When US superbroker Crossmark pulled out of the UK last year after a failed attempt to buy John Lusty, it sent a ripple of anxiety through the brokerage community. If one of the biggest names in the sales and marketing game had failed in a market expected to double in size to "2bn by next year, it could happen to anyone.
And it is not just just the competition that is getting tougher.After years of virtually unchecked success, the brand builders face challenging times. The issues are many: the deteriorating economic climate; the trend to brand consolidation among the big manufacturers potentially reducing the size of the pie; heightening competition to win the business of savvy and demanding clients; and retailers usurping their logistical role through factory gate pricing. But, insist leading brokers, they are adapting their strategies to meet the challenge.
Meteoric rise
Brokers or sales and marketing companies whatever you want to call them are a diverse bunch, some offering brands a full brokerage service, some just sales and marketing, some adding logistics and distribution through a particular channel to the mix, some the whole shebang. Typically handling peripheral brands for big blue-chip manufacturers or overseas brands looking to crack the UK market, the UK's biggest players have enjoyed a meteoric rise over the past few years. This year, Jenks expects to see a phenomenal 400% increase on last year's £70m sales, Food Brokers achieved a £500m turnover last year and SHS saw its sales rise by £50m to £250m.
Of course, you can become a victim of your own success. As SHS Sales & Marketing MD John Black puts it: "There are two ways to lose a client either you perform badly or perform too well so the brand says that it can stand on its own two feet."
But the consensus among leading figures in the brokerage community is that there are several new threats on the horizon. Weakening exchange rates is clearly one for companies bringing in overseas brands.
RH Amar chief executive David Mellor admits: "The market is getting tougher. The pressures are borne out of EDLP on top of weaker sterling, which creates an environment tough on margins."
While the merger and acquisition activity among suppliers has not hit sales yet, Black warns: "If brand consolidation gets to the stage where too much is controlled by two few, it will make things difficult."
And then there are the side effects of diversification. Many have felt compelled to diversify into new sectors or services to provide the one-stop shop clients increasingly demand. But not all have proved lucrative. Food Brokers moved into telecoms with prepaid mobile phone cards, for instance, and admits chairman Victor Cracknell: "It's been tougher financially this year because telecoms changed from high to low margin."
Cracknell stresses the company has still doubled its core sales since 2000 and expects to do so again in the next two or three years.
But it is not difficult to see why there have been so many strategic changes in direction among the brokers recently. Most fall into one of two camps those diversifying services and brand sectors, and those focusing on core.
Jenks, which was subject to a management buyout from McCormick UK last month, wants to bolster its core business areas of confectionery, drinks and snacks, grocery and health and beauty, though MD Mike Timms adds: "We are not ruling out expansion outside those areas. The lines are blurring between sales and marketing services and brokers need to be able to offer a full package."
Food Brokers, on the other hand, has hit the diversification trail. As well as a telecoms division, it has a chemist division and in February set up a second healthcare sales force specifically targeting healthcare manufacturers for distribution initially in the multiples. "An awful lot of brands are switching from prescription-only to general sale, so there's real potential in the market," says Cracknell. "And we want to broaden our trade coverage further to include foodservice. It's a very expensive area to get into but the eating away from the home sector is very big."
Last year, the company set up an office in the Republic of Ireland and it plans to expand its FB Direct service, which currently monitors brand strategy implementation at store level in the top five grocers and Woolworths.
In terms of client size, it will continue to target overseas manufacturers keen to enter the UK market, UK companies looking to take a brand to the next level and large blue-chip clients. Smaller companies are not on Food Brokers' hit list, however, because it says the returns are too low.
SHS takes a different line, however. The company is unique among the brokers in that its parent company also owns Beverage Brands and Farmlea. Black says much of the threat to business will be countered by the the trend among the big manufacturers to outsource their sales and marketing functions.
But, he adds, it too is looking to corner new parts of the market and identifies small firms as a real area of opportunity. He reasons: "A lot of the bigger brand owners will start to look at what they're doing and take a more sector-specific approach, concentrating on 80% of the brand portfolio and looking to someone like ourselves to develop the other 20% with them. But we are also looking at smaller firms with £25m to £30m turnovers because it is more difficult for them to do the job themselves."
Unlike Food Brokers, SHS often makes a financial commitment itself to the brand and, insists Black, there is no issue of putting the interests of its own brands first; it is just good business sense. "Clearly, opportunities raise their head," he says, citing SHS's acquisition of Beverage Brands, and with it the WKD and Caledonian Water brands.
Despite its success in alcohol and soft drinks, particularly with WKD, SHS is keen to branch out to a limited number of new areas including beverages and is courting a major tea brand, says Black. "There is a danger that people think we're only in soft or alcoholic drinks otherwise."
Smaller players lack scale
SHS also intends to bolster its coverage of the independent sector an area that he believes is a "real opportunity".
With Food Brokers, SHS and Jenks upping the ante, what does this mean for smaller or niche brokers? Most of the bigger brokers believe the market will split into superbrokers, mid-tier players and small or niche. However, RH Amar, which handles speciality brands like Filippo Berio olive oil, argues that the smaller players will struggle because they lack the scale required by their clients to successfully market a brand.
Mellor says: "Where you struggle is where you have the one-man band that tries to bring in product from abroad and doesn't have infrastructure.
"I'm not sure about the superbrokers. As margins are squeezed by the EDLP multiples, people's ability to invest in business is going to be affected."
RH Amar has grown its turnover from £2.5m in 1986 to £32m in 2002. Mellor's gameplan is to stick with a small number of core sectors and he predicts problems for those that diversify. "I don't think there's much difference between large brokers and large corporations they're unbundling themselves and going back to core parts of their business. If that is right for them, it has to be right for brokers it is important to operate within defined parameters."
The brokers know there is no room for complacency. But they are confident they can meet the challenge. As Food Brokers MD Hamish Gibson says: "The very largest manufacturers are finding it tough and that means there's definitely a trend towards more outsourcing. At the end of the day, we can do the job far more cheaply."
{{ANALYSIS }}
And it is not just just the competition that is getting tougher.After years of virtually unchecked success, the brand builders face challenging times. The issues are many: the deteriorating economic climate; the trend to brand consolidation among the big manufacturers potentially reducing the size of the pie; heightening competition to win the business of savvy and demanding clients; and retailers usurping their logistical role through factory gate pricing. But, insist leading brokers, they are adapting their strategies to meet the challenge.
Meteoric rise
Brokers or sales and marketing companies whatever you want to call them are a diverse bunch, some offering brands a full brokerage service, some just sales and marketing, some adding logistics and distribution through a particular channel to the mix, some the whole shebang. Typically handling peripheral brands for big blue-chip manufacturers or overseas brands looking to crack the UK market, the UK's biggest players have enjoyed a meteoric rise over the past few years. This year, Jenks expects to see a phenomenal 400% increase on last year's £70m sales, Food Brokers achieved a £500m turnover last year and SHS saw its sales rise by £50m to £250m.
Of course, you can become a victim of your own success. As SHS Sales & Marketing MD John Black puts it: "There are two ways to lose a client either you perform badly or perform too well so the brand says that it can stand on its own two feet."
But the consensus among leading figures in the brokerage community is that there are several new threats on the horizon. Weakening exchange rates is clearly one for companies bringing in overseas brands.
RH Amar chief executive David Mellor admits: "The market is getting tougher. The pressures are borne out of EDLP on top of weaker sterling, which creates an environment tough on margins."
While the merger and acquisition activity among suppliers has not hit sales yet, Black warns: "If brand consolidation gets to the stage where too much is controlled by two few, it will make things difficult."
And then there are the side effects of diversification. Many have felt compelled to diversify into new sectors or services to provide the one-stop shop clients increasingly demand. But not all have proved lucrative. Food Brokers moved into telecoms with prepaid mobile phone cards, for instance, and admits chairman Victor Cracknell: "It's been tougher financially this year because telecoms changed from high to low margin."
Cracknell stresses the company has still doubled its core sales since 2000 and expects to do so again in the next two or three years.
But it is not difficult to see why there have been so many strategic changes in direction among the brokers recently. Most fall into one of two camps those diversifying services and brand sectors, and those focusing on core.
Jenks, which was subject to a management buyout from McCormick UK last month, wants to bolster its core business areas of confectionery, drinks and snacks, grocery and health and beauty, though MD Mike Timms adds: "We are not ruling out expansion outside those areas. The lines are blurring between sales and marketing services and brokers need to be able to offer a full package."
Food Brokers, on the other hand, has hit the diversification trail. As well as a telecoms division, it has a chemist division and in February set up a second healthcare sales force specifically targeting healthcare manufacturers for distribution initially in the multiples. "An awful lot of brands are switching from prescription-only to general sale, so there's real potential in the market," says Cracknell. "And we want to broaden our trade coverage further to include foodservice. It's a very expensive area to get into but the eating away from the home sector is very big."
Last year, the company set up an office in the Republic of Ireland and it plans to expand its FB Direct service, which currently monitors brand strategy implementation at store level in the top five grocers and Woolworths.
In terms of client size, it will continue to target overseas manufacturers keen to enter the UK market, UK companies looking to take a brand to the next level and large blue-chip clients. Smaller companies are not on Food Brokers' hit list, however, because it says the returns are too low.
SHS takes a different line, however. The company is unique among the brokers in that its parent company also owns Beverage Brands and Farmlea. Black says much of the threat to business will be countered by the the trend among the big manufacturers to outsource their sales and marketing functions.
But, he adds, it too is looking to corner new parts of the market and identifies small firms as a real area of opportunity. He reasons: "A lot of the bigger brand owners will start to look at what they're doing and take a more sector-specific approach, concentrating on 80% of the brand portfolio and looking to someone like ourselves to develop the other 20% with them. But we are also looking at smaller firms with £25m to £30m turnovers because it is more difficult for them to do the job themselves."
Unlike Food Brokers, SHS often makes a financial commitment itself to the brand and, insists Black, there is no issue of putting the interests of its own brands first; it is just good business sense. "Clearly, opportunities raise their head," he says, citing SHS's acquisition of Beverage Brands, and with it the WKD and Caledonian Water brands.
Despite its success in alcohol and soft drinks, particularly with WKD, SHS is keen to branch out to a limited number of new areas including beverages and is courting a major tea brand, says Black. "There is a danger that people think we're only in soft or alcoholic drinks otherwise."
Smaller players lack scale
SHS also intends to bolster its coverage of the independent sector an area that he believes is a "real opportunity".
With Food Brokers, SHS and Jenks upping the ante, what does this mean for smaller or niche brokers? Most of the bigger brokers believe the market will split into superbrokers, mid-tier players and small or niche. However, RH Amar, which handles speciality brands like Filippo Berio olive oil, argues that the smaller players will struggle because they lack the scale required by their clients to successfully market a brand.
Mellor says: "Where you struggle is where you have the one-man band that tries to bring in product from abroad and doesn't have infrastructure.
"I'm not sure about the superbrokers. As margins are squeezed by the EDLP multiples, people's ability to invest in business is going to be affected."
RH Amar has grown its turnover from £2.5m in 1986 to £32m in 2002. Mellor's gameplan is to stick with a small number of core sectors and he predicts problems for those that diversify. "I don't think there's much difference between large brokers and large corporations they're unbundling themselves and going back to core parts of their business. If that is right for them, it has to be right for brokers it is important to operate within defined parameters."
The brokers know there is no room for complacency. But they are confident they can meet the challenge. As Food Brokers MD Hamish Gibson says: "The very largest manufacturers are finding it tough and that means there's definitely a trend towards more outsourcing. At the end of the day, we can do the job far more cheaply."
{{ANALYSIS }}
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