Kerry Group rises to plant-based challenge

When McDonald’s was preparing to launch its Beyond Meat-based McPlant burger this autumn, it had a problem: vegan cheese can taste terrible.

So it turned to Kerry Group. Far from its dairy co-op routes, Kerry is increasingly a global specialist in supplying food ingredients and technology – the kind that helps make crisps "moreish", bacon smoky, oat milk creamy, bread last longer and alcohol-free drinks palatable.

With sales of some €5.8 billion from its taste and nutrition business last year, it claims it reaches more than 1 billion consumers around the world with its products, many developed at an unremarkable-looking building just off the motorway in Naas, Co Kildare.

Its size can be gauged by comparison with rival European flavour houses Givaudan of Switzerland and Germany's Symrise, which serve the beauty and pet food industries as well as food companies. They had sales of €3.4 billion and €2.1 billion from their respective, although not directly comparable, ingredients divisions.

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And Kerry is now betting bigger on the taste and nutrition business as its future. This year it has sold most of its consumer foods meat and meals business and has been exploring an exit from its founding dairy business. It also made recent acquisitions in probiotics and preservatives.

The market has worried at times about the fast pace and fit of Kerry’s acquisitions. That is one reason for a lacklustre performance of its share price, which has weakened 6 per cent this year. In contrast, Givaudan’s stock is up by 20 per cent year-to-date, and Symrise’s has risen 17 per cent.

Kerry also saw €2 billion wiped off its market capitalisation within hours in February when a short selling fund questioned the group’s acquisition record. Its share price fell more than 11 per cent in one day. Kerry, which went public in 1986, denied the fund’s claims that it had overpaid.

More positive

But other analysts are more positive on the group’s strategy. About a third of Kerry’s taste and nutrition business is focused on the food service industry, which has been impacted by Covid-19. Its rivals, by contrast, supply scents and flavours for things that consumers have kept buying during the pandemic, like detergent and pet foods, which Kerry does not.

And taste and nutrition revenues have risen more than a fifth since 2015, when Kerry officially repositioned this business not just to supply ingredients but to solve companies’ processed food problems in partnership with them.

"What we do is [provide] the intelligence inside the food industry," says Edmond Scanlon, chief executive.

Kerry’s aims sound like a contradiction in terms – to make industrial food better-tasting, healthier, more natural and longer-lasting. But it believes that while shoppers still want convenience, they are demanding more nutrition and, increasingly, plant-based options.

Now worth about $30 billion globally, the plant-based sector is forecast to explode to more than $160 billion by the end of the decade and Kerry itself expects plant-based to grow six times faster than traditional food.

Plant-based currently makes up 2 per cent of Kerry’s taste and nutrition revenues but is growing at “strong double-digit rates”, the company says.

But as demand grows, customers become more exacting, especially “flexitarians” who want to eat more, but not exclusively, plant-based products. They seek plant-based meat alternatives that taste just the same as meat but are better for them and for the environment. The company has recruited Michelin-starred chefs to help work on the development of products.

"Plant-based is our biggest challenge, and fastest-growing, and most demanding at the moment," said Deirdre Smyth, head of global integrated technology.

‘Arms race’

At one stage, Kerry had staff working with two competing plant-based meat producers, but the rivalry was so sensitive - “like an arms race”, Scanlon says – that the development teams had to be located on different continents.

Other than plant-based foods, Kerry sees other key drivers of future business as “authentic taste” and wellness - including harnessing botanicals and natural flavours. It is also seeking to tackle costly food waste - a major source of carbon emissions - by extending the shelf-life of bread and meat.

Fortunately for Kerry, plant-based and nutritional foods look like being more than just a passing fad. But as Smyth puts it: “Food never goes out of fashion.” – Copyright The Financial Times Limited 2021