Real Good Food's Renshaw – “The Right Mix for Success”

Based just next to a women’s hospital in central Liverpool, Renshaw’s premises is strategically located at the end (or beginning, depending which way you look at it) of the ‘sugar corridor’ of the M62, with the Liverpool docks only a mile or so away. 

An imposing 150,000 sq ft manufacturing site with a partial resemblance to Willy Wonka’s chocolate factory in Roald Dahl’s famous “Charlie and The Chocolate Factory” story, it supports the manufacture of a large selection of baking and cake decorating products supplying the bakery and “sugarcraft” sector.

I was very kindly invited to visit the Renshaw site and meet with David Wright, Operations Director at Renshaw Napier, a wholly owned subsidiary of the Real Good Food Company PLC, which also owns and operates three other subsidiaries – Napier Brown, Haydens Bakeries and Garrett Ingredients.

To new or prospective investors, the Real Good Food Company is discussed in much more detail in a previous article published on Stockopedia.

The focus of this article is purely with the Renshaw business.

Renshaw – Ready for lift off

Whilst attempting to park in the midst of a shift ‘change-over’ and at the same time avoiding the tanker sugar silo deliveries, you begin to appreciate the frenzied activity taking place on the site.  In fact, finding a parking space was a bit of a challenge as the car park is bursting at the seams due to the number of people now working onsite, which at the last count was over 310. This is only going to increase with the on rush of Christmas orders that need to be supplied to supermarkets, food manufacturers and general retailers up and down the country and around the world.

Eventually, I made it safe and sound into the reception area and David took me up to the factory offices and through a corridor which was decorated with black and white framed pictures of previous “Renshaw Professional Bakery competitions” dating all the way back to the 1950’s, when the company was still family owned and run.

“This is something that we’d like to resurrect as the previous owner of Renshaw (Swiss Group “Hero”) let it lapse back in the mid 1990’s.  It was an excellent way of introducing new products to the professional baking / sugar crafting industry as well as instructing baking competitors in the use of our existing products”.

Renshaw ‘the brand’ and 75 New Product Launches

The secret to any company’s success is to continually innovate and develop new products / services.  Renshaw has been working tirelessly over the past two years to do just that.  It has developed completely new products which it believes will be ideal for the retail home baking market (Especially encouraging children to bake) and professional baking market.

Traditionally, the company has manufactured marzipan, caramel, syrups, fillings, bagged icing sugar and sugarpaste (icing) – basically, any food ingredient with a ‘sugar twist’.  The new company range of products includes “Snip and Swirl” easy icing bags, “Simply Melt” flavoured buttons, “Funky Flavoured Sugardough”, “icing Ribbon” and “Flossie Crums Magic Melting Icing for Children”.  In total, some 75 new products have / or will be launched over the next 6 months.  No mean achievement in anyone’s book.

David comments:

“We knew that in order to grow, we had to innovate and build on our internal ‘sugar product knowledge’.

“If you visit any major supermarket now, such as Asda or Morrisons or more specialised retailers like Lakeland, you will note that the ‘Renshaw’ brand is now available to purchase.  This is completely new and pioneering for us and not something we have tried before.  Indeed, ‘Renshaw’ as a brand is well known in the industrial food manufacturing / baking business but it is not known in the retail trade.  We believe that a ‘branded Renshaw’ product will attract a higher premium / margin relative to some of the products that we manufacture on behalf of other customers.

Of course, this is still an important part of our business but the branded Renshaw range is very much part of our future”.

David continues:

“All our new products have been manufactured using the same machinery and plant that is already here onsite.  There has been very little additional capital expenditure required in order to manufacture these products.  Any investment that we have made has gone directly into the marketing and product development side of the new products”.

Routes to Market

Renshaw revenues can be split into four separate categories; Retail and Sugarcraft – 35%; Manufacturing – 30%; Wholesale – 15%; Export – 20%.  The real revenue growth is expected to be seen in Retail, Sugarcraft and Exports.  Consequently, manufacturing and wholesale should take a much reduced percentage of the overall revenue split in the coming years.

Global Client Base

Continuing with the ‘export theme’, Renshaw supplies products to over thirty one countries but perhaps their most important export market is the United States, through their relationship with Wilton (www.wilton.com/). 

David carries on the story:

“You may or may not know that icing is notoriously difficult to roll out.  Typically, it cracks quite easily.  As you might expect, we have a ‘special’ recipe on the icing front for this problem (and this market) and it is centred around employing more gum than our standard European icing.  By applying a certain amount of extra gum, we can reduce the cracking effect on the icing to almost zero, which is an enormous help as many of these cakes are extremely large!

Much of our business in the US centres around “graduation time”, where cakes are typically baked to celebrate graduation successes.  This fits nicely into our calendar year as most of the ingredients are ordered at least 3 months prior, starting around February / March time.  So, following on from the hectic Christmas rush, we then have a small break before the US graduation ‘season’ kicks off”.

Whilst the newly launched Renshaw product ranges are available in the UK, they are not yet ready to be distributed to the international market as packaging / labelling will need to be amended.

Workforce

“Our workforce here in Liverpool and at our site in Scotland is unionised (Unite).  We have a very positive working relationship with them.  As a company, we operate a three shift pattern in Liverpool, working 24 hours a day, 7 days a week and in the ‘peak seasons’ (i.e. Christmas) we take additional temporary resource on for around 3 – 4 weeks.  I think we recently took on 28 people on temporary contracts this time and it is fairly typical if individuals are competent and skilled, we’ll look to take them on permanently when a suitable opportunity arises”.

Reduction in costs and Possible Expansion Plans

“As with all businesses, we are constantly looking for reductions in our cost base and one of the simplest ways to take cost out of a business such as ours is to re-configure the manufacturing workflows, such as having all the necessary processes in the same location. 

We still have a great deal of scope to take further costs out of the business through automation and streamlining processes.  This is something that we have been working on for a number of years as our manufacturing changes tend to be evolutionary rather than revolutionary.

Most importantly, if we are to meet the “3 Year Plan” of £75m revenue by 2014, then we will certainly need to add capacity to our existing premises here in Liverpool and we do have land next to our existing site to expand onto, should we decide to go in that direction.  Expansion is very much on the cards in 2012, although this will not constrain us during next year”.

R&W Scott – Jam maker extraordinaire

Renshaw currently oversees a further business – R&W Scott – which is in Scotland, outside of the main Liverpool hub. Established in the 1880’s and based in Carluke, the company employs around 70 staff within a 55,000 sq ft facility.  This produces both jams and chocolate coatings and is reckoned by David “to be quite a modern manufacturing site”.  The traditional techniques of ‘boiling kettles’ as part of the jam making process are still employed.  Total output is around 7,000 tons of jams and chocolate coatings per year.

David states:

“Like so many of our other businesses, R&W Scott has a very strong ‘legacy brand’ that we are in the process of bringing back to life, so to speak.  The brand itself has very strong associations with Scotland, as you would expect but most surprisingly, it has widespread appeal in North America and especially in Canada.  Our challenge is to build on this ‘familiarity’ and increase brand awareness in the rest of the UK (including Scotland) and also open up new export markets.  We believe that the product is definitely a premium brand - and moving forward it will be positioned as such - incorporating over 50% real natural fruits.  As you would expect, all fruit is sourced locally in Scotland.

The jams themselves have been more recently targeted at the ‘diabetic market’ but we would obviously like to target other markets too; we have recently begun selling the full range of our jams through a national supermarket group within Scotland and our expectations are that the price point is towards the upper range of £2 per jar, which is very much where the premium market end is”.

The jams certainly taste good and are available in a variety of flavours including raspberry, strawberry and marmalade.

“We’ve also gone back to basics in terms of the labelling on the jar, which incorporates the original designs from the late nineteenth century.  It looks a truly authentic period product”.

“As part of our re-positioning of the product and the company generally, it is possible that at some stage in the future we may decide to go the same way with R&W Scott’s as we have done with Garrett and split out the operation from Renshaws and install an independent senior management team which would run the business as a separate profit centre with their own marketing budget etc.  We have certainly been very pleased with the results of re-launching Garrett’s with this type of structure.  However, no decisions have yet been made”.

Renshaw - Key operating financials

Renshaw has seen the most consistent improvement in revenue growth and profitability within the Real Good Food Company group over the past three years and there are expectations that this will continue during the current financial year. 

Renshaws had revenues of £33.09m in 2008, of which £4.19m related to export sales, yet by 2010, revenues have grown to £42.79m, of which exports made up £7.27m.  It is possible that the company could achieve revenues around the £50m mark during the current financial year, which would be an excellent achievement if managed.

Net operating margins of 10.6% are very impressive and are the highest in the group by some way; Renshaw is able to pass on significant increases in costs, such as sugar and energy as they possess a very strong name in the food ingredients market and are associated with innovation, reliability and quality of product, as well as having the ability, at short notice (in some cases with only 72 hours notice) to supply product.  This is extremely important to Renshaw clients.

EBITDA (Earnings Before Interest Taxation Depreciation and Amortisation) has also followed smartly behind at £2.5m in 2008, moving through to around £5.5m in 2010, which incidentally made up almost the entire EBITDA for the whole Real Good Foods Company in 2010 (£5.6m). 

Clearly, Renshaw is a critical part of the overall group’s profitability as it stands today and has certainly played a crucial part in supporting the whole Real Good Food’s group through the EU Sugar regime change.

There is expected to be a much stronger reflection of export revenues over the coming three years partly as a result of the recent appointment of a new Head of International Sales, with a focus on the Scandinavian, Benelux and Australasian markets.  The company has targeted minimum growth of 40%+ in their export businesses over three years.

3 Year Growth Plan

As David stated earlier, and as part of the “3 Year plan” ending in 2014, Renshaw is targeting revenues of £75m – a 50% increase on the forecasted revenue number for 2011.  Much of this increase will come through new product launches and product extensions, remembering that up 75 new products will be / or have been launched, as well as significantly increasing export markets.

Conclusion

Many of Renshaw’s European and global competitors struggle to match the innovation and certainty of supply that Renshaw possesses; it is quite a challenge to consistently manufacture marzipan, sugarpaste and caramel in the industrial quantities required by clients.  A number of companies have attempted this feat and failed.  The company has a very strong position in quite a number of sugared ingredient niches.  This should strengthen as export markets develop in the years to come.

Not wanting to be too cliché but Renshaws seem to be in a very sweet spot and its future progress looks assured within the Real Good Food Company group.

Simon Murphy has a direct and indirect investment in Real Good Food Company PLC