THE founder and chairman of Scotland’s largest privately-owned company has accused politicians and executive agencies of doing “nothing at all” to prevent the recent transfer of Grampian Country Food Group’s operational headquarters from Aberdeen to Leeds.
Fred Duncan, who founded his business in 1975 and who today ranks as one Scotland’s wealthiest men, also accused the Westminster government of having “no appetite for maintaining a food supply base in the UK”.
He said this is prompting food businesses such as Grampian to change their business models and look elsewhere for growth. He said Grampian is keen to extend its supply base into Latin America, Eastern Europe and Australasia.
The company, one of the UK’s leading suppliers of chicken, turkey, pork, lamb and beef to grocery multiples, already has a base near Bangkok in Thailand, which was producing 800,000 chickens per week prior to the recent outbreak of bird flu, as well as an export sales base in Germany.
The move of the operational headquarters to Leeds, which was made by Grampian Country Food Group in December 2003, saw around 120 staff who previously worked at sites across the UK relocate to the unofficial Yorkshire capital. The group has around 24,000 employees worldwide.
The new Leeds office now oversees all Grampian’s operational and commercial activities, including purchasing, marketing, sales and human resources.
“Most of our business, both in production and sales, is now south of the Border,” said Fred Duncan. “Aberdeen is very marginalised geographically and it no longer made sense to make people traipse up and down.”
“We didn’t get much encouragement from the Scottish powers that be [to retain the operational HQ in Aberdeen]. None at all. Sadly the councils are so spoilt with the oil industry they do absolutely nothing to retain indigenous businesses.
“The councillors are just not interested. There are problems getting planning permission, they make things difficult, everything is a negative. In certain parts of the country local authorities and development agencies are very keen to see you there and develop your business there. Certainly, Aberdeen City Council doesn’t do that. Nobody tried to stop me moving away.”
But the group, which last year appointed David Salkeld, former UK managing director of Arla Foods as its chief executive, has chosen to retain a 40-strong corporate head office in Aberdeen.
Fred Duncan said the biggest issue facing UK food businesses is globalisation and the UK government’s lack of desire to participate, other than as an importer.
“The government appears to have no appetite for maintaining a food supply base in the UK. Their preference is for importing from the new European countries such as Poland, the Czech Republic and Estonia, as well as from further afield — such as Brazil, Thailand and Australia.”
“The government just doesn’t seem interested. It’s crazy that Margaret Beckett [secretary of state for Environment, Food and Rural Affairs] believes in organic production and conservation. There’s a strong signal from the powers-that-be [for companies such as Grampian] to produce less.
“With the government policy being what it is, we have to see ourselves as a global sourcing entity.”
Fred Duncan believes the government’s policy is misguided, as labour costs in markets such as Eastern Europe will soon rise after “a window” of up to five years.
Fred Duncan accuses supermarkets of intransigence
Fred Duncan said another major challenge facing Grampian Country Food Group is passing on price rises such as the recent doubling of the grain price — which is crippling chicken farmers throughout the UK — onto his supermarket chain customers.
“We have a very passionate customer base in the form of the major multiples and they are so price conscious that trying to get an upward movement in prices is near impossible.”
Fred Duncan said in the face of such intransigence, the only thing Grampian and its peers can do is improve efficiencies.
“Half our industry is for sale, more than half. They’re just fed up they can’t make any money.”
A related challenge is to find ways of adding value to its products, for example by creating ready-to-cook products and prepared meals. Its current focus on primary food has meant that margins are very low. For example in the year to 31 May 2003, Grampian made pre-tax profits of just £21.4m on turnover of £1.47 billion.
“Prepared centrepiece meals are a major priority for us,” said Fred Duncan. “Every time a consumer buys a prepared dish or product, it means they’re not buying a primary one. So we’ve got to move into the prepared arena — in beef, chicken, pork, lamb, turkey, the whole range.”
Fred Duncan said around half Grampian’s sales, or £750m, is in prepared foods. He is aiming to boost this to two-thirds of total sales, which he believes will rise to £2.2bn, within five years.
Explaining the group’s low margins, Fred Duncan said: “We’re often investing in companies that aren’t making money and they always take longer to turn around than you think.”
“In our business you’re targeting profits of, at best, 3% of sales. Then you get mishaps like Avian flu in Thailand — which cost us £3m —, like huge inflation in raw materials, like BSE, like foot-and-mouth. All these things are disruptive.”
“You can get a slightly better margin in prepared food. But it is still only 4%-5% at best, with margins of 2% on the primary side.”
He added: “Avian flu was a huge disruption to our business [in Thailand]. Thailand’s a bit like it was in the UK 50 years ago where everyone kept a few hens. When they found a case of avian flu they killed all the birds in a 30 mile radius. Import bans were also imposed by a number of countries.
“We would hope that by July we will be back to full production again. The next avian flu could be anywhere; it’s an accident waiting to happen.”
But what about animal welfare? This is surely a tricky area for a company that slaughters an astonishing 5,500 cattle and 4.6 million chickens per week.
Fred Duncan said: “I’d like to think Grampian is very much ahead of the game in welfare. We set high standards for our suppliers. We’d like to think we are very much in the upper quartile of producers as far as welfare is concerned. We’ve pioneered chicken sheds and pig sheds which I believe show the way forward for good husbandry and good welfare.”
“They call it Compassion in World Farming but they haven’t a clue what goes on outside the UK shores. In most other parts of the world, the standards are not as high as ours. They are a bit naive in their thinking.”
Fred Duncan owns a 70% equity stake in Grampian having bought out minority investors including Aberdeen Development Capital last year.
The rest of the equity is divided between an employee benefit trust and Bank of Scotland which has a 13% equity stake, in addition to being Grampian’s sole lender. According to its latest accounts, the group had net debts of £167m as at 31 May 2003.
But it seems the Aberdonian entrepreneur has zero appetite for floating the business on the stock market. “Small and medium-sized companies aren’t that popular right now. The hassle of having to jump to the tune of City analysts every five minutes does not appeal to me.”
Copyright 2004 SMG Sunday Newspapers Ltd.
This exclusive interview with Fred Duncan was published in the Sunday Herald on 21 March 2004