Core strength

It’s hard to talk about Greencore boss Patrick Coveney without making him sound like Superman. Standing at six foot six, he’s a clean cut, fiercely intelligent man with a doctorate in management from Oxford. When he joined Greencore just over three years ago as finance director, he was, at 34, one of the youngest-ever executives to make the board level at a Stock Exchange-quoted company. If all that weren’t enough, he even looks like Clark Kent.

Unlike Superman’s alter-ego, Coveney has no need to hide his light under a bushel – and his achievements are already more than apparent. In his first two years at Greencore he helped boost profits from £39m to £59m, assisting then-CEO David Dilger move the business away from sugar manufacturing to become Europe’s biggest sandwich producer.

It was no surprise then, that when former CEO David Dilger decided to retire in March, Coveney took the helm. But not even Coveney could have been prepared for the economic storm he has had to face in his first few months in charge. The repercussions of 2007’s sky-rocketing inflation in fuel, energy and food ingredients placed further pressure on margins already squeezed by retailers. And Greencore, which makes sandwiches, salads and ready meals for the major retailers, has been right in the middle of it. The company has reported a 7.5% drop in turnover for the past four months, to £225m, despite a 3% increase in sales volumes. It blamed “a notable deterioration in consumer sentiment since June” for a performance that has also prompted share value to slump.

Coveney remains philosophical. “No-one has a crystal ball that says everything will be fine,” he says. “Some parts of our business have performed outstandingly well over the past 12 months and some have operated in a very difficult environment. It’s all about striking the right note between realism and optimism.”

Greencore is not alone among rivals in posting less-than-impressive figures. In March, debt-laden Premier Foods struck fear into investors when it reported a full-year pre-tax loss of £73.5m against profit of £59m the year before. Meanwhile, convenience food group Uniq has warned tough trading conditions mean its full recovery will take two years longer than anticipated, and Northern Foods mothballed its Italian ready-meal factory Fenland Foods after it operated at break-even profitability for the previous year.

While some of his fellow food bosses floundered in their attempts to reassure investors, Coveney was busily drawing up measures to survive “the unbelievably volatile” situation. His first move was bold. Barely a month into the job, Coveney announced plans to buy Home Made Brand Foods, a leading regional supplier of ready meals, salads and sandwiches in Massachusetts, USA. Tapping into a dormant chilled food market, Greencore paid an initial £22m for HMBF, with up to a further £5m payable depending on the company’s performance this year.

After analysing the US chilled market for two years, Greencore saw potential for HMBF to grow its £20m-plus annual sales to £50m. And prior to the deal, Coveney had the foresight to foster relationships with regional retailers and brand owners. Some may argue that it’s risky to expand overseas while global markets are in such turmoil. Coveney, however, declares his transatlantic venture to be the proudest moment of his career, though he concedes that conquering the US is not going to be easy.

“The overall economy of the US suggests there are no grounds to think they are better off than we are here. It’s actually worse,” he says. “But chilled food is flying and is at a tipping point – American retailers are now investing in chilled food infrastructure in terms of distribution and in-store merchandising. The really good news is that the consumer response to chilled has been very positive. Since we bought HMBF, sales have been up.”

Coveney’s break into the underperforming American chilled market is also helped by the geographical location of HMBF – about as close to Ireland as it is possible to get while keeping your feet dry. But it’s hardly a home from home, and the newly formed Greencore USA has to adapt to foreign tastes.

“If you imagine what a UK ready meal looks like, it’s a single product,” Coveney explains. “However in the US it is two separate products. The vegetables and protein and sauces are separate from the pasta or potato part. We are still learning and it’s still early days.”

Back across the pond, Greencore makes four million sandwiches a week for British retailers and 100 million ready meals a year. Its biggest customer is Tesco and Coveney does not deny the attraction of supplying the retailer stateside.

“We think Fresh & Easy is doing a great job and that will become apparent to everyone,” he says. “We’d love to find a way to serve them in the US, but they are on the opposite side of the country, in California. Geographically it doesn’t make sense at the moment and we are busy enough running HMBF and gaining knowledge of the US market. Inevitably though, we will expand into other parts of the States.”

Expansion aside, Coveney knows he can’t afford to take his eye off the UK chilled and prepared food market – a market he classes as the “most developed, most sophisticated in the world, with the highest quality of manufacturing and retailing”.

It’s a rare moment of unguarded passion from the placid economist who knows the dire state of the UK economy could harm his business further.

“Every consumer in the world will be hit by tighter credit, weaker mortgage and credit card availability and the effects of unemployment,” says Coveney. “Above all, economies largely function on a perception of what’s happening and people are now more worried and spending less.”

His consumers may be locked in a vicious circle, but Coveney seems confident his line of business is still comparatively well-placed to survive the worst of the recession.

“Although everyone will be affected by the financial turmoil, I think the food industry and the parts we play will be less affected, even if consumers are spending less,” he says. “In times of less confidence, we generally see consumers move toward better-value offerings. This plays into private label, and that is where the core of our business is.”

Without any sense of exaggeration, Coveney declares “we are among some of the most historic few weeks in history”, and predicts it will be 18 months before market conditions improve. But that’s not to say he is unprepared. Greencore has battened down the hatches, he says.

“I am operating on the assumption that we’ve already been in recession for at least three months,” he says. “That has real implications for how we manage waste and key relationships with retail customers. We are acting sensibly and cost-consciously.”

In his time at Greencore, cost-cutting has been one of his top priorities. Fastidious scrutiny of the accounts for wastage have prepared him well for the commodity and energy inflation and he claims he has managed to take 2% out of the cost base every year he has been at the company. Chilled food is a tough category in terms of wastage, he admits.

“You have to be constantly striving to take more waste out of the system and improve processes,” he explains. “The biggest areas for us have been overheads: labour productivity and waste reduction in all forms. These include everything from raw materials to logistics. Because of the short shelf life of chilled food, the industry has always had high levels of waste. There is waste in-store, but also in ingredients and manufacturing. You’ve got to cut bread, use fresh products and sauces, change the runs and packaging between various SKUs and customers.”

Unfortunately this cost-cutting ethos was taken too far in June when it transpired an unnamed former executive had fraudulently concealed costs in Greencore Mineral Water – the UK’s largest provider of own-label water. The scandal first came to light after a review by the internal audit function uncovered irregularities in the accounts, by which time the exec had departed. Coveney had acted impeccably, it was revealed, but he counts the episode as a career low.

“That it happened in the first place is my biggest disappointment,” he says sombrely. “But since then, we have accurately diagnosed the scale of the problem and demonstrated it was isolated to the water business. We worked really hard to take responsibility and give full transparency. The way my team pulled together was incredibly positive and inspiring.”

The scandal does not seem to have dented Coveney’s confidence. His wilful enterprise and business acumen have enabled him to ride out a rollercoaster seven months in which the food industry has been forced to adjust to harsher market conditions. But with one foot Stateside and the other in the recession-friendly private-label market, this Superman has the makings of a proper high-flyer.