Talk with McCain Foods CEO Howard Mann
Howard Mann: "People still eat French fries in a recession"
The Canadian frozen food and appetizer-cum-snacks manufacturer is the world's largest supplier of frozen potato products. Depending on which size of the Pond you live, you'll call these chips or French fries.
Last year, the family-owned company, which has never lost money since 1958, posted revenues of around 6.1bn Canadian dollars (€3.9bn).
Under Mann's leadership, McCain Foods has shown itself adept at anticipating and/or initiating food trends.
With a dry London humour reminiscent of the actor Michael Caine, Howard Mann (56) discussed global expansion and how he intends to continue diversifying the brand portfolio.
But, he didn't dodge such thorny issues as acrylamide and industry consolidation.
Mr. Mann, how did you create value over the last year?
By a consistent attack on our cost base and heavy investment in our French fried and other added-value food product plants throughout the world.
What sectors of the business have you been able to grow?
We had growth in our lead product, French fries, as well as in most of our other product sectors worldwide. Frozen potato specialities growth was exceptional.
Our local jewels have also done well. There was high growth in pizza and fruit juice in Canada, and in Australia we did well in pizza, entrée meals and vegetables.
Both our French fries and our vegetable range have been steaming along since we entered South Africa two or three years ago. In Europe the main business is French fries. In the USA we have French fries and a very good business in finger food.
What percentage of your business is outside Canada and is this likely to change in the future?
A very large percentage. Canada may be a vast country in terms of area, but has only 30 million inhabitants who are essentially spread along the border with the USA. Our sales are divided more or less equally between North America, Europe and elsewhere.
In future, there may well be a percentage shift towards the Asia-Pacific region and South America, if it overcomes its severe economic problems.
Could you give a snapshot of the growth opportunities you see worldwide?
I don't see that Europe is saturated; there are further opportunities there providing you have the quality products that keeps the growth going. We have to introduce more specialities such as finger food in the area.
In the USA we anticipate further growth in French fries and finger food.
Also, as consumer spending power increases in South Africa more people will buy our products. There are some tough markets like Germany which will remain tough until the value system changes, as I am sure it will.
How sustainable is consumer spending power in the current recession?
People still eat in a recession and enjoy French fries, so we are escaping quite a lot of the impact.
How would you define your price policy in relation to your competitors?
We make the highest quality product and sell it at a premium to our competitors. We are also generally able to command a premium because the McCain brand has been systematically built up by the two founders, Harrison and Wallace McCain, and well supported by advertising.
However, the premium can vary country by country. Sometimes the premium exists because our competitors choose to sell their products at prices which amaze us and which according to our reckoning are making little or no money.
There have been competitors in the last few years in whose financial reports you can read the words we lost money. That's not what we are in business for.
McCain has never ever lost money except in the first month of business in 1958. It's not a highly profitable sector, but we do our best to achieve at least an adequate return for the family shareholders who help us by taking a rare long-term view.
How do you intend to profit from the consumer trends towards health, and where do you stand on the issue of acrylamide?
The consumer is first and foremost in our mind, and one has to respond to what the consumer wants. We are doing everything we can to ensure that our products do not have any negative health connotations.
In our industry we pay special attention to the oils associated with the cooking of our mainstream products and focus on making them as low in fat and polyunsaturates as possible.
Equally, we are trying to share our knowledge with the end users of French fries whether that be consumers or restaurants. Acrylamide is becoming more and more of a non-issue.
Like everyone else, we had never heard of this substance in relation to food until the research came out. It was then found in other potato products, bread, cookies, coffee etc. In fact, it seems to have been in existence since ancient man first pushed a potato into a fire or baked bread.
The potential health risk is still not fully understood. Some experts in Sweden and the USA have recently said that it may not be so dangerous after all. However, we are not ignoring the issue.
We have to ensure that our products are as healthy as we can possibly make them and believe there is a solution to the small amount of acrylamide to be found by making adjustments to our processes. Of course, we have also fully complied with the wishes of all governments including Germany.
There is intense consolidation in today's food processing industry. What are your strategies to prosper in this type of environment?
Our founder chairman has lead this consolidation through his purchases of French fries businesses in Europe and other parts of the world. I think we are well-positioned to capitalise on this situation simply through our worldwide presence.
Obviously, however, one has to be very careful that one is going to get an adequate return on that investment, which after all is always shareholders' money.
What percentage of medium-term sales growth is planned to come via acquisitions and how much will be organic?
The question here is: after how many years does an acquisition stop counting as an acquisition? If we were to say that acquisition growth counts as such for the first four or five years after the initial acquisition, then we are roughly fifty-fifty.
The main criterion is, however, not the relationship per se, but whether growth is made sensibly.
Obviously, we are looking at further geographical opportunities, and we already grow potatoes in many parts of the world to make sure that we have an internationally competitive quality crop.
As regards acquisitions, our most recent ones have been in the finger food business, but they are an opportunistic matter.
You can never be sure that one is coming along tomorrow. Sometimes there is nothing, and then all of a sudden six opportunities come in one go. The key is always to make a careful analysis in advance, particularly in the current economic situation.
How will new distribution channels such as ecommerce affect your business?
Our products by their very nature are ones which people like to get their hands on. Shopping isn't the most terribly interesting experience in the world, but we are trying to encourage consumers to view the handling of our products as an enjoyable experience.
With e-commerce it's very hard to achieve any tactile or sensual interrelationship between the product and the consumer.
What is your strategy to deliver medium-term growth?
Good marketing and the penetration of more markets. We seem to be growing faster than the market in a number of countries, which means that the national McCain managements are doing their job well. This is a vindication of our policy of drinking the local wine.
How frequently do innovative products flow along the pipeline?
Our current chairman, Alison McCain, and I spend a large amount of time travelling the world looking for opportunities and encouraging management to take us places.
There is nothing we enjoy more than a product tasting. If we think we have found a winner, we communicate it to all our CEOs and marketers worldwide.
It's a normal human trait for people to prefer their own ideas to ones coming from elsewhere, and sometimes they have to be persuaded pretty strongly. The challenge then is to get them to see how the new product will fit their own country.
Roughly what percentage of sales do you invest in new product development?
The exact percentage is irrelevant because we will back a good project whether it is in the budget or not.
The same applies to advertising. There is no point in having a new product and then not advertising it because it hasn't been budgeted for. The answer is: Do it now! We don't care about the budget, if it's worth doing.
On the other hand, don't spend advertising money which is in the budget, if you haven't got a good commercial.
How do you ensure adherence to your core values while giving local management considerable autonomy?
We have a centralised budget system and worldwide accounting standards, and we measure every business in the same basic way. I read all the big company accounts and managing directors' reports every month. Also, Alison McCain and I sit in on a lot of local management meetings.
How do you ensure an exchange of know-how and international best practices within your company, and do you have an external benchmark?
Our senior marketers have set up a global network. They meet and exchange views and ideas via an intranet. There is also an international exchange process via the internet for exchanging ideas on new packaging and commercials.
We hold a worldwide agricultural conference every one or two years. It looks expensive on paper, but saves time when everyone knows whom they should phone etc.
Our manufacturing vice-presidents meet twice a year to exchange best practices, trials results and practical experience with technical standards and equipment etc.
How do you ensure the recruitment of enough good managers to help you pursue your international growth targets?
Drink the local wine! Every country on this planet has good management somewhere, and no single country has a monopoly on management skills.
You build one and a half new plant facilities per year in addition to upgrading existing ones. Does the cost ever worry you?
High costs work both ways, one of the big barriers to new competitors entering our industry being the construction costs of French fried plants which often exceed 100 million dollars a piece.
Often, one has to put in the manufacturing capacity before one has the sales, which involves considerable risk, but which can be reduced by doing careful analysis in advance.
In view of your heavy capital expenditure, could you ever conceive taking McCain public in order to better access capital markets?
Many people ask me this, but it isn't for me to answer as I'm not a shareholder. I can only say that the McCain family is proud of its heritage, and I don't see any indication that this is about to happen in the near future.
How would you characterise your relationship with your retail partners?
In general, the manufacturers who win are those who have the most recognisable brand, provide the best service, the clearer consumer benefit and who create demand pull for their products.
Retailers generally go for the brand leader, or maybe the number two brand, and their own brand. We can survive in that environment because we are the brand leader in most countries.
If you support the market, retailers will generally encourage you. There are some markets which are particularly difficult where retailers don't seem to want to stock a brand, which is very hard to comprehend.
I hope that the retailers on these markets will come to realise that they should further the interests of those who support the market. At the end of the day, like them, all we want to do is grow the business.
How close are you to giving international retailers global terms and conditions?
There are many retailers who talk most eloquently about global or European deals, but a brand manufacturer should only agree, if it is a win-win situation. Otherwise you are just cutting up the same pie in a different way.
What is your policy on own label?
We know a lot about our product segment and share information with retailers as part of a strategic relationship to help build the category.
We do produce own label, but only from a dedicated private label plant with separate management, sales staff, and delivery fleets. By keeping this separate from our branded business we avoid confusing both the retailer and ourselves.
If you have five different retailers running product down your line in addition to three varieties of your brand, it creates too much complexity when, for instance, one has to constantly change packaging and labels.
How would you define your corporate culture?
We are a family company and very forgiving regarding mistakes. We don't overreact to them because we recognise that we all make mistakes and know that no single person necessarily has the solution.
Country managers are aware that they can share their problems with top management because then we can share the solutions.
How would you characterise your management style?
I've always responded well to my superior having trust and confidence in me. If management hasn't got trust and confidence in a member of staff, then maybe they should get someone else.
I hire as highly-skilled people as I can get, otherwise why should I want them? If they are more skilled than I am, then so much the better — I don't regard that as a threat.
Once you have good people, you should give them space to operate. It's their job to know all the details of their particular business area; it's my job to know the essential details.
If I insisted on knowing every detail in such a large business, I'd simply drive everyone crazy. I care only about fundamentals because it's the big issues I should be discussing and applying solutions to. That's where the big reward is.
I keep extensive notes on the basis of which I identify the key issues. Then I prioritise them by writing action points. Local management know that I will always follow these up next time I visit. If they need help, I will give it to them or bring help in from elsewhere.
Could you summarise the vision you have for your company?
More geographic spread and to grow our share on the world market.
Related article in German: Interview by Mike Dawson in Lebensmittel Zeitung, no. 19, 09.05.2003