Business Irish

Sunday 18 February 2018

Glanbia muscles in on rivals

Milk and cheese are Glanbia's bread and butter - but the former dairy co-op has in recent years been transformed into a titan of the sports nutrition/bodybuilding sector through a triumph of brains and brawn

BULKING UP: Protein-based sports nutrition products such as bars, powders and ready-to-drink beverages are set to power ahead over the next five years as body-concious consumers look for convenient options for their protein intake
BULKING UP: Protein-based sports nutrition products such as bars, powders and ready-to-drink beverages are set to power ahead over the next five years as body-concious consumers look for convenient options for their protein intake

Simon Rowe

Don't let the mumsy image of its Avonmore branded milk and Kilmeaden cheeses fool you. Kilkenny-based dairy giant Glanbia is a corporate heavyweight slugging it out in the global sports nutrition market - and the gloves are off.

The Glanbia story is a triumph of brains and brawn.

In just over a decade, this former co-operative with deep roots in the Irish dairy industry has transformed itself into a behemoth of the bodybuilding and sports nutrition sector. Today many of its products are the No 1 choice of muscle-heads, elite athletes and professional cage fighters in a market set to be worth a whopping €20bn by 2020.

Indeed, it's a sign of how far the Irish dairy giant has come since it was formed out of the merger of Avonmore Foods and Waterford Foods in 1997 that when Glanbia's full-year results were published in February, investors paid scant attention to its much-trumpeted new Protein Milk - and instead focused on its plans to flex its muscles in the high margin, high growth sports nutrition sector.

Glanbia, one of the world's largest producers of cheese, has built a €750m global empire on the by-product of cheese - whey.

Dubbed the new 'super protein', whey is protein-packed yet fat free - a perfect combination to help build muscle, fitness and endurance. Glanbia is now the world's largest producer of whey protein isolate - the fuel of champions.

But what was once the preserve of extreme sports enthusiasts has gone mainstream. Regular gym users now guzzle huge volumes of whey-filled sports powders and amateur athletes bulk purchase protein-packed nutritional bars. Offering the alluring promise of enhanced levels of energy, hydration and muscle recovery, performance nutrition is booming - and Glanbia is milking it.

Annual growth rates exceed 10pc and Glanbia is the largest global player, enjoying a 13pc share of a fragmented market.

Former managing director John Moloney's decision to steer the firm into the sports nutrition market was an inspired one.

Moloney, who joined Waterford Co-op in 1987, transformed Glanbia from being an organisation with just 20pc of its operations based outside of Ireland when he became MD in 2001 to over 70pc in 2013 when he stepped down.

"Milk is a commodity that is subject to price volatility. Moreover, low-fat milk or milk with added vitamins is easily imitated by competitors and therefore offers only a limited and very short-lived competitive advantage," said Goodbody analyst Liam Igoe. "That's where Glanbia's insistence on research and innovation in sports nutrition has paid off."

In 2001 Glanbia spent just under €6m on R&D - representing 0.3pc of turnover. Today, Glanbia spends well in excess of €60m, or 2.6pc of turnover.

As a strategy for success, the numbers speak for themselves.

While Glanbia's Irish dairy division has amassed an average operating profit margin of just 3.7pc over the past decade, margins in its global nutrition and ingredients units exceed 10pc and now generate almost three quarters of the firm's total revenue.

Revenues in its Global Performance Nutrition sector were up by almost 14pc in 2014 to €746m. In contrast, its Dairy Ireland arm saw revenues dip by 5.4pc to €616m.

Glanbia's Performance Nutrition division - the newest arm of its Global Nutritionals business - is the company's new cash cow. Certainly the removal of EU milk quotas heralds a new era but whey is now the driving force of its business.

But the sports nutrition market is crowded. There are three main sectors: drinks, foods and supplements - with sports drinks such as Powerade, Gatorade and Lucozade enjoying the largest market share.

However, protein-based sports nutrition products such as bars, powders, ready-to-drink beverages are set to power ahead over the next five years as consumers look for convenient options for their protein intake.

In the protein-based sports nutrition market Glanbia has a fight on its hands. In the ring with the Irish firm are the likes of pharma giant GlaxoSmithKline, which owns Maximuscle, a direct competitor to Glanbia and is the leading player in sports nutrition in Ireland with a 30pc market share.

Drinks giant PepsiCo also wants a piece of the action. It set up a Global Nutritionals Group in 2010 and was in talks last year to buy the California-based giant Cytosport, which manufactures Muscle Milk and boasts revenues of €140m.

In 2012, Nestle paid €9bn for Pfizer's infant nutrition business while Groupe Danone is generating a staggering €4.85bn from its medical and baby nutrition business.

In a bid to outmuscle its rivals, Glanbia has been on an acquisition spree. To date, the strategy has been simple: buy up the market leaders in each sector and target underdeveloped territories.

In the past six years Glanbia has spent almost €470m acquiring four top-selling sports nutrition brands: Optimum Nutrition - a favourite of body builders - was bought for €213m; BSN (Bio-Engineered Supplements and Nutrition) - a sponsor of UFC cage fighters - was snapped up for €108m; Scandinavian market leader Nutrimino was bought for €25m; and US protein-supplement company The Isopure Company was acquired in a €120m buyout last year.

Each one of these acquisitions signals Glanbia's intent to dominate every sector of the global sports nutrition market.

Their addition to Glanbia's balance sheet has a threefold benefit. They extend its brand portfolio to include protein, pre-workout, muscle gainers and builders, and general health products. They move the firm further into the mainstream endurance and fitness market. And they help move the business from one end of the value chain to the other.

Needless to say, milk and cheese are, to mix metaphors, still Glanbia's bread and butter. It processes approximately six billion litres of milk annually in Ireland and the USA; it is Europe's largest manufacturer of mozzarella cheese, mainly for the pizza industry; it is the sole provider of the cream used in Bailey's liqueurs; and also boasts a range of yogurts and fresh soups in Ireland.

But as Glanbia limbers up for its next assault on the global sports nutrition market, an unlikely triumvirate of sporting heroes that includes Irish UFC star Conor McGregor, Arnold Schwarzenegger and Tiger Woods may stand in its way. These three muscle-bound stars each have links to a sports nutrition product that is giving Glanbia a run for its money.

MusclePharm sponsored Conor McGregor's UFC fight in Boston earlier this year. Its logo is prominently displayed on Tiger Woods' golf bag this weekend at The Masters in Augusta. And Arnie owns an 8pc stake in the firm.

MusclePharm manufactures vitamins, protein supplements and amino acids under brand names such as Assault, Battle Fuel and Combat. Its growth has been so spectacular that it could rapidly become a dominant player in the supplement market, supplanting Glanbia's position.

MusclePharm's net sales rocketed by over 100pc in 2014, according to its half-year figures, jumping from $48m to $97m, with its products selling in 120 countries as well as online. In a clever marketing move, MusclePharm, one of the fastest growing companies in one of the fastest growing industries in the world - the nutritional supplement group - has become the exclusive sponsor of the Ultimate Fighting Championship series, one of the fastest growing sports in the world.

Partnering with UFC - ranked by Forbes as the 10th most valuable sports brand in the world with a value estimated at $1.65bn - is a masterstroke. The once controversial sport - just like the performance nutrition market - is going mainstream and transitioning into a global brand.

Corporate giants are now queuing up to partner with UFC. Sportswear giant Reebok has just signed a deal worth €65m over six years. This follows a seven-year broadcasting deal with Fox Sports worth €650m, which has elevated mixed martial arts (MMA) into the top tier of American sports, watched alongside the NFL, baseball and basketball.

Will the MMA and UFC market be the next battleground for Glanbia? Given the dairy giant's nimble corporate strategy to date, it's certainly in with a fighting chance.

Sunday Indo Business

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