Ashford W. Meikle, Staff Reporter
Sunjuice, which pioneered the commercial development of freshly squeezed juices in the United Kingdom, is now facing stiff competition. - CONTRIBUTED
AFTER YEARS of manufacturing juices for the British supermarket chain Tesco for sale under its house brand, Jamaica Producers Group is now putting its Sunjuice products on Tesco shelves, in a move it hopes will expand its brand equity and bring more earnings to the bottom line.
Producers, listed on the Kingston exchange and better known here as a grower and supplier of bananas to the U.K. market, has for years manufactured juices in Britain, including contract production for retailers.
But at last week's annual general meeting in Kingston, Producers chairman, Charles Johnston, disclosed that his company had entered an agreement with Tesco for the giant supermarket chain to distribute the Sunjuice products in about 200 of its supermarkets across Britain. "The supermarkets already use their own names - they always have and we are big suppliers to them," Johnston said.
BRAND SALES
However, there is greater value in brand sales than contract and bulk production, and this is what Producers now want to exploit with Sunjuice by pushing in a major supermarket chain where, ironically, it will be compete with products manufactured in the same factories by the same processes.
"Ultimately we [want to] sell our products ... not only to supermarkets but other areas where we can get higher margins," said Johnston. "That is the solution down the road."
The terms of the distribution agreement with Tesco was not immediately available, but Producers officials confirmed that Sunjuice products retail in the U.K. at a premium on store brands.
For its financial year to December 31, 2005, the Jamaica Producers Group posted a three per cent decline in its net profit to $461.5 million, even though gross revenue was up by 20 per cent, to $26.3 billion.
The Banana Division of JPG - devastated by Hurricane Ivan in 2004 - returned to profitability after having posted a loss in 2004. The division, which also includes the group's shipping line, is responsible for about 35 per cent of Producers' pre-tax profit.
DECLINE
However, because of the competitive U.K. market, the group experienced a decline its fresh and processed foods division, which accounted for 53 per cent of its pre-tax profit (in contrast the banana segment contributed 35 per cent to pre-tax profit) for the 2005 financial year.
Although revenues in the fresh and processed foods segment increased by 22 per cent to $15.6 billion, its pre-tax profit dipped to $328.4 million, a decline of almost 49 per cent. A similar trend carried over into the first quarter (to March 31, 2006) where revenues were up to 16.6 per cent but profit declined by 3.3 per cent. The group expects the 'Serious Soup' line, which was launched last year, to enhance earnings.
Dr. Marshall Hall, the group managing director, warned shareholders that the increasingly competitive retail business in the U.K., exacerbated by the practice of the major supermarkets in Britain to put their major commodities out to tender, would continue to place pressure on the company's profit margin. As result, Jamaica Producers, unable to increase its prices, has to absorb margin pressures.
"We are not only in a competitive business, we are operating in perhaps the most demanding market in the world," Hall said. "That is the nature of the business environment and I think it is important for all our shareholders to appreciate the dramatic and continuous pressures that are put on us. Please understand that margin pressure is going to be with us."
'PRICE WARS WILL CONTINUE'
Based on the outlook of the group's management it appears that the price wars will continue in the United Kingdom. The group chief operating officer (COO), Peter Morris, said, "At the end of the day, if we have competitors who are prepared to price at levels that appear uneconomic for whatever reason because they want to gain market share, we need to make a decision about whether we are in the business for the long haul - which we are - and therefore whether it is important to reduce our margins to achieve that result."
The COO noted that increased cost of the international price of orange juice concentrate - which the company bought on a forward basis - had also dragged down the segment's performance. "The fact is world market orange juice concentrate prices moved up dramatically between 2004 and 2005, therefore, as our forward contracts expired we had to buy new supplies at higher prices or higher cost levels," he noted. However, the contracts which JPG negotiated "did not allow us to [pass on price increases] to our customers."
