Hamish Renton, managing director of food and drink industry consultancy HRA, examines Genius Foods’ decision to focus on branded sales rather than own-label
Genius Foods recently announced it is to ‘simplify’ – ie downsize – by exiting own-label.
Through recent acquisitions and the need for efficient production scale in its formative years, Genius found itself holding substantive volume positions in own-label free-from bakery.
However, it is no great surprise that own-label proved to be commercially unrewarding territory for a venture capital-backed business, keen for a return on investment (ROI).
Retailers have encouraged new production capacity in the growing free-from sector. But own-label brings volume into the category and, classically, value heads quietly out the back door.
This doesn’t happen all at once – so let’s use a baking analogy – it’s like someone is pinching the value in the loaf one slice at a time. Then, one day, there are just a few slices left and no loaf.
Genius appears to have decided the UK gluten-free own-label bakery market is now an undifferentiated volume game, with retailers not willing to pay a sufficient enough premium for its style of provenance or innovation.
After all, you don’t see venture capitalists pumping cash into many own-label suppliers these days – it’s hard to drive a 15- 20% year-on-year ROI.
Genius CEO Jeremy Bradley cited the new strategy as ‘focusing on developing and investing in a strong Genius brand’ to drive growth. This sounds like a good plan and the inference is clear: own-label contracts were marginal in venture-capital terms and acting as a value drag.
Genius recovered well from a product recall in 2015 – going on to acquire frozen food manufacturer Chapel Foods five months later – and is clearly a brand trusted and valued by consumers. However, although brands represent 76% of the category, this is a falling share, so competition will only intensify.
Having exited own-label, Genius needs to play to win in the branded space. And there are two key areas it is best to focus on in free-from. Firstly, the healthy space – where brands need to invest in technical product development skills to improve the nutritional profile of products, especially fat, saturated fat and sugar, which is particularly tough in bakery. Secondly, there should be a renewed focus on convenience, especially ready-to-eat and ready-to-cook. The brands that address these two trends will be in a great position for future growth.