Saputo sets sights on sustainable snack cake growth

by Eric Schroeder
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MONTREAL — Lino Saputo Jr., chief executive officer and vice-chairman of Saputo, Inc., sees “a more optimistic future” for the company’s Grocery Products division due to a number of streamlined items that are bearing fruit.

In a June 5 conference call with analysts to discuss fiscal 2013 results, Mr. Saputo credited Lionel Ettedgui, president and chief operating officer of the bakery division, with breathing new life into the Grocery Products division. Among the strategic changes Mr. Ettedgui has spearheaded since being tapped to the post in 2009 is the development of longer shelf life products, which Mr. Saputo said “allow us to get into new markets where we weren’t as cost effective to get into in the past.”

Mr. Ettedgui also was at the helm when the company in 2010 reintroduced Vachon mini-cakes in supermarkets in the eastern United States. Vachon snack cakes previously were introduced into the United States but without much success. Vachon snacks cakes are sold under such brands as Jos. Louis, May West and Passion Flake.

The reintroduction has been challenging, though, and Saputo said its Grocery Products sector in 2014 will continue to focus on increasing sales volumes in the snack cake category. Saputo said the main focus in 2014 will be on developing sales in the U.S. market.

Elaborating on the effort in the conference call, Mr. Saputo said penetration into the United States has been good, but slow.

“We’re not looking for any immediate fires that are going to extinguish rapidly,” he said. “We’re looking at those channels of sales where we cannot only sell once, but have repeat business. And there are some key customers that we’re working with currently and that we have some potential to work with in the future. So it will be a slow progress in the U.S., but it will be a long-term, sustainable progress.”

Within Canada, Mr. Saputo said the company believes it should be able to pick up some of the snack cakes business that belonged to Canada Bread after the latter’s exit from the Canadian business with the closing of its Shawinigan, Que., bakery.

Asked by an analyst whether Canada Bread’s departure has relieved some of the price pressure in snack cakes, Mr. Saputo responded, “The pricing pressures, I think, are related to consumers’ expectations and less related to the competitive nature of the business. Vachon has incredible brands that are well recognized by some consumers. And it is what it is, but the consumers expect to pay a certain price for those categories of product, irrespective if there are other products on the shelf. So I think those issues and challenges with respect to pricing remain, whether other players are in or out of the business.

“We’ve got good brands. We have great products, and we’ve got a lot more flexibility built into it. And I think that the margin improvement is going to come less from pricing, more from other initiatives within our operational structure.”

Saputo also announced it is changing its reporting segments to more clearly separate its Canadian, U.S. and international operations. The Canadian Sector will include the Dairy Division (Canada) and the Bakery Division. The USA Sector will combine the Cheese Division (USA) and the Dairy Foods Division (USA). The International Sector will combine the Dairy Division (Argentina) and the Dairy Ingredients Division, which will include national and export ingredients sales, as well as cheese exports from the North American divisions.

EBITDA in the company’s Grocery Products segment in the fiscal year ended March 31 increased 9% to C$13.9 million ($13.4 million) from C$12.7 million. Sales rose 2% to C$137.1 million ($132.5 million) from C$134 million.

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