The acquisition of Continental Distributors (later re-named euroPacific foods) was Hunter Powell Investment Partners first acquisition.
Continental Distributors was established in 1984 and, at the time of our acquisition in 1999, had revenues of circa $16 million with a product range comprising 2,500 lines and 45 staff at distribution centers in Auckland and Christchurch.
The New Zealand food distribution industry was very fragmented and, in many respects, was similar to the computer sector when Sharon Hunter started PC Direct. There were low barriers to entry and high capital was not needed for a start-up. It was not hard to develop or import a product, put your name on it, and start selling it from the back of a van.
While the sector was littered with small SME businesses, the major brands had only 25% of the market, potentially leaving an estimated 75% opportunity for growth.
The strategy was to acquire a firm base business (Continental Distributors) then consolidate the market by acquiring leading distributors who had established long term relationships with retail outlets (supermarkets) and in food-service (restaurants) in their local geographic area. Then by leveraging our increasing buying power to supply the two channels, we intended to grow out of Continental’s boutique nature and create a larger, more robust, national distributor who was heralded as highly customer focused while being price competitive in a low margin business. It was clear from the outset that high volume, even with boutique products, mattered a lot.
In addition to distributing to hotels, restaurants and food processors, the latter importing raw materials through euroPacific foods, the business also imported its own brands: Contel canned goods & Vero Olive Oil products from Italy, and Seabest seafood from Thailand and Malaysia. Other products were sourced from Spain, Greece and other Asian countries and included cockle meat, baby octopus, caviar, sauces, salamis, hams, olives, dozens of pasta lines, snails, truffles, wines and cheeses.
This was a time when New Zealand’s cuisine was changing dramatically. More people travelled and our knowledge about overseas food styles was developing rapidly. We wanted to capture this potential growth by offering the very best products at the right price – the thesis being that top chefs will not cook with second-rate products, New Zealanders were eating out more often, and supermarkets were also stocking a more diversified product range.
So our plan was to consolidate New Zealand’s food distribution industry to capture the growth in our significantly increased dining-out behaviour and our rapid adoption of cooking Eurasian meals at home. And Global food distributor, Bidvest, was planning to do exactly the same.
Bidvest acquired Crean Food distributors at the same time Hunter Powell Investment Partners acquired Continental. Only this time, David’s sling-shot was not enough to defeat Goliath. While the consolidation strategy was workable and euroPacific foods teams executed it tactically to deliver high levels of customer service, we could not compete with Bidvest’s balance sheet on acquisitions and failed to develop the quantum of scale necessary to be competitive as a larger distributor.
Despite more than doubling euroPacific Foods revenue in 24 months, we knew we would not win a war of attrition and that the business needed to revert to a smaller boutique SME. A decision was taken to sell the business and, in early 2003, it was sold to Delmaine Fine Foods.
The big learning for Hunter Powell Investment Partners was that of market intelligence. Had we known Bidvest was going to buy Creans we would not have acquired Continental distributors. Rarely will you read about mistakes on a company web site but this is exactly the learning we can now share with our future partners and clients.
In the same year we sold euroPacific foods, we acquired Hirepool. This time market intelligence was a priority and, as a consequence, a similar consolidation strategy of New Zealand’s equipment rental industry worked.