Those who dare, win[Editor’s notes: The European Suppliers Roundtable was held February 25 at the Radisson Edwardian Hotel – Heathrow in London. The following commentaries were gleaned and edited from a transcript of the proceedings.]
CANDY INDUSTRY: At the most recent ISM/ProSweets shows there were mixed feelings about what the year will bring. What’s been the response from your customers regarding the confectionery industry and their projections for 2009, and have capital expenditures been curtailed and new product launches postponed?
JAN HAMMINK: Although my expectations regarding ProSweets were very low, our first involvement with the show proved to be a positive one. Of course, we have seen delays regarding projects, particularly big projects. The small projects are still coming, although piece by piece. The larger projects have delays, not necessarily because customers want to delay them, but mostly because of timing problems. There are problems getting the loans, problems regarding examination of letters of credit. Sometimes the financing is completely okay and then, for example, a European bank questions who made the guarantee on the letter of credit. So there are some financial problems, which means the orders, especially big orders, are delayed. Small orders are still getting there promptly.
CANDY INDUSTRY: Your projection for 2009?
JAN HAMMINK: My projection for 2009 is that it will be, for our company, significantly lower than 2008, which was a record year for us. We believe the level of activity will parallel that of 2007.
PETER MEYER: If you just look at ProSweets, that was very busy for us; it was actually a good show. If you look at ISM, it was really quiet, with much less people in all the aisles. As far as the general economic crisis is concerned, indeed it’s slowed things down. The projects are still there, the prospects are still there, there’s no difference there. What is really significant is that the payments are slowing down, whereby we’re waiting two months later for payment, even with the larger companies.
ULRICH KREIMEYER: Just something to add regarding ProSweets. We initially decided not to exhibit when it first surfaced because the timing didn’t directly coincide with ISM. When the organizers - thanks to exhibitor feedback - opted to schedule the show concurrently with ISM, we opted in. The results were outstanding. We never expected such a huge number of contacts. So I believe that this show has gained acceptance and has the chance to be one of the most important shows for the exhibitor.
ANDREW FELLOWES: From an ingredient perspective, we’ve seen a huge number of product launches being delayed for the moment. I think that the focus will be on building more line extensions because it’s more cost effective to do that, certainly.
We’re doing much more for our clients than we would normally be expected to do. A lot of people are cutting back in their own applications and on the technical side.
PETER LINDNER: I’d like to interject another consideration regarding this economic crisis. I would appreciate it if our politicians would stop talking the industry to death. I think we should see more focus about what we are talking about. There are, of course, industries like the car industry who have really substantial problems. But in our industry, from what I see, many of us do have full order books. And at the time being, we do have substantial inquiries, which seems perfectly reasonable. So I would not really agree that the major problems are coming up. Of course, no one knows what will happen during the course of the year, but I wouldn’t see the whole industry as black as some politicians do call it.
CANDY INDUSTRY: So the sky isn’t falling yet.
MATTHEW COTTAM: No, but following on from that, if you look at inquiries and the level of the current order book, things are very positive, even now. The only downside for me is that I have several lines that have been delivered but not installed. Thus, if there are customers out there who’ve actually taken delivery of equipment but have not yet installed them due to lack of buildings, for example, then maybe this is an indication of a knock‑on effect for future orders. We’ll have to wait and see.
JORG SOMMER: Our industry isn’t affected like, for example, the car industry or other industries. In general the smaller businesses, such as the single machine businesses, will go on smoothly. However, for bigger projects I see it a bit more difficult for our customers. And I see also that the interest rates are rising in certain areas of the world. In addition, the exchange rates with euros are becoming unfavorable, and this may have a bigger effect than the ongoing business of our customers.
CANDY INDUSTRY: So would you agree that your projection for 2009 would be modest?
JORG SOMMER: Yes, I think it’s a bit like the weather forecast. At the moment it’s difficult to make a conjecture, but, in general, conditions are a bit less favorable.
JAN MICHAELIS: I completely agree to what Jorg said. In fact there are two problems. One is directly connected to the economic crisis or the economic downturn, which means companies that do not have an excellent credit rating, such as a triple A rating, have difficulties getting money. So they are really experiencing cash flow problems. What we see right now, which is now affecting Russia, is the secondary problem, and that means the influences in regard to the exchange rate.
Thus, clients, from the time they start the project until they make their final project decision, are facing a fluctuating exchange rate. As a result, the project can become significantly more expensive than they expected it to be in the very beginning.
So it’s a matter of credit rating and cash flow and currency exchange fluctuations. In our industry, we still have long lead times for big systems and processing equipment. So we’re still eating up what we had on the table from the previous months. As a result, I’m sure we have to compete harder in 2009 in order to get more on the table. It’s going to be tough.
FRANCOIS ADELE: Just to put a bit more information out about markets in other countries, like Japan. For them, it’s a reverse scenario. The yen really increased compared to the euro, and I mean it’s dramatically different. Now it’s something like 30% higher compared to the euro and they can afford equipment they couldn’t some months ago.
CANDY INDUSTRY: So they have more buying power.
FRANCOIS ADELE: Yes. Of course, there are fewer countries in that position, with some having gone nearly bankrupt, which precludes them from buying anything. Nevertheless, there are other countries that have more potential.
JAN HAMMINK: The positive in all this is that we are supplying to the food industry, which traditionally isn’t that affected by the economy. Yes, some of our customers have stopped investing at this moment, but they will start again because they will be healthy. Still, I agree, the currency exchange issue is terrible. But the food industry is not in a terrible state. They’re suffering a bit, but they are waiting.
MONTSE CIRERA: Here we see two different perspectives. From the capital expenditures side you can perceive that some projects are slowing down, but from the ingredients side, we are in the day-to-day production of our customers. They are very active in their markets. In the end, they are producing an everyday product, a small indulgent product that consumers can afford even in tough times.
CANDY INDUSTRY: Yes, and are your customers coming to you with greater demands for research and development, additional support, additional service?
MONTSE CIRERA: Yes, you are right. Our customers are transferring projects to us also and we - more than ever - are supporting them in their new developments, because we know that we will be in a better position when this crisis is over if we pull together in new developments and in new projects.
ANDREW FLEMING: Just building on that point from an ingredients point of view, one of the things that we find as a chocolate cocoa ingredient supplier is that the situation has changed from where we were 12 months ago. Back then, innovation and driving innovation in the industry was a big part of our business. There was quite a significant demand to talk about premium chocolate products, as well as discussion about fair trade, single origins, premium fillings.
Now you see a 360‑degree turnaround because people want to talk about how you can make their products cheaper. So it’s all value engineering. Even so, your own product development resource and your technical resource is the same; it’s just being channeled in a different area. From a customer’s point of view, they are still using that resource. That’s bad news from our perspective because we’re not getting the same margins doing that in the everyday business as we would do if we were selling more premium products. So the product mix for us is changing.
RALF SCHAFFER: And I think we all understand that the ups and downs in our industry are slightly different than in the general economy. Look, for example, at the United States. We already had a low peak before the crisis from the amount of projects and amount of orders we received from the United States. At the moment I can see that there are quite a few interesting projects in the U.S. Of course, they are not realized yet, but they are in the pipeline.
So I think the situation isn’t that bad. We’ve gotten off to a good start with already existing orders, even though a few of them might be delayed. For the most part, I think we are well-positioned in this so‑called crisis right now.
CANDY INDUSTRY: It’s good to see that there are orders that are percolating and you hope that you will get that cup of coffee eventually, right?
RALF SCHAFFER: Of course, we always compare this year with last year, but last year was, I think, the best year ever for nearly everybody. Even the year 2007 was quite good. So I think we really should compare 2009 to 2006, maybe 2007, but not really to 2008.
MARC DONALDSON: Because Delfi’s based in Singapore, a lot of the cocoa processors in that region export a lot of their products to Europe. It’s obvious that some have slowed down and stopped altogether. And in Europe you can feel the fact that some of the major companies are slowing down significantly and obviously that’s feeding chocolate production. So despite the fact that - yes, there might be projects going forward - I think the actual day-to-day demand, either driven by the retailers being very concerned about what may or may not happen, has quite a long way to go. As I was saying to Andy earlier on, when the grinding figures come out in mid‑April, it wouldn’t surprise me if you saw them 5‑10% down.
MIKE DALBY: There’s obviously a lot of doom and gloom about. You’d expect that with all the political comments and all the troubles that the banks have been in. To try and look on the plus side, I think that we’re all fortunate in as much as we are all serving an industry which historically has always produced treats that people go for in difficult economic times. They all want it as a little personal reward and therefore the output from the various candy and chocolate factories shouldn’t necessarily go down.
So we’re not going to be in a position where we’re going to lose our basic customers. Essentially, what we’ve all got to do is we’ve got to bite the bullet and we’ve got to get the business that’s out there if we possibly can. We also have to look at our own economics and our own developments to the point where when the upturn comes, we’re able to get hold of it and maximize potential.
Just one additional point. It’s very difficult to not be aware of your extra capacity within your factory. If times are tough or if economics are tough, people tend to look at how they can cut back on various things. There is a little bit of a plus in as much as if you do have spare technical capacity during the difficult times, then there is an opportunity to be grabbed there by doing, rather than getting rid of people.
When it’s just a little bit more difficult and you’ve got that capacity within your design, then that’s the time I think you need to take the courage and develop things that have been on the back burner for a long time.
CANDY INDUSTRY: And that’s an interesting word, courage, because that’s more of a long‑term view as opposed to a short‑term view in terms of dealing with a downturn.
MIKE DALBY: Yes, I think that’s right. I mean if everybody was honest after lunch, I think there are one or two people in this room who would admit to the fact that business is hurting at the moment. But as I say, you’ve got to try and be positive about it and look beyond the crisis and take that time to see where you can move forward within your own business.
JAN HAMMINK: What’s crucial here is how long you think the crisis will last.
MIKE DALBY: If I had the answer to that one I wouldn’t be sitting here. I’d be far away.
JAN HAMMINK: What I want to say is that this idea about doing some extra research and development during a downturn is a very good idea, but it depends on how long the crisis will linger.
MIKE DALBY: Of course, of course.
JAN HAMMINK: Otherwise, it could be also very dangerous. That’s the problem.
MIKE DALBY: Well, that’s also true. But I guess that comes down to the individual companies involved and the resources that they’ve got.
MADS HEDSTROM: But as Mike said, you have to do it now. We all have our own strategies on what to do, but I understand what Mike says. As Ralf said, last year was, I think, for the industry the best year we ever had and everybody was smiling; they had long delivery times and sky high, rocket turnovers.
Now that it’s down, do we just fire people and keep the turnover low and just survive, waiting until it picks up again? Or do you say to yourself, okay, now that we’re in a slump, we have the time to focus on development, to create new machinery?
Because you know the business cycle will come back up. It’s hard to say when, of course, this year, next year, I don’t know.
Naturally, committing to such a strategy depends on your resources. But now is the time to dare to focus on new development. Interpack is coming up in two years from now, that’s why you have to be prepared.
PETER MEYER: You’re right, actually that’s a point of view from your perspective. You’re looking at it as an owner, or as a group owner or as part of a group. You can plan on harvesting the fruits of your long-term investment. But for some of our people who are coming from big companies, it’s a ‘no more investments’ policy.
CANDY INDUSTRY: I guess the question is also about profitability and whether you’re willing to have a lower profit margin. If you’re privately held, you can probably make the decision. But if you are a public company, stockholders are demanding dividends and it makes it a little bit more difficult to act long-term.
JAN PIETER MEYBOOM: Well, Bernie, I think that stockholders also have to learn that you can squeeze a lemon just till it’s dry and in the end you have nothing. Consider some of the larger companies that have failed. If they hadn’t been squeezed so hard, they may have survived, and those stockholders who had shares in them could have seen their value increase over time.
For smaller operations, it’s an opportunity. Consider how the British Special Air Service was formed, starting in North Africa with a British officer infiltrating behind the lines and embracing the motto, ‘he who dares wins.’ And I think, especially for the smaller companies, they can turn the difficult times into winning times.
RENE DE VRIES: We chose this year to expand and renew our lab facilities and our test plant, doubling it in size because we think with this lab we can develop our products even better and also help our customers even better. That I think is pretty important when the economy starts growing again and you’re ready for that. We are once again investing a lot in our own company in research and development.
CANDY INDUSTRY: So you are taking that risk?
RENE DE VRIES: It’s not a risk, it’s a must for us.
JAN HAMMINK: There’s one other aspect for us. During the past couple of years, we tried to cooperate with other companies, buy other companies, but it was virtually impossible. Their expectations were very high. Today, when you want to increase your market share, the only thing you must do is sit patiently and you will increase your market share automatically [by attrition]. So yes, of course you must do some development, but you must also have a strong capital base. There are a lot of companies now with a strong capital base because of last year’s record revenues. By keeping a strong capital base you will have a lot of opportunities at the end of 2009, 2010.
CHRISTOPH ZIEGLER: What I have been hearing from our customers is that they are actually now using their production lines more, pushing usage to 120%, 130% rather than deciding to invest in a new line once capacity has reached 100%. Yes, there are other projects out there, and we have seen actually many inquiries in the market.
Nevertheless, for various reasons people are being cautious at the moment of putting the money on the table. Still, it doesn’t mean that their production is slowing down. Many customers of ours are saying ‘In fact we have increased our capacity, we are just really using our machinery more. We are working the lines with three, four shifts. When the right time comes along, then probably there is no holding back anymore, we will have to invest again.’
JORDI TORRES: It’s true what Christoph said. In our case it’s the same. Plenty of projects are not lost, merely postponed because people add a shift and increase their capacity, mainly in the low-cost labor countries. What Mads said before, this situation, this crisis, is different to others that we might remember because the projects are still out there. The drawback today is that people are not - let’s say confident enough - to invest. Because I remember 10 years ago there were no projects, there was nothing to do, no activity. Today, there is activity, but people cannot afford to do so or seek out other solutions before making any investment. But the projects are there; it’s just customers are postponing them till better times. So you keep talking to them. Could be they decide to implement the project the second half of this year or maybe 2010. We don’t know, but the projects are there.
MADS HEDSTROM: So it will materialize. Okay, I’m very optimistic, but the projects will start coming in.
JAN HAMMINK: And it’s really remarkable when you compare the crisis of 1998 to now. Customers are still talking about projects today. At that time you could not even visit them. They’d say, ‘Oh no, don’t come.’ It’s a completely different situation.
TOMMY AAS: I think there’s a big difference whether you are in equipment or ingredients, because I think our biggest challenge is cash flow, since we can sell whatever we want to sell if we give credit. Our customers in Russia and Serbia and the like, they want to buy and buy and buy, but I’m unwilling to take the risk.
CANDY INDUSTRY: But they’re not willing to pay and pay and pay, right? So the banking crisis is really affecting you directly then.
TOMMY AAS: Yes, and so are the currency fluctuations.
RENE DE VRIES: For some of the larger projects I’ll bring the bank with me, the Rabobank gentleman on several tours accompanies me and explains the facilities with Rabobank because they want to be in the running.
CANDY INDUSTRY: That’s kind of unusual, right?
RENE DE VRIES: That’s the only way to do it.
JORG SOMMER: I also think that the number of projects and the type of projects which are in the pipeline and in the stage of discussion are not decreasing. Yes, there is uncertainty when these projects will materialize and if they do. Yet, I am quite sure that there is a need on the market and that the market will pick up steam again; it’s only a question of when. In the end, depending on whether these projects are realized, 2009 will not be such a bad year. It’s also the reason why Lehmann, which was planning to expand its laboratory test center facilities this year, will continue to do so. We won’t change this so that we can make better demonstrations regarding efficiency, flexibility and the quality of our equipment. We regard it as key for our customers.
MASSIMO PIETRA: Well actually, as most of you said, up to now we really haven’t suffered this crisis, but it’s going to come in a couple of months. Basically, what we see is that there aren’t many new product launches, as some of you said. Most of our customers are working on brand extensions, product changes, something which is much less risky than a brand new product on the market. We are working quite well with them. It also gives us some ideas for our R&D since several of you mentioned re-investing in R&D.
In our case, we are not looking at creating revolutionary equipment. Rather, we are working on increasing the efficiency of the lines and to extend our existing lines by incorporating some product families into them. So our emphasis has switched from the brand new, big moulding and chocolate lines to improving our existing lines, because many customers have realized that they are not maximizing their equipment use to the fullest. Of course, we’re keeping our eyes open for future demands.
CANDY INDUSTRY: What has the downturn in the economy done to orders and inquiries.
KEITH GRAHAM: We work in a number of different sectors. We are seeing more or less the same thing across all these areas that we work in: companies are still doing well, still selling, increasing sales and profits, but they are losing confidence in future investment. They are just hanging back a little bit, saying, ‘We’ll wait six months and see what happens before we take the plunge.’ But we are also seeing investments - although it’s not in new products, they are suffering - it’s the line extensions, the line refurbishments, all those kind of projects are still going on.
Where we are seeing investment confidence is in the emerging economies. It tends to be the developed economies that are less confident, perhaps because they think they have more to lose by investing, whereas in an emerging economy they’ve got more to lose by not investing.
CANDY INDUSTRY: And in emerging economies, you’re referring to Eastern Europe?
KEITH GRAHAM: Not so much Eastern Europe, more South America and Africa.
OLAF HEIDE: Maybe I can add some words from the supplier point of view, because we are working with both kinds of customers. We work with machinery producers and with the users of the machines. From our perspective, it’s a modest downturn, and not really that black for the food industry. Some of our OEM customers still order belts, as we heard from some people here in the room. But already I would say in the last quarter of last year we noticed a delay in the spare part business from end users. As the gentleman from Bühler said, many manufacturers have increased capacity, but also have delayed maintenance activities just in order to save costs.
MATTHEW COTTAM: I’d just like to add a few words about stability. Obviously, our customers crave stability, but as a machinery supplier this maybe works to our benefit. The instability I see is in exchange rates. I think if you were trying to predict a longer term trend, there’s a tendency to move towards smaller, local produced confectionery as opposed to bigger and bigger lines, which are being installed in less costly areas such as Eastern Europe and the Far East.
We are seeing our inquiry levels remaining high and positive purely because people are trying to hedge against future currency changes. Company managing directors are saying ‘If we’ve got a local market to sell our product in country X, let’s have a manufacturing plant that makes the product in the same currency as the markets we’re selling in.’ For me, that’s very positive for us. Instability is very big. Exchange rates are very unstable, bad for our customers but maybe good for us.
CHRISTOPH ZIEGLER: I think I would like to support that concept, because that’s also what we are hearing, where especially big groups are actually investing into, say, not Third World countries but into these semi‑industrialized countries like India. They are moving production there locally and they are entering the market actually with small‑scale lines, rather than making huge investments. If the project fails, at least they won’t lose too much.
ACHIM BLEEKE: I agree with what Mads and Ulrich said, that this crisis gives us an opportunity to re-invest in our companies. We will build a brand new lab this year because we think you have to invest against the cycle, and come 2010 or 2011, we will be well positioned.
CANDY INDUSTRY: Have you experienced postponements of additional orders related to interpack because of customer caution? What about continuing your research and development for interpack 2011? Are you as aggressive in doing that as you were for 2008?
MADS HEDSTROM: I can only answer for myself, but we are already thinking about it and Nielsen will be much more aggressive in research and development than we were at the last interpack.
RALF SCHAFFER: Machinery innovation for interpack is a must. Given you have a three-year cycle, it’s something everyone here prepares for. When there’s a recession, companies are also more willing to take on projects with a certain risk, with new improvements. Typically, when orders are plentiful, the focus is on selling equipment, because there isn’t the time and resources to spend on very customized requests. But when a company has a bit more time because of a slowdown, then perhaps it is more likely that it will accept an order with some challenges.
Such development work can be done exclusively for interpack, but when you have more time, you can focus on special projects with customers. This can be an integral part of your company’s research and development program.
CANDY INDUSTRY: I know I have several cocoa representatives here, so with regards to our speculation that cocoa prices will rise again, what are your views regarding escalating costs for cocoa and, of course, other mainstay ingredients within the confectionery industry for 2009? For the equipment manufacturers, have material costs, such as stainless steel, moderated from past surges? Are you anxious about other material costs involved in the production of your equipment?
MARC DONALDSON: Obviously, for those of you who follow the cocoa market, it’s come down significantly over the past 10 days [February 15-25, 2009], maybe lost £150, £200. Maybe it’s got a long way to go. And it was driven up originally to a certain extent by speculators and trading houses trying to corner the market. That’s something that they managed to do in a large way because, for those people who do get involved, you know that the volume that’s being bought is not being bought inside the industry, it’s being bought outside.
On top of that there was a large deficit predicted out of the Ivory Coast and that deficit has come down from something like a 35% deficit to a 20% deficit over the past couple of months. So from a cocoa point of view, you don’t need a huge difference in terms of consumption. Maybe if you were 5% down, 10% down in terms of consumption that’s going to make a balanced cocoa book.
In cocoa, and maybe Andy will agree, the market’s relatively short at the moment and I don’t think ingredients for the next 12 months are going to be an issue. I think the price of ingredients will probably come down. There’s a lot of milk sitting in New Zealand, a lot. The main issue is about consumption.
CANDY INDUSTRY: Andy?
ANDREW FLEMING: I’d echo those sentiments. I think from the cocoa market perspective we’re coming to the end of the bull market. We’re not in a bear market yet, clearly, because we’ve seen fairly recently 25‑year highs on the cocoa market. But Marc’s right, the fundamental pressure that will be brought to bear on the market is the drop in consumption.
That will cool the market back down again and I think the industry should extend its cover, because at the moment it’s in a relatively short cover position. The average is about 4.5 months for most of our large industrial customers and once they extend their purchases further, that will also diminish the interest of the speculators as well, because they live on squeezing the industry and that’s how they make their returns.
So a drop in consumption, a lack of interest from the speculators, I think, will lead to a more stable market. However, if consumption starts to recover, the long‑term outlook is not good, because if chocolate consumption continues to rise, there is not enough cocoa in the world to satisfy the demand.
And if you look at what is happening in the Ivory Coast, where some of the cocoa trees are being pulled up because they’ve come to the end of their life, they’re not being replaced. They’re being replaced with palm or with rubber trees because they can get a yield out of those crops within 18 months. Whereas to bring a cocoa tree to maturity is five years. So that’s a long‑term issue I’m still quite concerned about, but short‑term I think it will recover.
MONTSE CIRERA: In our case, we have two different situations. On one hand we have some raw materials that are very linked or related to oil prices. So yes, we expect them to decrease and we expect that some of our products will drop in cost, but unfortunately, that’s not the case for all raw materials we use.
On the other hand, we have suppliers that are also selling to other industries apart from confectionery. There, they have reduced significantly their production because of this decreased demand. Because the demand has steadily gone down, they suddenly closed one plant or reduced supply completely. As a result, we don’t foresee any cost savings there.
CANDY INDUSTRY: Tommy?
TOMMY AAS: In general, the oils topped in 2008 and now they’re back to a normal level. With regards to cocoa prices, I don’t mind high cocoa prices, because our main business is a cocoa plant alternative, so if we have high cocoa prices we’re having a good life.
PETER LINDNER: As the cocoa consumption declines, the large manufacturers focus on making more economical mainstream products whereby they even experience a slight increase in production, maybe 3‑5%. At the same time, the high-end chocolate producers of expensive products suffer a slight decrease. So I would think that helps balance out the consumption equation.
ANDREW FLEMING: If you look at our Western European business, there’s definitely been a drop in chocolate consumption. Now, how much of that is actually related to consumer consumption or customer sentiment and destocking, for example, people managing their balance sheets and working capital more effectively, I’m not sure. I think there is a drop in consumption and I think there’s also a shift of business as well away from the premium sector into the more economical sector. For example, our ingredients business is not performing as well as it was last year, but if you look at our consumer business, that’s performing a lot better because most of the business is with the discounters. So there is a little bit of a shift, but on the whole I would say there is a reduction.
ANDREW FELLOWES: For us, the situation has stabilized. There were certain instances last year when natural raw materials from America, for instance mint, which is a major ingredient for candy and gum, reached a high that we’ve not seen since about 1976. There’s a lack of reinvestment in mint growing. The farmers have been rebelling for about two years.
We’re seeing competing crops having a major effect on pricing. Arable crops, wheat, crops last year, the year before, biofuels, and now hops is a major player. The West Coast of America is a big hop growing region now and the farmers who lease the land in many cases are getting twice the revenue that they’re getting from mint, so American prices have reached an all‑time high, I would say certainly since 1976.
On the other side of the world, India is a major mint‑growing region and we have had for about three or four years now speculation on mint on the MIX exchange. Where normally you’d see things like precious metals being traded, these people now have enough disposable income to trade mint and so prices are artificially high there.
CANDY INDUSTRY: That’s the speculators, right?
ANDREW FELLOWES: Yes, absolutely. We are a major purchaser of mint and what we’ve done is we’ve changed our focus on buying. Instead of committing ourselves to large contracts here and there, we’re actually buying piecemeal so that we don’t artificially inflate the market, because we could do so. The inquiries that we can put out could be expanded upon several times if we’re talking to several producers.
CANDY INDUSTRY: What about the cost of materials involved in producing processing and packaging equipment, specifically stainless steel prices?
PETER TANIS: The materials cost price for our type of equipment, specifically the stainless steel price, is a factor, but it’s not such a big influence on the total cost price. It’s more the labor, which is the main issue on the cost price of our equipment.
JAN MICHAELIS: I have equipment like extruders, 10 tons of stainless steel. There material costs play a very important role. Nevertheless, I can’t increase my pricing according to the stainless steel price index; that’s very, very tough to argue in front of a client. So we had to compensate by having less margins. So when the price of stainless steel comes down now again, it will help me again to get a proper calculation of these products.
CANDY INDUSTRY: But your customers will say, ‘Now that stainless steel prices are a little lower...’
JAN MICHAELIS: Of course, they’ll ask for that.
CHRISTOPH ZIEGLER: Generally, stainless steel or raw material prices have been going down, but this is on the actual commodities markets. We, however, are buying it from other people who actually process the stainless steel to bars or rolls. We are not really getting those kinds of discounts or lower raw material prices as what the markets are showing. So say if the stainless steel price went down by 50%, you know you are getting only a 10% lower raw material price.
My second observation is that material costs do not represent the total cost of producing machines. Labor costs represent the tougher part of the cost management equation. In Germany especially, we have been hit with all these agreements where you have to increase salaries. So that at least balances out some of the costs when you see raw materials prices decrease.
CANDY INDUSTRY: Reportedly, tough times stimulate innovation, forcing companies to be more creative with less resources. Has the economic downturn forced your company to re-evaluate the way you do business with customers? Are you looking at different approaches in equipment design or ingredient sources and delivery as a way of reducing costs?
ANDREW FELLOWES: On the record, we are not building a new lab, because that was done ages ago. If we do have any quiet times, then we’re re-evaluating the raw materials that we buy, looking at different sources, trying to do our own internal blending, trying to think several steps ahead. Thus, when the activity returns, we’ll be best placed to go out and show people a whole new batch of ingredients that they’ve never seen before.
JORG SOMMER: From a machine manufacturer view, one needs to be more flexible in handling customer and project needs better. We’re also looking to further increase efficiencies of our equipment, thus giving our customers competitive advantages in product and energy savings.
CANDY INDUSTRY: So you’re really working harder at trying to cement the deal by offering a lot more options to the customers, right?
JORG SOMMER: Yes.
CANDY INDUSTRY: At last year’s roundtable, and also at interpack, everyone talked about modularity, where you can put in a line on a piecemeal basis because you can connect things very easily. Are you seeing that modularity applying to people looking for lower costs somehow on the equipment lines, where they can buy a little and then add on? Are you using that to your advantage?
JORDI TORRES: People from the same place want more options, so the machine must be flexible in some respect. For the price they pay, they want more options and possibilities in the machine, to take advantage of flexibility benefits as much as possible.
JAN PIETER MEYBOOM: Modularity is also a way of cost saving because, on modularity, you can make a big line out of modules. And it’s not so simple to create that, because each product or each customer is always a little bit different, it just does not fit 100%. But if you are able to do that, that certainly saves costs, which you can also bring then back to your customer.
CANDY INDUSTRY: We talked a little bit about energy savings. I’m wondering: are you looking at your own production in terms of saving costs by somehow reducing your energy needs or maybe scheduling differently or combining teams to work differently in order to reduce your internal costs?
RENE DE VRIES: It is more labor costs than energy.
RALF SCHAFFER: It will, however, become a topic in the future for our customers, and there has to be an argument from our side, the energy perspective. Saving energy wasn’t an issue in the past. Normally, we didn’t discuss with the customer about making our machines more energy efficient; efficiency efforts were focused on increasing capacity, output. That was not a topic at all in the past, but I think it will come up in the next two years.
FRANCOIS ADELE: One of our customers already asked us to present quotations in the unit cost and kilowatt usage, and we have recalculated our basic numbers. The cost of equipment is one part, but actually cost of utilities start to have a larger impact on the kilogram of product that’s manufactured.
MADS HEDSTROM: I think the trend, as Ralf says, is to bring the carbon footprint down. For example, you use heating, you use cooling. Can we mix a little bit here and there? Can we do something? The demand is coming in all other directions, so it will also come to us.
JAN HAMMINK: When you look at lining equipment, it is very inefficient. In the future, you might be able to reduce electrical use by 5% or 10%, which would be significant. Today, we are working very hard even to produce a 2% savings. This is for some parts of the world very important; for Africa, Western Europe and America. For some parts of the world, it’s still absolutely nothing. In Russia, electricity prices are very low and will be kept very low for a long time.
CANDY INDUSTRY: The major consumer packaged good companies are trying to envelop themselves in a greener perception, marketing themselves as “Earth friendly corporations,’ that ‘they are green.’ Even on the packaging, one finds statements such as ‘We have helped reduce packaging and are saving the planet.’ Are you seeing major confectionery companies coming to you with a mandate to ‘make this greener?’
JAN PIETER MEYBOOM: Well, it’s already happening. You’re publicizing it yourself. It was on the web site, that Easter eggs in the UK will feature less wrapping material, about half less.
ANDREW FELLOWES: No plastic in Cadbury Easter eggs.
JAN PIETER MEYBOOM: No plastics, less foil, or whatever - cartons and boxes are small, so more boxes on one pallet, more eggs on one pallet, less carbon footprint - the whole story.We have not only the problem that it costs money to wrap the product with paper or foil or whatever; the other issue is that we need to dispose of it. We can’t burn it and people are getting more and more conscious about what we are going to do with the waste.
JAN MICHAELIS: Speaking for Bosch, I know we look at both: there are internal programs in order to increase the environmental savings as well as the way energy is consumed. In addition, there are programs that examine the type of energy being used and as well as programs that glean energy and material savings. I also see it actually in customer projects, and we had projects where we replaced old equipment in order to get to a higher energy efficiency level. So that even replacement of existing running equipment with new equipment is done because of energy reasons.
CANDY INDUSTRY: Tough times often encourage or stimulate alliances and partnerships. Has the downturn fostered increased interest in such relationships or has it put a strain on existing partnerships?
MONTSE CIRERA: I would say that this is not anything new now. We’ve been doing a lot of partnerships, even with chewing gum suppliers. But now, it’s more important than ever, I would say, because it’s a partnership we do with specialists, each one bringing together in a joint project their technology, the things that they are doing well, in order to provide to the final customer a complete solution. We are dealing with this; we are cooperating with machinery people, with flavor people, and with others – sweetener people – in order to bring together the best of each company, the best of each technology, and then provide a complete solution.
MATTHEW COTTAM: I think it’s evident in the market that some customers are creating strategic alliances, and this is to play, again, on the currency benefits. So there are people in Europe talking to people in China, trying to get their product lines or their recipe and product knowledge across to China, ending up with a lower cost manufacturing base in China. But recent evidence, due to the rapidly rising RMB [Chinese currency], means that some of these discussions, I think, are faltering. It’s no longer proving as economically beneficial to work in China.
DEE WAKEFIELD: We know that you, as suppliers, often cooperate with other companies to supply the whole line, do a turnkey project. Is that working out well in these downturn times?
MADS HEDSTROM: It did in the up-times and it does in the down-times. Tanis Group and Nielsen work together.
JAN PIETER MEYBOOM: And we’re quite happy, and maybe even happier than we were three years ago.
DEE WAKEFIELD: So it is proving useful in this time?
MADS HEDSTROM: I think it is; of course it is, and I think a lot of alliances like that. If people dare to take the chance and trust each other and work together, and if the mentality of the companies can work together, then it works. Of course, you have also seen examples that don’t work.
RALF SCHAFFER: I think, in a certain way, it’s a must today to have some, let’s say, good relations between different companies, because people - our customers - are more and more unable or not willing to take responsibility for projects anymore. They always push the responsibility to the supplier.
MADS HEDSTROM: It’s a relationship. You build up a relationship and either it works or it doesn’t work. If it works, it’s a benefit for both companies, and then you can build and you can get something out of it. In this industry, we have seen many people cooperate. We’ve also seen people cooperating very well and we’ve also seen the opposite thing.
JORDI TORRES: It is more necessary now than any other time to really explore synergies between companies, because there are plenty of common points. So now, when you are busy, it is essential to really work on synergies, to see how many common points we have and then cooperate.
ULRICH KREIMEYER: Also, cost-wise, there are some very, very good arguments for cooperation, because every technical interface costs money. So, if you are able to work out these interfaces beforehand, during the bidding procedure, you’re ahead of the game. The customer also benefits in shorter installations, reduced costs, and many less sleepless nights. In addition, you demonstrate to the customer that you have done your homework and have synchronised the technical interfaces.
ACHIM BLEEKE: On our part, we have the cooking, we have the forming and we have the enrobing system. Packaging, we do not have but, in this case, we are able to work often with the larger suppliers. The project management involving processing is separate from those involved in packaging, so there’s no need to have a relationship with a packer.
JAN MICHAELIS: For Bosch packaging, obviously, that’s the way how the group grew, more or less, over the last years, and will continue to grow in the future. So it’s one of the main strategic goals of the company to be able to offer our clients a one-stop shopping possibility. That means integration in all senses: upstream, downstream. Of course, if there is a strategic alliance or a partnership beforehand, it certainly helps to find how good the portfolios are and how good the mentalities of the companies fit together.
ANDREW FLEMING: Through long‑term partnerships, particularly with bigger companies, partnerships and alliances create a level of stability. They also create a platform for investment, particularly in our world, with social responsibility, which is very important in cocoa. We quite often engage in those sorts of long-term strategic partnerships, driven by the requirement of the customer to address the desire for corporate social responsibility.
CANDY INDUSTRY: Major trends affecting confectionery processing equipment revolve around hygienic design, increased product flexibility, and even higher efficiencies. Is that the case, or are your customers also demanding other processing characteristics from your equipment? Let’s talk about hygienics first. As I understand it, it is an increasingly important demand from customers and major confectionery manufacturing companies, and even mid‑size and some smaller sized companies. Agreed?
JORG SOMMER: That’s right. For example if you look at the chocolate processing machines we also have features for producing them in a stainless steel design. Flexibility is very important, so you can react to the market with a more basic or standard version. We’ve improved our efficiency, especially for the grinding equipment, as well as with our roasting and cocoa processing as well as for the winnowing process. We are in constant communication with our customers to increase efficiency. We have also observed that there is a demand to reduce energy consumption. This particularly holds true regarding large-scale investments, since this is a long‑term decision. The considerations extend over five years, 10 years, whereby energy prices will rise again. Therefore for us it is very important that we can offer our customers really good, highly efficient equipment, both in output as well as in energy consumption.
CANDY INDUSTRY: I know that the clean-in-place process is standard sanitation procedure. However, many companies are now doing swab tests, reflecting a much higher level of hygienic standard. Are you being pressured by your customers to have higher standards of hygienic equipment?
PETER MEYER: Time is an issue, first of all. Second, the combinations of what we are using for the cleaning; the efficiency in cleaning, means a customer must clean the machine as fast as possible. Naturally, during the cleaning process, one needs to follow rules and regulations and meet certification requirements.
CANDY INDUSTRY: Yes, because if you are cleaning a machine you are not producing.
ULRICH KREIMEYER: Time and costs are always an issue, particularly when it comes to hygiene. Quicker cleaning, and more cost‑efficient cleaning, but I think another aspect comes in, which is the legal aspect. The question always is, if something did happen, who is guilty? Is it the customer, is it the machine manufacturer, is it the product, the ingredient, or whatever it is? And everyone says ‘him.’
JAN MICHAELIS: I think it is just that the requirements are very different in different regions, but there is a benefit to hygienic design in all cases, because if a machine is designed with hygiene in mind, changeovers take less time and cleaning is just shorter and easier.
If we build and design machines that are good in regard to hygienic aspects, it is a benefit for all clients around the world, no matter whether it is in a very highly developed country, with a very sensitive product, or whether it is some small company in one of the developing countries where regulations aren’t so strict.
OLIVER NOHYNEK: That is not just a benefit, it’s about adhering to existing regulations. The benefit comes when you are able to achieve cost advantages. That’s what our customers are looking for.
CANDY INDUSTRY: So then what about the manufacturer of the equipment saying ‘I have a system that, you know, reminds the operator how to clean it.’
JAN PIETER MEYBOOM: Yes, that is the same as the safety on a tank. You have a lid you open and the stirrer stops. You know what the operator does? Places a piece of elastic around it so that he can open it and throw in what he wants. The systems are in place, but the employees have to be instructed to use them properly. And those instructions have to come from the top. Production people are always under pressure, they have to produce, they have to get those machines topped-up and polished. In the end, they cut corners.
RALF SCHAFFER: We have frequently found that today the people who are cleaning the machines are not the ones operating them. And although they are trained from a cleaning perspective, they are not really aware of what they have to do. So the demands from all our customers when it comes to cleaning is that the machine must not only have a hygienic design, but it should be made in such a way that the operator or the cleaning person has no other choice but to clean it in a certain way. It’s a combination of manual cleaning, with some kind of automation. For example, automatic cleaning of an enrober. The operator or cleaner has to follow the instructions otherwise the enrober will not be cleaned properly and you cannot start it again.
OLAF HEIDE: From a belting point of view, hygienic design is, of course, important. There are even more sensitive areas than candy and confectionery, where micro‑organisms and cleaning are much more important, but let’s focus on confectionery now. We have materials that feature a better release against sticky products, so less material sticks to the surface of the belt. We can also offer different belting construction.
There are plastic modular belts out there that can even run over loose parts, so you can use a plastic modular belt instead of a coated fabric belt.
PETER TANIS: As equipment designers, we have a duty to our customers to tell them what they should and should not do. If you go to company X, say which is in the dairy as well as in the bakery and confectionery industries, they will try to apply dairy rules in products where it is absolutely disadvantageous. If you go and clean a cream system, a fat‑based cream system, and you want to clean that with water, which you have to do in the dairy industry, you are actually getting a risk into the system.
So it is a duty of the equipment supplier to make a hygienic machine that facilitates quick changeovers. So you don’t have any dead corners, so you can easily swap and clean all the bands.
We also have to tell them that if they go for a full dairy cleaning system, which is possible, then they risk having a small amount of water left over in a corner somewhere, which can create mold growth. Otherwise, they have to accept the fact they lose five/six/seven hours in cleaning and drying time. While if they just stay with cleaning either with the next product, or with a clean oil, there’s no risk involved and they can continue through with the next product.
CANDY INDUSTRY: I would also like to address some of the ingredient suppliers here. Are your customers getting much more demanding on their end in terms of safe certification?
TOMMY AAS: No, I don’t think we have seen any change; for many years traceability has been one of the things we have to live up to, but I have not seen any changes over the last one or two years.
MONTSE CIRERA: People are getting every day more conscious of food safety, and of course they are worried about it. They are asking suppliers to provide systems and quality information and everything. One thing that has helped us a lot is that for a long time we have been supplying to markets and segments that are very, very demanding. For example, Japan. If you supply ingredients to Japan you have to be very, very quality conscious definitely, and on the other hand for example, if you are supplying to the pharmaceutical industry it is the same. So, these things help.
CANDY INDUSTRY: Is the confectionery industry heading toward pharma standards? Do you foresee that five or 10 years from now?
JAN MICHAELIS: I have five years experience as a project engineer for pharmaceutical factories, and what I see in confectionery is nowhere near pharma standards in 98% of projects. There is a small percentage of clients that are handling APIs, Active Pharmaceutical Ingredients. They are really getting very, very close to pharma specs, but all the rest is hygienic. Hygiene is important, and the demand is increasing, and the requirements are going up, but there is still a giant step from hygienic to real pharma.
CANDY INDUSTRY: We saw before that the addition of functional ingredients, or actives into confections, has not met expectations yet; it seems that in the next decade perhaps they will be there.
JAN MICHAELIS: That is what I said. Right now it is a small percentage, and I think we all agree functional ingredients and functional confectionery products have an increasing market share, and they have big potential in the markets. I completely agree to that. And this is where really pharmaceutical requirements can be applied. However, nearly 90% of the business is standard candy, and this is hygienic design, which is important, but it is not a pharmaceutical standard.
FRANCOIS ADELE: It also depends who makes the product. I mean if it is a confectionery company that will make a pharmaceutical product, they will take much less care. Whereas if it is a pharmaceutical company who makes more or less a confectionery product, they will have all the rules in front of all their people of what’s required.
CANDY INDUSTRY: Are you seeing pharmaceutical companies moving more to confectionery or confectionery companies doing more pharmaceutical products?
FRANCOIS ADELE: This is an increasing market segment, and a lot of people want to go there. Some pharmaceutical companies even specialize in that field, although it’s not a prescription drug, just a day-to-day candy for the throat. The segment is growing and ingredient costs are quite high. But production capacity is also quite high, so there is a lot of money there.
ACHIM BLEEKE: I also have a little bit of knowledge of the pharmaceutical industry, and when the confectionery industry goes into this direction for hygienics, as in aseptic-like in pharmaceuticals, they cannot afford this price. Prices will increase and nobody will buy it anymore.
CANDY INDUSTRY: Unless you are delivering some super magic confectionery product that makes you young again, right?
OLIVER NOHYNEK: It is how the companies are defining their products in accordance with the FDA regulations, whether they put it toward medication or food. And that’s the major point, when they say ‘we have active ingredients, and we put it toward medicine,’ they need to follow the FDA regulations concerning medicine, the pharmaceutical standards.
CANDY INDUSTRY: Earlier, we touched on the cutback in actual packaging materials of confectionery products. Do you see your customers using less packaging materials?
MASSIMO PIETRA: Some of these customers I mentioned, they didn’t know what they really wanted from us. For example, is it about shelf‑life or eco-terrorism? I mean those are completely different issues. A solution for all of them would be very expensive. At the end of the day they have decided to sell to the consumer, and go back to more reasonable packaging.
MIKE DALBY: On the packaging side, I just bet that 95% of the packaging machines currently in existence in the world don’t meet the requirements of the higher standard that we are talking about here. You are either going to have a supremely massive expenditure on packaging machines, or people are going to limp along with what they have got.
CANDY INDUSTRY: Is there a need for simpler machines, one where you only need a few buttons, such as start, stop or emergency?
PETER LINDNER: We do offer several levels of operability, the basic level for the less skilled operator would be this on/off button, and maybe a plus/minus button to just increase or lower the depositing weight a little bit. You need other levels of operability for the more skilled or engineering operators, who can adjust anything like back suction, strobe height, velocities, etc., and the timings of the depositors. If you don’t have that level you could never adjust the machine, so what we see as being necessary are several locking options, e‑locked, or ID-locked operator levels. Depending on the operator that is standing in front of the machine, you would have one lower basic operator level for access as well as a higher level for operators with an engineering clearance. We already offer this option.
CANDY INDUSTRY: Is that in demand by emerging markets?
MARC DONALDSON: It is in demand by everybody. Do you know why? Because today in our industry, it’s difficult to find skilled operators.
CANDY INDUSTRY: Undoubtedly, yet another concern for the future. Thank you one and all for sharing your insights with us.