GraceKennedy Limited is looking to maintain the pace of growth associated with its food business by maximising the capacity of its factories and becoming the contract manufacturers to multibillion-dollar giants in the United States of America, Canada and the United Kingdom.
GK’s food trading segment has catapulted over the last two years, with its total revenue moving from $81.44 billion in 2019 to $101.56 billion in 2021. This has also seen its pre-tax profit contribution move from $1.98 billion to $5.44 billion over the same period. GraceKennedy’s foods division has now overtaken money services as the best-performing segment in the overall GK group of companies. In absolute terms, GK’s food segment has moved from 29 per cent to 47 per cent of pre-tax profits. Total assets were at $70.11 billion in 2021.
While it has maintained this rapid growth in the first quarter, the company was impacted by significant charges related to shipping and port delays in the USA. This resulted in the company taking a US$2-million ($307.56-million) charge to clear containers. This meant that despite an 18 per cent rise in revenue to $29.51 billion, its pre-tax profit grew by only four per cent to $1.54 billion.
“We made a decision at GraceKennedy that it is better to have the goods in the warehouse than don’t have them at all. Our consumers are first and we need to have the products so, of course, we said we were going to go long on inventory. Afterwards, because of the issues at the ports especially in the USA, we normally receive about 80 containers a month for our LLC company, which is doing fantastic. One month alone was 180 containers and because of the backlog coming in all at once, it was a big challenge to clear. We have done so now and absorbed the cost in the first quarter,” stated Chief Executive Officer (CEO) Don Wehby at the company’s annual general meeting held on Wednesday.
While this has been a headache for GK and other associated food producers, it is looking at different ways domestically to contain costs and absorb some of the increases instead of passing them in full to consumers. GK’s inventory was up 45 per cent year over year to value $19.66 billion. Shipping costs for a 40-foot container from China still costs US$12,524 according to Moverdb.com, and average shipping prices per container is 157 per cent above the average five-year price according to Drewry.co.uk.
“We actually have an energy committee that is looking across the group at how we can find more cost-effective ways for energy as well as in line with our ESG [environment, social and governance] policy to ensure that we’re using more renewables. We have presented and got the support of the executive committee for a five-year plan which will see us introducing more solar- and LNG-type technologies,” stated GK Foods Domestic CEO Frank James to the Jamaica Observer’s Caribbean Business Report.
With the Nalpro and Canning operations merger expected to be completed in the third quarter, GK is currently exploring ways to increase its factory utilisation rate. As per head of manufacturing and global sourcing at GK, Zak Mars, GK’s factory utilisation rate is currently under 50 per cent. However, this isn’t unique across all product lines.
“We have a number of factories, and the utilisation capacity of each factory will differ. For example, our Viennas [sausages] are doing extremely well, and this is at our meat plant in Savanna-La-Mar, Westmoreland. I would say pre-COVID, we normally produce 30,000 cases per month of Viennas. Believe it or not, the demand for Viennas is so high that production has gone up to 80,000 cases. I make the point to say that certain lines at certain factories are almost fully utilised. I think we’ve been running the Vienna line overtime to keep up with demand,” Wehby explained to a shareholder on the company’s surging demand.
One of the strategies Wehby is exploring is to do more third-party manufacturing locally with publicly listed companies such as Lasco Manufacturing and Seprod, along with other brand owners. It also works in reverse where GK would want one of these companies to produce for them.
“I would say that’s a key objective of GraceKennedy to get the capacity utilisation up. We are engaging other brand owners for us to produce on their behalf. It’s part of our strategy going forward to get our capacity utilisation up at our factories. One of the challenges we’ve had is to find bottles. Tropical Rhythms is doing so well but we don’t have enough bottles to produce in Jamaica. That’s a challenge we have, and the utilisation for that line will be down. I understand that we’re going to get back to full capacity by August. Unfortunately, the summer would have almost been finished,” Wehby said.
Once the conglomerate finds the right strategy domestically, Wehby would want for the company to explore working with Walmart, Loblows, Tesco and other retail chains to be the production company for their in-store brands. Walmart’s store brand is Great Value, with other supermarkets like Publix using Greenwise and Publix Premium. Some of these brands tend to be cheaper than the other goods sold on their shelves.
“One of the things that we’ve said is that we need to engage them to see if they want to produce their brands from Jamaica. It’s a little bit slow because of COVID but it remains a strategy of how we can produce some of these store brands for these larger chains,” Wehby reiterated. This would also afford the company the opportunity to do more domestic production with Jamaican farmers, as seen with the GK pepper sauce.
In outlining GK’s 2030 vision, the company wants to earn 70 per cent of its revenues outside of Jamaica, US$2.1 billion ($324.84 billion) in revenues, US$250 million in pre-tax profit ($38.67 billion), and wants to see the GraceKennedy Financial Group (GKFG) and GK Foods listed on Caribbean and major overseas stock exchanges. GK currently earns 45 per cent of revenue outside Jamaica, US$800 million in revenue and US$75.29 million in pre-tax profit. GK hasn’t explained under what mechanism the international listings will be completed, but it is looking at the stock exchanges in its key international markets.
“This is an international food business headquartered in Jamaica and I feel extremely strong that this company’s food business can be listed on an international stock exchange. We are about to sign off with some investment bankers and they thought that there was a strong demand for ethnic foods, especially in the US market. We’re pursuing that with our investment bankers,” Wehby closed.