Landmark Tayto deal is Hunky Dory for Largo
Buying iconic crisp brand has elevated family firm into the big league, writes Dominic Coyle
In 1980 Raymond Coyle was supplying Tayto with potatoes he grew on the family farm just outside Ashbourne, Co Meath. Now he owns the company.
The recent acquisition of what is Ireland's iconic crisp brand makes Coyle's Largo Foods the dominant domestic player in the Irish crisps and snacks market.
It's a long way from what was an almost accidental venture. Coyle turned to crisp manufacturing after the closure of Perri in 1980. "Tayto decided to cut their contracts with certain people and I was one of those people," he says.
"At the time, I said to myself that, with Tayto holding 90 per cent of the market, there had to be some money in it."
The then 28-year-old farmer decided to enter the crisp market as a niche player. "Like everything else, you jump in and you find that there isn't as much money in it as you thought and that it's harder than it looked and it takes a long time to build up the business."
The breakthrough for Largo came when the Capaldi family agreed to sell it the Perri brand in 1984, a move that put it on the radar in the industry. "That was a big thing but probably our best and luckiest thing was to come up with Hunky Dory," says Coyle
It seems obvious now but, when Largo came to produce the first brand to be developed in house, Hunky Dory was just one of the names Coyle was considering. "We registered both Hunky Dory and Okey Dokey. Okey Dokey didn't work and Hunky Dory did."
Before the Tayto acquisition, the brand provided 60 per cent of the company's gross profit margin.
Along with a profitable line in manufacturing crisps under licence for everyone from Tayto - then under C&C ownership - to rival Walkers and the major multiples like Tesco, Aldi and Lidl, it all amounted to a tidy business.
The Tayto deal puts it into a different league, and also brings the strong King Crisp brand into the Largo stable. "It was a huge step for us but something that we had been planning for two or three years," says Coyle. "We felt that Tayto would probably be sold next year, which would have suited us better. We would have been more geared up for it."
He describes the €62.3 million deal as "critical" for the company. "We had got to a certain stage and there was no further growth here in Ireland for us to do.
"Tayto is the key brand. It is the number one brand in Ireland and is the iconic Irish brand. Everybody knows it, And we knew the business - we were making the stuff. So, if we didn't get to buy it, we had a vacuum left there. More than likely, we would have lost the co-packing [ manufacturing under licence] arrangement."
The fact that the two sides knew each other was both a help and a hindrance. On the one hand, having manufactured Tayto for C&C for over a year, Largo knew the volumes and value of the business. On the other hand, given that the combined market share of the brands came to 46 per cent, there was always going to be a Competition Authority issue, "which, from C&C's point of view, was probably a negative".
Having secured Competition Authority approval, the emphasis is now on integrating the sales forces - the Tayto deal brings another 135 sales and administration employees into Largo - and trying to extract synergies from the combined businesses.
The company is investing a further €5 million in a new warehousing facility that will allow it to distribute Tayto alongside its other crisp brands directly from the Ashbourne plant.
Altogether, Largo now employs around 830 people and works its way through 40,000 tonnes of potatoes supplied by around 20 Irish growers every year.
Aside from the Ashbourne operation, it owns the old Sam Spudz plant in Gweedore, Co Donegal, where it produces specialised snacks.
It also has a plant in the Czech republic, which it opened shortly after the opening of eastern Europe, and a joint venture in Moldova. The Czech initiative began as an effort to sell surplus machinery following an upgrade at the Ashbourne plant. Failing to find a buyer or a joint venture partner, Largo bought a two hectare site and started from scratch.
With no contacts, no language and no sales and distribution network, it was a risky venture. "We had a very difficult three or four years. What really saved us was that the big multiples - Tesco, Carrefour and Ahold - were coming over to eastern Europe and they were looking for people who could make quality own label product."
Coyle's taste for adventure is evident in yet another business venture. About 10 years ago, he imported a herd of American bison to his Ashbourne land. Now the breeding herd is 300 strong and Coyle slaughters about 80 every year for a profitable sideline in buffalo meat.
The herd also inspired the idea of buffalo Hunky Dorys - a flavour that is now the second-biggest seller for the brand.
In a relatively flat market, Largo has been a highly successful player. In the most recently filed accounts at the Companies Office, the group recorded earnings before interest, tax, depreciation and amortisation (Ebitda) of €2.3 million on turnover of almost €46 million in 2004.
Coyle says that accounts due to be filed later this month will show Ebitda profits of around €6 million on sales of €53 million last year.
He forecasts similar results for this year as there will be only a marginal contribution from Tayto as the acquisition is bedded down.
However, in 2007, Coyle expects sales to jump to around €90 million with Ebitda running at €18-€20 million.
The Irish crisp market is not a growth sector and the company's ambitions in this sector are to "hold our sales and look after our customers".
Growth is expected to come from exports. With rights to market Tayto outside Ireland largely owned by a rival company, export growth is likely to come form the Hunky Dory brand in the UK and the company is eyeing up the prospects of establishing a factory over there.
It is also investing considerable efforts in "wellness" products. "What we want to do, what everyone wants to do, is come up with snack foods that you enjoy eating and yet are better for you," says Coyle.
The company is already developing pitta chips and a steamed potato and cassava product. After Christmas, it plans to set up a dedicated research and development unit, staffed by 16 people.
"That's the only way you are going to survive and grow in this market - investing to get the recipes right and ensure that we have the right products," says Coyle.
Largo is also establishing links with US firms. "That's a growth business. It saves them import duty and significant transport costs and provides us with a business opportunity."
For all the development - the new plants in Donegal, the Czech Republic and Moldova - the family farm is still home to the company with its headquarters and the main crisp manufacturing plant situated on the 28-acre site.
"All I've tried to do is survive and sell crisps," says Coyle. Maybe so, but the Meath potato farmer has come a long way.