Grampian Country Food Group, Ltd.

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Grampian Country Food Group, Ltd.

7 Bain Square
Kirkton Campus
Livingston, EH54 7DQ
United Kingdom
Telephone: (+44-113) 386-5000
Fax: (+44-113) 386-5133
Web site: http://www.gcfg.com

Private Company
Incorporated: 1980 as Grampian Country Chickens
Employees: 20,000
Sales: £1.85 billion (2005)
NAIC: 311615 Poultry Processing; 311611 Animal (Except Poultry) Slaughtering

Grampian Country Food Group, Ltd., is Scotland's leading meat producer as well as that country's largest privately owned firm. The company makes chicken, pork, beef, lamb, and turkey products under brands including Grampian, Highland Organics, Buxted, Chunky, and Sovereign chicken; Hall's sausage and haggis; Wee Willie Winkies sausage; Cookstown sausage and bacon; McIntosh Donald beef; Welsh Country Foods lamb; and Gordon Ramsey ready-to-heat meals. Grampian operates more than 40 processing plants in the United Kingdom, Thailand, and Portugal, and its products are sold throughout the United Kingdom and in Europe and Asia. Cofounder Fred Duncan owns controlling interest in the firm.

BEGINNINGS

Grampian traces its origins to 1980 when Alfred J. "Fred" Duncan and Mike Stephen started a chicken processing operation in Banff, Scotland. Duncan was a banker's son who had wanted from an early age to be a farmer and had worked as a traveling farm supply salesman. In the 1970s he was hired to oversee a failing chicken operation in Aberdeen for farmer/entrepreneur John Rhind, and with the help of Stephen the operation moved in 1980 to a former fish processing facility in Banff. Grampian Country Chickens, with 50 employees, would concentrate on producing larger birds whose breast meat was used to make products including chicken nuggets and fillets, or sold as a "Super Roaster" for large family meals. The more efficient new facility in Banff would also enable the firm to get a leg up on government processing rules, which were growing ever more strict.

In 1981 the company purchased a closed chicken farm in Bucksburn, and the next year it bought a frozen food plant in Aberdeen. In 1986 a sister unit called Grampian Country Pork was formed to run a newly acquired facility in Buckie that could handle 2,000 pigs per week. Its 50 employees would produce processed, cut, and trimmed pork for the Scottish market in fresh and chilled packages. Grampian had sales of approximately £20 million per year, up from £1 million five years earlier.

In 1988 Duncan and Stephen bought control of the chicken and pork groups from Rhind for £10 million, and expansion continued the following year when Yorkshire Country Pork in Hull was acquired. A processing factory was also opened in Aberdeen during 1989.

In 1990 Grampian doubled production at its Buckie pork plant and also purchased Global Rawson of Hull, which would process 5,000 pigs per week under the name Yorkshire Country Pork. The latter added £20 million in sales to the firm's total revenues, which would rise to almost £120 million. Grampian employed 1,400 people.

In the spring of 1990 the company paid £1.5 million to acquire chicken firms North Country Poultry, Vale Royal Hatcheries, and Ambassador Frozen Foods from Carr's Milling, as well as purchase a compound feed mill from Page Feeds that was renamed Yorkshire Country Feeds. Chicken comprised 80 percent of Grampian's total output, of which 20 percent was sold fresh and the rest frozen, while 75 percent of its pork was sold fresh. Many animals were grown on farms the company owned, and others came from contract farmers. The firm had annual sales of nearly £200 million.

In late 1991 the firm sold Yorkshire Country Pork to Cranswick Mill Group for £3 million and Yorkshire Country Feeds to Associated British Foods. Meanwhile Grampian was spending £1.2 million on new chillers for its Buckie pork facility, which was becoming a "state-of-the-art" slaughterhouse to serve its many retail accounts.

With demand for more naturally produced meat growing as consumers sought healthier lifestyles, in August 1992 Grampian signed a deal with 66-store supermarket chain the William Low Group to provide it with outdoor-bred pork exclusively.

In the fall of 1993 the company sold a £6.6 million ownership stake to a group of investors including 3i, NatWest Ventures, and Royal Bank Development Capital. The cash would be used to fund a new chicken plant in Ellon and expand others, as well as for the purchase of Cymru Chicken of Anglesey, Wales. Grampian was the largest frozen chicken producer in the United Kingdom, handling one million birds per week.

In late 1993 the company acquired a small pork processing plant in Inverurie, and in the summer of 1994 it bought the Mayhew Chicken business from Northern Foods Plc for £11.5 million, which had three processing plants and annual sales of £45 million. Grampian was also boosting its processed meat offerings at this time, which utilized parts of an animal that would ordinarily be sold to outside processors.

ADDITION OF BEEF AND LAMB: LATE 1994

In December 1994 Grampian acquired beef and lamb processing firms McIntosh Donald and McIntosh Reynolds from the John Rhind Group, whose founder had recently died. The two companies had total revenues of £120 million.

The year 1995 saw Grampian launch its first national television advertising campaign to promote a line of animal-shaped frozen chicken nuggets for children called Chicken in the Jungle. Early the next year the firm created a new division to focus on more of these so-called value-added food products.

In March 1996 the discovery of a link between bovine spongiform encephalopathy (BSE, also known as "mad cow disease") and the brain-wasting Creutzfeldt-Jakob disease in humans caused a crisis for beef producers after several Britons died from it. Grampian laid off 120 as domestic beef sales plunged by 40 percent and exports were banned.

In August 1996 Grampian paid £32 million for Favor Parker Group and its subsidiary Sovereign Food Group, which would boost its chicken output from 1.2 million to two million birds per week, making it the United Kingdom's leader in this category. A small chicken hatchery was also acquired in December.

COMPANY PERSPECTIVES

Our Vision: To be Europe's most profitable, innovative and admired meat-based food company.

Grampian Country Food Group was established in 1980 with its first chicken processing business located at Banff in the North East of Scotland employing 50 people. Following an acquisition strategy the Group operates at 40 principal locations, employing 20,000 people throughout the UK, Thailand, Portugal and The Netherlands.

Today we are the UK's leading privately owned agri-food business producing fresh and frozen and added value chicken, pork, beef, lamb and turkey products for the retail and foodservice sectors.

In January 1997 the company announced plans to invest £25 million to upgrade Sovereign's hatching, growing, and processing operations and several other facilities. For the fiscal year ended in March, Grampian had record sales of £469 million and a pretax profit of £16 million.

In the fall of 1997 the firm bought pork processor NewMarket Foods, which employed 1,400 and had sales of £125 million. Early the following year Grampian purchased David A. Hall Ltd., Scotland's largest pork processing firm. The £20 million deal would make Grampian the second largest pork processor in the United Kingdom.

In the fall of 1998 the company acquired the Marshall Food Group, a well-known but financially troubled firm famous for its Chunky Chicken brand, which employed 3,000 at several sites. That November Managing Director Mike Stephen retired and the firm gave the managers of each of its four divisions board member status.

In January 1999 Grampian bought another struggling chicken processor, Hamish Morrison, which had output of one million birds per week. The firm subsequently closed a chicken plant in East Anglia, whose 255 employees were transferred to other locations. Grampian also spent £7 million during the year to convert a frozen chicken factory in Anglesey, North Wales, into a fresh chicken plant. For the fiscal year ended in May, sales rose to £768 million but profits dropped to £208,000 due to losses at the newly acquired Marshall unit and a drop in pork prices. Acquisitions had raised the firm's bank debt from £42 million to £124 million.

DROPPING GROWTH-PROMOTING ANTIBIOTICS: 1999

In the fall of 1999 Grampian stunned its competitors with the announcement that it would no longer feed antibiotic growth promoters to its chickens and pigs because of growing scientific concerns that such use fostered new antibiotic-resistant bacteria strains. The firm would instead use alternative methods that provided most of the benefits of the additives.

With the price of pork falling due to less expensive imports and tougher U.K. growing rules, in December 1999 Grampian threatened to cut 600 jobs in the sector if short-term government subsidies for pig farmers were not established. Scottish pork production had fallen by 25 percent and many farmers were exiting the field. Similar problems were affecting the firm's poultry business, and a few months later 540 workers were laid off at a chicken plant in Newbridge.

By 2000 Grampian was operating 30 different facilities and 350 farms in Scotland that turned out 198 million chickens, 1.3 million pigs, 1.3 million lambs, 72,800 cattle, and 1 million tons of feed annually. The company had 10,400 employees and was the largest independent food producer in the United Kingdom, and the largest privately owned company in Scotland.

In February 2001 Grampian announced it would no longer use genetically modified feed for its animals. At the same time an outbreak of hoof-and-mouth disease caused a crisis within the pork industry, causing production to halt for a time. Spring saw 300 employees at the McIntosh Donald plant laid off, but the firm also announced that its Banff facility would more than double its workforce to 700.

In August 2001 the company launched a £3 million marketing campaign for a new range of chicken products, as it sought to promote the Grampian brand and capitalize on its reputation for quality and integrated production control.

That September another 240 jobs were cut when a chicken processing plant in Gerstang was closed, while 130 were laid off at Newbridge, where meals for airlines were prepared. The latter move was blamed on the sharp decline in air travel that followed the September 11 terrorist attacks on the United States.

KEY DATES

1980:: Grampian Country Chickens is founded as unit of John Rhind Group.
1986:: Grampian Country Pork is formed.
1988:: Fred Duncan and Mike Stephen purchase control of firm from John Rhind.
1993:: Company completes sale of £6.6 million stake to investors including 3i, Royal Bank Developement Capital
1994:: McIntosh Donald is acquired, adding production of beef and lamb.
1996:: Favor Parker/Sovereign Food acquisition makes firm top U.K. chicken producer.
1998:: Company becomes number two U.K. pork producer with purchase of David A. Hall; Chunky Chicken maker Marshall Food Group is acquired.
2001:: Thai-based chicken operations of Koninklijke Wessanen NV are purchased.
2003:: St. Merryn Food Group is acquired; new CEO is named, board splits in two.
2004-2006: Firm restructures with plant closings and job cuts.

In October Grampian acquired pork processor Malton Foods Group for £33.5 million from owner Uniq Plc. Malton's sales of £500 million would nearly triple the firm's annual revenues, though it would drag down profits as it was operating in the red.

EXPANSION TO THAILAND IN LATE 2001

In December 2001 Grampian purchased the chicken business of Dutch firm Koninklijke Wessanen NV, which would be renamed Grampian Foods Siam. It employed 4,000 at three slaughterhouses in Thailand that could process 270,000 birds per day, and also operated two hatcheries that produced 500,000 chicks per week, a feed mill, and a marketing unit in Germany. Sales were primarily to Japan and Europe. Grampian later invested £25 million to boost the Thai operation's output by 50 percent.

In the spring of 2002 the firm announced it was closing the Newbridge chicken plant with the loss of 550 more jobs. During the summer the Bank of Scotland increased its ownership stake to 25 percent with a new investment of £55 million. Aberdeen Development Capital and 3i had sold their shares, while Fred Duncan continued to own more than 50 percent. For the fiscal year ended in May, the firm reported sales of £1.2 billion and pretax profit of £9.6 million.

In May 2003 Grampian created a new position of group chief executive and appointed David Salkend, who had headed the U.K. division of dairy firm Arla Foods. He would be charged with growing international sales and boosting the number of convenience food products. Soon afterward the company also split its board into two halves, one of which would manage financial and strategic processes and the other overseeing the business units. A new office was subsequently opened for the latter in Leeds, where Salkend lived, though the firm's headquarters remained in Aberdeen. That year also saw Fred Duncan boost his ownership stake to 70 percent while the Bank of Scotland's dropped to 13 percent. Another major portion was held by an employee benefit trust.

PURCHASE OF ST. MERRYN FOOD GROUP: LATE 2003

In November 2003 Grampian acquired the St. Merryn Food Group, a leading beef, lamb, and turkey processor, for an estimated £70 million. St. Merryn employed 2,000 at locations in the United Kingdom and Portugal. Profits in the meat industry were slim, around 3 percent of sales, and evaporated when there were abrupt feed and fuel price hikes or problems such as BSE and avian flu (which had cost the firm £3 million to destroy chickens in Thailand). Strict government regulations also made the cost of domestic production high compared to foreign-produced meat, which was held to a lower standard. With highly competitive chain retailers loath to raise the price of meat in stores, such producers as Grampian were forced to absorb the increased production costs or lose orders. The firm's only recourse was to boost efficiency, create more value-added ready-to-cook and prepared meals, and invest in foreign production.

In April 2004 Grampian bought the Frontline Foods poultry business of Uniq for £12 million, which employed 575 at two sites and had annual revenues of £60 million. Operational efficiencies were increased during the year as the firm opened a new £23 million, highly automated pork processing plant in Cheshire and closed a chicken factory and a feed mill.

During 2004 Grampian also introduced a new line of ready-to-eat meals created by celebrity chef Gordon Ramsay, and a range of Thai chicken dishes in Europe under the brand name Spice & Co. For the fiscal year ended in May, the firm reported sales of £1.7 billion and a profit of £12 million.

In March 2005 Grampian announced it would close its deficit-laden pension plans to further investment in favor of an alternative plan, which led to strike threats from unionized workers. In April the company gave notice that its Buckie pork plant would close by fall, with 330 workers affected, while £16 million was being invested at the pork plant in Broxburn, which would add 200 jobs. Grampian employed just 4,000 in Scotland, with another 20,000 workers located outside of its home country. For the fiscal year ended in May, the firm reported sales of £1.85 billion and a pretax profit of just £1.3 million, which was attributed to the £19.3 million cost of closing four plants.

RESTRUCTURING: SUMMER 2005

In June the firm restructured its operations into three units, integrated chicken (feed, growing, and processing); pork; and red meat, while several management positions were reshuffled. It also began publicly negotiating with retailers in Scotland for a 6 percent price increase based on the rising feed, fuel, and packaging costs it had been absorbing, pledging a third of the total to farmers. The amount was soon changed to 7 percent after the firm recalculated its costs to account for exchange rates, oil prices, and new environmental regulations.

In August Grampian announced it was closing a chicken processing plant at Hellaby in South Yorkshire and the following month the firm's management changes culminated with the departure of CEO David Salkeld. Fred Duncan's role was subsequently expanded and in January 2006 former Grampian executive Eddie Power was named managing director.

In the spring another plant closing in Suffolk was announced, which would cause the loss of 380 jobs, while 300 others were cut at three chicken plants. In August Grampian closed its Leeds office and in September reports surfaced that the firm was exiting the frozen chicken business entirely, which would lead to layoffs of 111 more in Aberdeen.

After more than 25 years in business Grampian Country Food Group, Ltd., was struggling to streamline operations and position itself for future growth. Under the continuing leadership of founder and Chairman Fred Duncan, the firm sought better prices from its long-term customers while it expanded the number of value-added meals and exited unprofitable businesses including frozen chicken.

Frank Uhle

PRINCIPAL SUBSIDIARIES

Grampian Country Chickens; Mayhew Country Chickens; Thorne Poultry; Marshall Food Group; Cymru Chickens; Sovereign Food Group; Welsh Country Foods; Grampian Country Pork; McIntosh Donald; St. Merryn Meat; Grampian Foods Siam.

PRINCIPAL COMPETITORS

Sun Valley Foods Ltd.; Bernard Matthews Ltd.; Moy Park Ltd.; Cranswick Plc; Tulip Ltd.; Glanbia Plc; Vion B.V.; Northern Foods Plc; Foyle Food Group Ltd.; Irish Food Processors Ltd.; Kepak Group; Kerry Group; Smithfield Foods Ltd.