Killian driven to succeed at global bakery Aryzta

Aryzta boss Owen Killian tells a story about returning to Dublin from Zurich in January 2010. At the time, Ireland was in financial meltdown: unemployment was rocketing, the government was crumbling and a State bailout loomed.

As chief executive of a major food conglomerate, plugged into a network of businesses across Europe and North America, Killian was facing into an uncertain period. Global demand in the sector had collapsed, but, possibly more significantly, the pattern of consumption had changed, perhaps irrevocably.

As recession bit deep into disposable incomes, consumers became more frugal, switching from convenience to strategic shopping; from premium to value products. Aryzta would have to reposition itself if it was to maintain its place in the market.

On the flight to Dublin, Killian was reading an article in the Financial Times about the great Toyota recall. Its chairman was quoted as saying the company was in danger of entering the final stage of corporate decline – "irrelevance or death". He was quoting from the latest book by Jim Collins, How the Mighty Fall.

Killian recalls being transfixed by the notion. Not only did it crystallise the challenge facing Aryzta, it reflected, in his view, a perennial truth about business, centred on the idea of relevance. Upon arriving in Dublin, he took a taxi straight to Hodges Figgis, bought the book and read it in a state of nervous agitation.

The 61-year-old admits to being driven by a paranoia ever since – “a paranoia about becoming irrelevant”.

It's a peculiar admission from a man who could just as easily be parading his success as the chief executive of the third-largest bakery group in the world, best known here for its Cuisine de France label.

In recognition of his success, the RDS last week awarded him its gold medal for industry – one of the State's top business accolades. Perhaps on a whim, the normally media-shy executive agreed to an interview with The Irish Times after the award ceremony.

As we sit down in a small annex room off the RDS’s main concert hall, he tells me he hasn’t given a media interview in over 11 years and that he values privacy. “It’s great not be known anywhere.”

I take this as a polite warning not to pry too deeply and prepare for guarded answers. However, Killian turns out to be open and engaging, and surprisingly self-deprecating.

The Roscommon native, who lives with his wife and two children in Zurich, where Aryzta is headquartered, says he has no interests outside of work, jokingly describing himself as a “card-carrying workaholic”.

“I don’t play golf. I don’t go to rugby matches. I don’t join associations. I focus on work exclusively. If they were handing out prizes for work-life balance, I wouldn’t be there.” He wears his heavy work schedule well. A ruddy complexion suggests the Swiss air suits.

Killian cut his business teeth with the Irish Agriculture Wholesale Society (IAWS) – a hotchpotch of flour, feed and fertiliser businesses – in the 1980s. It was a period defined by surpluses, food mountains and quotas, something that was to leave an indelible mark on Killian.

“Farmers had over-borrowed, land prices were falling, interest rates were rising, cash flow had dried up and the banks withdrew credit from agriculture.”

Thirty-year decline

He believes the 1980s heralded a 30-year decline in Irish farming, with the quota system effectively removing farm management decisions from farmers, who could no longer invest for growth.

With a massive restructuring that shed 30 per cent of its workforce, and a partially successful stock exchange listing a few years later, IAWS rode out the worst of the storm. However, by the 1990s, despite being a cash-generative business, it was still struggling with a dearth of investors and a declining share price. It was also selling into a declining market.

“The company was losing its relevance to both customers and shareholders. It was patently obvious that no one owed us a living: we had no entitlements to any business; we are either relevant to our customers or we fail to survive.

“We needed a growth story. Agribusiness was not attractive to shareholders because there was no growth. The EU had capped growth in Europe.”

After three years of looking for a niche, IAWS hit upon speciality bakery Cuisine de France, set up Pat Loughrey and Ronan McNamee.

“The founders had created a market where none existed by bringing in-store bakeries and delis to Irish convenience stores, which were ideally located to serve increasingly busy, time-starved, cash-rich consumers,” Killian says.

IAWS shelled out IR£50 million (€64 million) for Cuisine de France in 1997, considered an act of unbridled madness by many at the time. Several potential buyers, including Greencore, had balked at the asking price.

But the move was to transform IAWS from struggling fertiliser and feed co-op to global food giant in the space of a decade. The agricultural end of the business, which was later spun off into Origin Enterprises, was used as a cash cow to fund further acquisitions.

Expansion

These included Delice de France, a British supplier of baked goods in 1999, followed by the La Brea Bakeries, the pioneer of the artisan bread movement in the US, in 2001, and a joint venture with coffee and doughnut chain Tim Hortons, also in 2001. It bought French company Groupe Hubert in 2005 and US cookie and muffin manufacturer Otis Spunkmeyer in 2007

After playing second fiddle to long-time IAWS boss Philip Lynch, Killian was appointed chief executive in 2003, the same year the company bought a 23 per cent stake in Swiss food group Hiestand.

Over the next five years, Killian played a game of cat and mouse with Hiestand, quietly amassing a bigger stake in the group, while deftly taming strong anti-takeover sentiment from its shareholders.

In 2008, the two groups merged into Aryzta, albeit it was more of a reverse takeover, with Killian as the founding chief executive and most of the new board populated by IAWS directors.

The name is derived from Arista – the Latin word for the grain at the top of an ear of wheat. However, that name was already registered, says Killian, “so we changed the I to a Y, the S to a Z and put an ear of wheat in the Y and that became our logo. Nobody can really pronounce it, but it’s still ‘arista’.”

The Zurich and Dublin-listed business has since mushroomed into a huge global operation, with an annual turnover of €4.8 billion. The lion's share of this – some €3.4 billion – is split evenly between its operations in Europe and North America; a further €221 million comes from its nascent operations in South America and Asia; with the remaining €1.4 billion generated by Origin Enterprises.

Low profile

Killian’s attempt to cultivate as low a profile as possible has hit something of a speed bump of late, with reports that his generous salary package places him among the highest paid chief executives in Ireland, if not the highest.

His earnings for the last financial year topped 6.1 million Swiss francs (€5 million). That included a basic salary and benefits package of €1.06 million, a bonus of €1 million, long-term incentives worth €2.7 million as well as further pension entitlements.

Does he think these reports were justified?

“I’m paid by a board to do a job. It is a highly incentivised business. We diluted the shareholders over the last six years by 1 per cent per annum maximum if the earnings per share growth reached 15 per cent per annum. That was the model. Executives participate in that to align executives [interests] with shareholders.

“We’ve created €4 billion of value for shareholders and there’s been a reward for executives. I see that as pretty necessary to drive the aggressive growth. You’ve got to be wired. Somebody has got to take ownership of all that.”

Being a publicly-quoted company puts a focus on future growth rather than on past performance, which is healthy for a company. “It means you don’t take things for granted”, says Killian.

He says the consumer recession “which started in Europe six years ago, has been a humbling experience for all us in the food business. It called into question our relevance as never before”.

Relevance is a recurring theme.

“Consumers changed their purchasing patterns: from premium to value, from convenience to strategic shopping, from indulgence to necessity.

“It has been brutal to survive on the high street with high rents and less consumer traffic and low spend per transaction.”

The paradigm shift away from convenience stores to cheaper retail multiples and quick service restaurants has prompted a repositioning of the business.

In 2010, Aryzta spent $1.4 billion acquiring California-based Fresh Start Bakeries and a stake in the Canadian company Maidstone Bakeries. This put the north American side of the business on an equal footing with the European.

The company also bought the remaining 50 per cent stake in Tim Hortons for €349 million in 2010, in part to utilise spare capacity in the business to grow supply to other customers.

Its top 20 global customers now account for 50 per cent of its revenue. They include large retail multiples like Tesco, Sainsbury and discounters like Aldi and Lidl, as well as global quick service brands like McDonalds, Subway and Tim Hortons.

With the ending of milk quotas next year and the emergence of a fast-growing market for value-added food products across Asia, Killian is extremely positive on the outlook for Irish farming.

“That doesn’t mean you’re not going to have volatility [in prices] in short term but, over the long term, it looks like a very attractive proposition for well-managed farming businesses, particularly if they’re well financed and not over-borrowed, and they’re able to ride through period of volatility when there is not a lot of profitability.”

Convenience

Killian says convenience is still the dominant trend in sector. “If you accept the fact that most consumers live in cities, [and] have busy work lives, the convenience of how they can shop, eat or chose to dine is really important.”

He says while people are undoubtedly eating less and more healthily, with the trend towards smaller portion sizes with less sugar and less salt, there is also a seemingly contradictory upswing in demand for treat foods.

Killian is generally positive about the standard of Irish graduates coming out of the education system, but he believes the Celtic Tiger was bad for the work ethic in Ireland."It brought a level of expectation [specifically about getting rich quicker] that most businesses can't satisfy. Now there's a much more balanced understanding of what you've got to do after you've qualified. You've got to work."

Does he have plans to slow down one of these days given the success of recent years?

“That’s the funny thing about a business. Success is relevant for All-Ireland finals where there’s a scoreboard and an end point, but in a business more success brings more expectations and it’s a continuum. There’s nowhere to hide in a business. It’s like a treadmill.”