No manual provides this recipe for success

Posted on 10 Aug 2009 by The Manufacturer

For a company with an annual turnover of £650m, Samworth Brothers is relatively invisible. While it has few brands, the food industry knows it very well as the biggest British-owned chilled food manufacturer in the UK and owner of the Ginsters pasty brand. Will Stirling talks to Samworth’s CEO Brian Stein about an atypical business model and the effects of the modern retailing environment on food manufacturing.

Pulling into the town’s train station, a sign reads: “Welcome to Melton Mowbray. Home of the Melton Mowbray pork pie and Stilton cheese.” A small reminder that this corner of Leicestershire, the self-styled Rural Capital of Food in the UK, is big on food manufacturing. Large dairies, cheesemakers, breweries, and meat product manufacturers dot the area, but it is dominated by Melton Mowbray’s single biggest employer, Samworth Brothers. It is the biggest pork pie maker in the world, producing five million pies a week, as well as 4.5 million natural casing sausages (biggest in UK), and 3.5 million sandwiches, which are mainly destined for the big supermarkets. The privately owned company has a long history of food manufacturing, and was instrumental in giving the Melton Mowbray pork pie ‘protected status’, lobbying government to award the pie the same geographical indicator status as the Italians give to Parma ham, for example.

“While the Europeans were good at it, it was never bothered with in the UK, hence we were losing our food heritage,” says Brian Stein, Samworth Bros’ amiable Liverpudlian chief executive. “Having forced the case with Melton Mowbray pies, I now see a host of other industries following us and trying to get their products through the process and protecting certain British foods. And I applaud that – I don’t want retailers dumbing down traditional British food. There is also a tendency to do that when there’s a recession on.”

Freer rein for managers pays off

Stein, who has more than 30 years in the food industry, is clearly passionate about his industry, and proud of the protected status of the Melton pie. But it is the Samworth Bros business model that he conveys the most conviction for. Samworth Bros has an atypical director group structure for such a big company – the group is the CEO and the finance director. Eleven main businesses make up the Samworth portfolio; Ginsters, the pasty brand, acquired 30 years ago for £1m which now turns over +£135m a year; Dickenson and Morris the pie company, Melton Foods, Kettleby Foods, a big sandwich making business, as well as Ye Olde Pork Pie Shop in Melton, a speciality sausage shop and more. Each business is run as a separate company, where lean manufacturing techniques, staff training and carbon emission reduction practices are tackled differently. “Our businesses are run as independent businesses, and we aim to run those with a fair degree of healthy paranoia, which would be to challenge them all the time in areas of efficiency and least cost manufacturing – on lean, six sigma, 5S etc,” says Stein.

“There is no manual from a centre that says ‘you’ve got to do these things’. One company might be good at traditional lean, others could have found great savings on waste, water utilisation, or certain lighting.” Stein says this decentralised model, while running counter to how other food manufacturers are moving, works for Samworth. And running the businesses in a granular way is something Stein prescribes to firmly. “In the past I have found I was most motivated when I ran my own business. If you take central techniques and then let the MD overlay his way of doing that, where it becomes his own, it works much better.”

Where lean manufacturing is concerned, the approach is pragmatic. The company encourages management from one site to visit other businesses to observe new learnings, but there is no dogma to adopt new rules.

“The processes would be quite different in the sites – sometimes there is learning that can be transferred and sometimes there isn’t,” Stein says.

An education in food manufacturing

The company has the Samworth Academy, essentially dedicated rooms at each business for in-house and external training, where employees are encouraged to take on extra-curricular learning. “If a member of staff wants to learn a language, a new skill, even fly fishing, we’ll buy the CD Roms and training material and encourage them to use the rooms to study,” Stein says. Having scoured many universities’ manufacturing degree courses circa 2003, Samworth Bros found nearly all courses were geared to non-food industries. The firm has since worked in collaboration with Loughborough University to develop a food manufacturing degree course. It was pioneered in one business and is now being rolled out in two others. Several management personnel are going through the process of the degree course and are being encouraged to complete it, but it is not mandatory.

Samworth Bros employs 7,000 people. Does it measure a return on the training investment? “I would hate to think there’s a pounds, shillings and pence equation that says derive this much return from training or don’t do it. It’s a philosophy – you either think better-trained and educated people are better for doing it, and this enhances your workforce, or you don’t,” Stein says.

Hosing down costs

A company that produces five million pies and 2.5 million pasties a week needs a lot of energy. Like other manufacturers, the imperative to reduce energy bills to save money and reduce carbon emissions is high for Samworth Bros, which is taking several energy saving measures. “At Ginsters we’ve done a lot of work to reduce energy costs,” says Stein. “There has been much work done on ovens and chills [refrigeration], to the extent where we’ve been invited to take part in drafting a national low carbon business strategy.

That gives an idea of the effort we’re putting in to be noticed, particularly in Cornwall, for carbon reduction.

We’ve also used other energy reduction methods – one business is using a daylight photo responsive lighting system to adjust lighting levels to the amount of natural light available.“

Food manufacturers use a lot of water. Recently Samworth Bros conducted a study of water usage, which revealed that water usage rates were highest at times with the lowest shopfloor supervision – night shifts.

Water is a classic food industry problem, where so much is needed to both clean equipment – requiring steam used to generate hot water – and for manufacturing the food itself. “We put water meters at different points, and were horrified to see where the peak usage came from. We’ve had massive reduction now by simply taking hosepipes away from the business.

We’ve tried to do it by consultation and discussion. Then we were bloody-minded and just removed the hosepipes, making life difficult for people. But the results show how much we were wasting.”

Finding good people, and keeping them
The Food and Drink Federation recently brought the issue of recruitment in the food industry to attention of The Manufacturer. The processed food industry is big, resilient to recession and pays well, but it has been a transient workplace for graduates and young professionals. “The food industry is not a particularly sexy industry. It’s always been relatively difficult to recruit good people into it,” says Stein. “That has become more difficult over time. If you look at some areas where we’d naturally recruit from – food scientists, microbiologists, Reading University etc – the number of people taking courses that would lead into our industry are falling, which is a worry. We didn’t used to recruit graduates at all, but six or seven years ago we took a major effort to recruit them.” Graduates tend to stay longer at food companies once they have been in circulation for two to three years; the company debated whether to scrap graduate training altogether and focus on this group but decided they wanted to train people from the ground up. Stein says he knows from speaking to them that their graduate attrition is no worse than its competitors.

Applying good people to the company’s business model has been a challenge. At Samworth Bros, the managing directors, production directors, finance directors and sales directors actually run their businesses – there is a sense that management need to be empowered quickly and there are fewer layers of bureaucracy here than at comparably-sized companies. While at some food companies there are departments of mid-range turnover, £5m-£30m, and management climb the scale naturally. Samworth’s promotion puzzle is an indictment of the scale of the modern food industry. “Food manufacturing in the UK today doesn’t afford you that luxury,” says Stein.

“The scale of the businesses that are required to make a profit means they get bigger and bigger, the breakeven point gets bigger and small businesses don’t survive. That makes management promotion more difficult. Our businesses are £50m-£70m plus turnover, and translating a sales or production director to be running their own business is quite difficult. We have successes, but we have a quite a lot failures here too; the success of Samworth is not having a big group structure, because I’ve found in the past it gets in the way of a good MD of running a successful business. But again it is getting hold of those people and training them becomes more and more difficult.”

Chilled food – a recession winner?

The food industry is well known for its resilience to the vagaries of economic cycles – in a boom it will benefit very slightly, in a recession it will drop very slightly, compared with other industries. But 2008 was different.

“In this recession, at the end of last year, I saw more changes in eating habits than any time since I’d been in the food industry,” says Stein. “We manufacture products that are the top end of the quality range – we don’t make a lot of ‘value’ food. In one or two areas, ham for example, we only make the top tier ham products.

Virtually overnight within a few weeks we saw demand falling by 20%. That was challenging. We had to modify a lot of processes, in product development, to make sure that we brought new things to market.”

Despite this, Samworth’s recession tale is one few manufacturers would criticise. The company has had about 10% growth a year since 1995, which stopped in the second half of 2008. “We did not go backwards, but we stopped growing due to the recession. I’m pleased to say this year we’re back to the kind of growth we’ve been used to, in the 8%-10% range. Don’t think that is happening due to green shoots, it’s more because we’re seeing some competitors struggling or disappearing.

We have a reasonable reputation with retailers so we are a good port of call to fulfil contracts – we’ve certainly seen that. We are 12-18 months away from green shoots. But because we are good at the day job – quality, delivery, service, on time, consistency – the retailers come knocking.”

Samworth Bros is a privately owned family business, which is 100% in trust to the family and has no borrowings. While it bought Ginsters 30 years ago for £1m, and one or two businesses since, Samworth has shunned the acquisition trail. “When we’ve considered them, we’ve fallen shy of the multiples demanded. So we’ve done it ourselves and built it from scratch. We have no debt, we invest heavily in our businesses but it has grown organically and as we’ve seen others have been paying silly multiples for some businesses and are now in trouble.”

Quality may suffer in price games

Food manufacturers face an array of pressures: competition, falling demand for product lines, energy costs, recruitment, health concerns like the salt and fat content of processed food, and food security. But Stein is sanguine about market condition issues – on a level playing field, these apply to the competition. For Stein, the biggest issue for the industry is the retailing environment.

“[in retailing] Over the years we’ve seen many winners and losers, in recent years we’ve seen many of those losers disappearing completely, only the winners remain. As a result and because of recession, they’re all competing fiercely on price. I don’t mean that price is as important to Waitrose and M&S as it is to the discounters, but in a way it becoming so because although they retail their product at a higher price, there is a relative value between the two that consumers find is acceptable or unacceptable.

They might allow themselves to be 10% more expensive than the discounter. At the bottom end of the market, there is pressure to sell food close to cost – it’s what they feel they have to do to get their market share in the recession. They have to sell it half price, or nearly give it away, to keep market share. In today’s environment that is becoming difficult for the manufacturer.”

And costs are up. The pound’s lower value has hit UK food processors, ironically by raising demand for UK produce and helping farmers. In the last 12 months since the pound has weakened, manufacturers who might normally buy pigs from abroad are buying from the UK.

There is simply not enough UK pig meat so its price has rocketed, hurting UK manufacturers. “We’re seeing pork prices 20%-30% up on last year and we can’t get a price increase with any of the retailers. They’re frightened of losing market share in the price war so they will only move their retailer prices as long as everyone else does”. What are the chances of two or three retailers moving their prices on the same products on the same day? Not a prayer. So getting a price increase as an own label supplier is getting more and more difficult.” Stein is genuinely concerned that price squeezing will manifest itself in food quality, where there are signs of that happening. “I’m concerned that if the own label manufacturers are not allowed to make a satisfactory return, standards will start to drop. We’re starting to see that – having been in this industry all my life, I’ve seen the quality of food standards, manufacturing standards and fabric (i.e. build standards) improve and improve, as a result of the quality of the retailers. They’ve been incredibly demanding in ensuring food standards have risen and risen – I’ve seen that throughout my life until the last few years, when I’ve started to see a big reduction in the investment in own label UK food manufacturing.

That’s a worry for me as I approach the end of my career, and as a food consumer. At the end of the day you get what you pay for and I see instances now with certain economy products with certain retailers that is selling food using quality meat being sold at cheaper prices than dog food. That is not right.”