Tuesday 24 October 2017

Ireland's new sandwich king spreading the word with a fresh approach

Having bought Freshways with his business partner, Diarmuid Shanahan has big plans to expand and reinvigorate the food brand, writes Sarah McCabe

Diarmuid Shanahan
Diarmuid Shanahan
Sarah McCabe

Sarah McCabe

EVEN the most glamour-averse economist will be familiar with "the lipstick effect". The theory is that during periods of economic downturn, consumers eschew purchases of big-ticket luxury items and instead seek solace in smaller indulgences like expensive lipsticks. Their sales are an inverse indicator of economic health; car purchases and house prices might have plummeted during the recession, but Brown Thomas's MAC counter was busier than ever.

But Diarmuid Shanahan has another hypothesis. If you want to know how bad things really are, he says, keep your eye on sandwiches.

Sandwich sales, according to the new owner of hoagie hero Freshways, tell us far more about the Irish public than anything Chanel or Estee Lauder can roll out.

Choosing what to have for lunch, he argues, is the very definition of discretionary spending. And since the vast majority of packaged sandwich purchases are made by under-pressure workers, sandwich sales are also a good indicator of employment levels.

"The category was in rapid growth right through the Celtic Tiger. But when the economy started to shudder, sales went south... more and more people started making sandwiches at home," says Kerry-born Shanahan. "But that's changing. Now you walk into a shop and the boys in the high viz vests are lining up for their lunch. Things are picking up."

Economists, rejoice: People are finally prepared to spend a little bit more on their daily bread.

If US sub chain Subway can call its deli workers "sandwich artists", then Shanahan deserves some kind of "sandwich tzar" title. He has just completed a management buyout of Freshways with Tipperary-born business partner Garrett Fitzgerald from Kerry Group, securing 170 jobs.

The deal says just as much about Kerry as it does about our lunchtime habits. The Tralee-based food giant has been shedding non-core assets at rapid pace as part of a massive restructuring plan rolled out in the last couple of years, in the face of a highly competitive consumer foods market in the UK and Ireland and the increasing dominance of its ingredients and sports nutrition division. Food accounted for just €1.6bn of its annual revenue last year, compared with the €4.3bn generated by ingredients and similar activities.

Freshways is just the latest in a long line of disposals, which also includes its Irish liquid milk and chilled desserts operations and other non-core businesses in the US and Brazil.

So why put all your eggs in a basket that a massive food giant didn't value enough to keep? "It wasn't the case that Kerry couldn't make money from it," says Shanahan. "They just had other fish to fry. It was just the right time for them to sell it and the right time for us to buy."

The company is the biggest packaged sandwiches maker in the country, supplying about 30pc of the market or some 300,000 units with about 150 recipes. They're in virtually every retailer you can think of: Tesco, Dunnes, Musgraves, Spar and Londis, a rake of independent chains and more.

They also run a deli supply business, furnishing convenience stores around the country with the makings of enough chicken fillet rolls to feed an army every day, as well as institutions, schools and one-off events.

It's a big business, bringing in sales of about €25m a year. Everything is made from a large manufacturing facility at the IDA's Finglas business park, which Kerry ploughed money into at the start of the last decade. Most of what is produced is eaten within 24 hours of assembly.

He and Fitzgerald bought the company outright, financing it with a mixture of savings and loans from Bank of Ireland. "It took time, but we got there," is all he'll say on the loan approval process. They're not stopping there, planning a spend of about €10m over the next three years on a mixture of new recruits, software and infrastructure. They'll take on about 50 people by the end of the year, he says.

A €350,000 brand launch is also planned for this summer on the back of heavy market research and focus group work. Consumer tastes are changing, he says. New products will fall into two key categories: healthy sandwiches and luxury offerings, the kind of double decker, exotically titled creations that Marks & Spencer do so well.

He has hired a new head of product development and chef who is developing a rake of new recipes.

"There's a market there for Friday lunchtime in particular. You go out on a Friday, you're prepared to pay a bit more," he says, adding that their numbers clearly show consumers are willing to pay more in the week after payday. The €3.50 sandwich is still core to what the company does, but demand for higher end products in the €5 and €6 region is growing.

But there'll always be a place for the good old BLT. "People don't want to gamble. They want something reliable, something they can trust. Research shows that about 40pc of all lunchtime spending goes towards sandwiches."

Research also highlights rather sad "lunch al desco" tendencies among Irish workers. "On average, we only take 22 minutes for lunch – it's depressing, but it's true. And most people eat at their desks."

The company's biggest barrier, he says, is the cost of raw materials. Its main competitors – like Enniskillen-based Bite and Belfast's Brunch Box – all have manufacturing facilities in Northern Ireland, where the cost of labour is on average about 8pc cheaper than in the Republic.

"That's always going to be a challenge... It's just the reality. We respond with innovation – we look at shopping behaviours and position our brand cleverly. Lots of people go to the shop and walk away empty-handed because the products don't excite them."

The proximity of its factory to Dublin also cuts down on the cost of transport to its single biggest market.

This competition, and the 170 jobs he's suddenly responsible for, keep him focused, he says. "I roll out of bed in the morning and think about sandwiches."

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