as Tesco Bank and Tesco Mobile. Convenience range had been increased, investment in local communities and had become market leader in Scottish sourcing.

Tesco use their Clubcard to indentify the right product and right range for the right localities. They could tell where their affluence clusters were.

Tesco had a Scottish Office in Livingston and Tony claimed that his customers liked and responded to Scottish lines. The dedicated Scottish office dealt with buying, marketing, and technical issues. Tesco would be seeking to secure more Scottish products into its stores so that even more customers could be attracted. Staff are trained to be advocates for the products they sell.

Clubcard had identified over 20,000 customers who attended the Taste of Scotland event in George Square, Glasgow where over 100 suppliers had been present.

HOW IS THE CURRENT CLIMATE AFFECTING THE FOOD SERVICE CHAIN?
Malcolm Calthorpe, Foodservice Specialists

What is Foodservice?
The out of home market -anything eaten outside the home
Worth £30bn p.a. – 21.2% rise over last 4 years* (* Deloitte Report 2009)
UK Caterers buy c. £11.1 Billion
Covers a wide range of products and services – it's not just FOOD

New entrants to the FS market
•Birds Eye
•Lees Foods
•Lendale Foods
•Musgrave
•Scottish Shellfish

The general climate
_ Growth has ceased
_ Housing market depressed
_ Job losses
_ Liquidations/administrations up
_ Interest rates at an all time low
_ RPI close to zero

How are Foodservice Operators reacting?
_ Retrenching – closing unprofitable sites
_ 67 pubs closing per month*
_ Reducing staff
_ More multi-skilling
_ Menu re-engineering
_ “Trade-up” offers
_ Special offers to maintain footfall

How are Foodservice Buyers reacting?
_ Seeking lower prices
_ Price comes second to provenance
_ Streamlining ranges
_ Longer life menus – up to 1 year
_ Consolidating supply chain
_ Re-tendering/use of consultants
_ Greater promotional/marketing
allowances
_ Becoming more aggressive

What to do
_ Anticipate – don't wait to react!
_ Separate Foodservice from Retail if possible
_ Be flexible – products & production
_ Understand Foodservice
_ Amend production for smaller runs
_ Be proactive with buyers
_ Negotiate correctly – know the tactics!
_ Adapt to the Foodservice world!

The Foodservice Toolkit
_ Be Positive!
_ Target the correct part of the market
_ Have a Unique Selling Proposition
_ Get the Foodservice knowledge
_ Understand the mind of the buyer
_ Understand the route to market
_ Be patient

Foodservice Excellence Programme
•Programme commenced in Spring 2007. Completed Feb 2009
•8 Scottish Companies took part
•Objective: to provide the skills and expertise to help companies
better penetrate the foodservice market
•Target: £3m per annum of incremental sales
_Additional turnover for most companies participating
_New avenues of business
_Different strategic approach for each business
_Achieved incremental £3.7m – 40% improvement
_Reduced reliance on retail business

The future?
_ Out of home will grow
_ Manufacturers need to diversify to survive
_ Understanding the market is key
_ Be POSITIVE”¦”¦”¦”¦”¦”¦”¦”¦..

How to sell into Foodservice:-
1. Identify your product
2. Look at the competition for that product
3. Understand the route to market