Post-interpack momentum allays apprehensions about Greece in the Euro Zone, but global hot spots, consumer demands and a lack of engineers complicate a general optimism about the future.
[Editor’s note: The following content was transcribed from day-long discussions on Feb. 16 during the 14th Annual European Suppliers Roundtable in London. It has been edited for content, clarity and space.]
Candy Industry: How have debt problems regarding Greece and the European Union affected your operations, and are you concerned regarding short- and long-term repercussions, such as the stability of the euro, unrest in Greece, stagnation in Europe or a French-German economic hierarchy?
JAN HAMMINK: For us and, I think, for most companies, Greece isn’t a major factor in our business. We don’t have a lot of machinery there, the economy is very small and even when you compare it with Holland, which is a very small country, Greece is as big as a mid-sized Dutch province. Moreover, most of our business involves exports outside Europe. Anyway, at the moment it does not affect us at all, not for 2011 nor for 2012.
CI: Are you not concerned about Greece going into default and maybe leaving the EU and how that would affect the general economy?
JAN HAMMINK: Well, again for us, we had some time [to become better prepared for financial upheaval] as have many other companies. For example, we don’t work with banks to finance our business. We do it all with our own capital, so in that respect, we have no problems. But when we look back at 2008 — at a certain moment — it was even a problem to do business with customers when you had a letter of credit, because banks could not cope with it. Even when your counterparty was completely solvent, it was a problem to do business. I don’t know what will happen now, but until now, really no problems at all.
JORDI TORRES:The only thing I have noticed in this new situation is that the customers are asking more for bank guarantees when they place down payments. Before, people paid the down payment and that was it. Now, people are asking for bank guarantees. So we understand that they are concerned about Europe and about the situation
WOLFGANG PFORSICH: I think what you can say is the demand for advance bank guarantees within Europe is increasing. If you want to have a down payment within Europe and maybe within Asia, those financial demands are increasing.
MICHAEL PFANNMUELLER: For us, for a Swiss company, we are affected by the negative exchange rate from the Swiss franc to the euro, definitely. But we can compensate by buying a lot of our materials for production in the euro region.
ANDREW MANN: It doesn’t really affect us. I mean we’ve seen plenty of changes in the euro in the last 10 years. And it’s become much stronger in relation to the pound. But coming from the UK, I don’t think it affects us. We’re exporting 80%, so even if the British economy is still our No. 1 market, we’re exporting worldwide. In the end, as long as someone, somewhere’s spending money in a healthy economy, we seem to be okay.
KEITH GRAHAM: I think that’s generally the case. We do well wherever there is growth in an economy. At the moment, that growth is not in Europe; it’s in Asia, it’s coming back in America, South America, Russia, India, China, all those places. Europe is just one part of the world. It’s a well-developed economy anyway. A lot of the capacity they need to produce the items they want to make already exists. So where we tend to concentrate — and I suspect most of the companies around this table tend to concentrate — is where people are putting in new capacity.
MATTHEW COTTAM: Well, just going back to Greece and the problems there and how it might affect us, I don’t think Greece staying within the euro will benefit machinery suppliers. And that’s because Greece produces many natural products — such as nuts — and is struggling to export these. So if they could devalue and then sell their produce at a lower rate, I’m sure it would actually help machinery suppliers sell into Greece. I think there’s a strong argument for going back to a drachma. It would be of benefit to us. I would say Spain has been in a similar situation —
MONTSE CIRERA: Well, not quite.
MATTHEW COTTAM: Well, not exactly, but similar. Nonetheless, for us the recent euro problem or the doubts over certain countries within the euro are not the issue. Spain, for us, was a big market when it had the peseta, because they were a powerhouse in confectionery manufacturing and they had cheap exports to other countries within Europe and around the world. The growth of the confectionery output in Spain has decreased and that has led to a slowdown in sales for us within Spain. So, again countries operating in currencies that are too strong for them do not attract machinery sellers, because their own markets are not strong enough to support the purchase of new machinery.
CI: It’s interesting you bring up the point about Greece returning to its own currency, where about a year ago people shuddered at that thought. Now it’s become, perhaps, a possibility.
KEITH GRAHAM: I think what’s happened there is the banks that owe the money have already factored in a massive default. There was an announcement this morning that another one has written off something like £650 million – no, euros – against default on its Greek debt and the banks are quietly doing this. So once they’ve all stabilized that, then Greece can be quietly allowed to drift away from the eurozone... if that’s what they and if that’s what the the rest of the eurozone wants. I don’t think it’s such a big financial problem now as it was a few months ago.
Also, I think the point Matthew made is absolutely valid: Greece can’t get out of its current situation – because it’s an agricultural economy – while it’s tied to massive industrial economies like Germany and France. It’s 2% of the eurozone GDP, so it doesn’t matter what it does. The value of its currency is going to be determined by what France and Germany are doing. So, whether it stays or whether it goes is probably a political decision rather than an economic one.
CI: I’m curious about my Spanish friends here, if Greece were to default, would that have any implications for Spain, Portugal or perhaps even Ireland?
JORDI TORRES: No. Different economies, different debt now. If Greece is leaving the euro, I don’t think even the euro will fall apart. I mean I don’t know what my colleagues think, but I heard an economist in Spain say that the euro’s like an omelette: when you make an omelette you cannot have the eggs back as they were before.
MASSIMO PIETRA: I believe that the problem is not really Greece’s or not even involving Portugal, Spain or Italy. Rather, it stems from the fact that the European Union showed some weakness in deciding even a small provincial situation. That indecision is what worried the markets and made the speculation even stronger in those markets. But if there is a clear way, I believe the euro is here to stay and somehow the governments will find a common path, common rules to go a step further in the European Union. And this should alleviate some worries.
CI: Greece aside, did you have a good year in 2011 and have the operating conditions changed? Also, what are your expectations for this year and, of course, to put you further on the spot, how would your rate your performance as a company?
JORDI TORRES: We are lucky that 2011 was an interpack year, otherwise it would be a tough year, but by having an interpack show it has been quite a decent year.
MADS HEDSTROM: In my opinion, and I think a lot of people can agree around the table, is that the interpack we had last year was better than the one we had three years ago. Remember, because that’s when the global recession started and everyone was asking, “What the heck is going on here? Nothing is really coming in.”
I personally was a little bit afraid of the 2011 interpack, but money-wise, there was nothing to be afraid of. It was coming back to the track that it always had been on. For our company, 2011 has demonstrated that the market is coming back again. Now, the market is not in the same place as it was before, but the market is there, as we say. I mean 99% of what we make goes to export. Thus, for all of us, it’s about finding the new markets, emerging markets and selling your machinery there.
CI: So are you fairly optimistic about 2012?
MADS HEDSTROM: Absolutely. I am very optimistic. Earlier, I won’t dare to say it, but I am very optimistic, because it looks already now that we are better off than we were in 2011 at the same point in time.
JAN HAMMINK: Well, for us, 2011 was one of the best years regarding turnover [sales] and also profit. And 2012 cannot be bad anymore. I mean when I look at the order book and how it is filled, I have the impression that it will be a very nice year also.
CI: And given your specialty, chocolate and cocoa processing, is it because of a growing demand for more chocolate products?
JAN HAMMINK: I have that impression. Of course, in our market segment it’s very difficult to measure, but I sense that we increasing our market share not only in confectionery, but also in cocoa. Of course, last year we announced the cooperation between Carle & Montanari and Probat. That’s now in the marketplace and it’s working, increasing our growth.
THOMAS MATOSEK: We also had a very good year in 2011. It was a record year in the 125-year company history. I don’t think it had that much to do with interpack, but with other phenomena, such as certain markets, Southeast Asia or South America where people invested a lot.
CI: More processing equipment for cocoa and chocolate?
THOMAS MATOSEK: More processing equipment, yes, in some countries. What’s happening in some countries is that cocoa growers want to add value to their products, so they start processing their own cocoa beans and they need the equipment locally. Or in some cases, even the governments of some of those countries force them to do so to generate more employment.
CI: Interesting. And now some perspectives from our ingredient supplier?
MONTSE CIRERA: 2011 was a good year. Perhaps the last quarter slowed down a little bit, but it was a very good year. Regions such as Latin America and Asia are doing well for us also. The Middle East is an important market. But with the political unrest in Syria and Egypt, we’ve seen a decline as a result of the turmoil there. But it was a good year.
CI: There’s been some positive news about chewing gum and the effect it may have on improving test scores or heightening alertness. Do you see that having an effect on consumption?
MONTSE CIRERA: Yes. I mean every year we are — since the last five years — aware of various studies regarding concentration, saiety. Benefits, such as staying alert, only helps to further develop the functional gum sector. One area of development that we’ve stressed during the past few years involves pharmaceutical and nutraceutical chewing gums. That stems, in part, from wanting to encourage more people to chew gum. In addition, nowadays pharma companies also need to develop new products. The patents are expiring, they have a more competitive industry as well, so they are just looking for new ways to deliver drugs and to differentiate and to attract consumers as well. In fact, nicotine gum is the number one pharmaceutical chewing gum today and it’s growing.
JORDI TORRES: I agree with what Thomas said before that I think there’s more public money in South America for cocoa and chocolate. I’ve noticed this more and more recently as it helps to create business, create jobs. We expect to see more and more such projects in Colombia, in Venezuela and Argentina.
CI: Does that suggest increased chocolate consumption in those countries?
JORDI TORRES: No. To me, it’s purely about the governments investing and creating jobs. There are also efforts to help better organize the cocoa farmer.
GIULIO BELLANTI: As far as we are concerned, 2011 has been a very good year. Actually, it came at the right moment because, as we mentioned, with the merger being announced with Carle & Montanari, a positive mood in the market helped a lot. This encouraged us to speed up the merger, which was received very well. In general, 2011 was by itself already a good year. We are seeing a very good start for 2012. And, as Jan mentioned before, the path we’re on for 2012 suggests this will definitely be a very good year.
In general, what’s fueling our optimism is the fact that, thanks to the merger, we are now perceived as being all inclusive, starting from the cocoa bean and continuing through moulding and finishing with primary packaging and secondary packaging. Just to remind everyone, OPM focuses on supplying equipment for chocolate moulding and primary and secondary packaging while Carle & Montanari’s expertise revolves around cocoa and chocolate processing and extends through to moulding. So we are now more and more capable of supplying turnkey lines and that was very well received by the market.
WOLFGANG PFORSICH: From our point, the operating environment we faced was also satisfying. It was a success. We echo Mads’s comments in that since interpack we see an increasing willingness in investment and it’s getting better every day. So for 2012 we are really optimistic.
STEVEN STAAL: I believe you can split 2011 into two halves, the first half following the same trend as years before. The second half was much better. Those of you, who follow us, know we have gone haute couture with our machines by spraying our motors and pumps pink. In a way, it reflects how we feel about the future.
STEVEN STAAL: Rosy, very rosy.
KEITH GRAHAM:Across all the sectors we operate in, we’re doing good business all around the world and there’s no sign of that deteriorating for 2012, so yes, optimistic.
CI: And before you had mentioned that there were certain areas that obviously are generating a bit more demand than others. I think Asia was on the list and then some people have, around the table, mentioned South America. North America also seems to be coming back.
KEITH GRAHAM: Yes. I think the biggest change during 2011 was seeing North America start to pick up again; a lot of interest from there, which we hadn’t perhaps seen in the previous year or two. But the other areas have been consistently strong through that time.
ANDREW MANN: We’re a developed company that has steady growth, so I don’t think 2011 was any better or worse than any other year, but I’d like to put a slightly different perspective on it. With us supplying used equipment as well, we’ve seen a big swing in the last few years towards that part of the business. We’ve also had to deal with pricing and delivery pressures. I don’t know about the others, but we’ve seen a big change regarding increased pressure on delivering equipment quicker than we have in the past. So I’d be interested to know if anyone else has seen the same sort of pressure from customers.
MADS HEDSTROM: I think that pressure has been there all the time. I also think that as a result of the recession, people have been waiting… and waiting. Then suddenly everybody wants what they really need. That’s probably also why we all are busy right now; the demand is all coming back again. In such a situation, the delivery times are always too short, because when they have finally decided, they all want it tomorrow.
RALF SCHÄFFER: The decision takes one year and then they want to have it in three months! Basically, for Sollich, the year 2011 was also very good. Of course, it was an interpack year. Still, I don’t think the influence of an interpack on sales is as much as it was maybe 10 years ago. People are not really waiting anymore for the interpack before they make a decision. The show, of course, remains very important for us as a way of showcasing all the new developments and in talking to our customers.
The main difference between 2011 and 2012, which as Jan said, cannot be a bad year anymore, is that in 2011 we had to struggle with getting the components. This involved all our suppliers for electrical components and even other materials sometimes since they reduced their stock, reduced their production capacity. Today, the issue is engineers. We are looking for engineers as part of our effort to expand. Getting good staff is difficult at the moment.
CI: So your supply problem has then been resolved, I gather.
RALF SCHÄFFER: Yes, we reacted by increasing our stock on certain items, like thermal drives. Of course, it’s still sometimes a problem if you need a special item, but we’ve increased our stock to be a little more flexible.
MATTHEW COTTAM: Yes, just repeating something that Jordi said before about bank guarantees. You know, 2011 was one where we’ve seen bank guarantees appear and become part of doing business. Another thing was late penalty clauses. They appeared on most contracts whereas, in the past, late penalty clauses were something that was frequently discussed, but not implemented. This creates a problem when you are struggling with component suppliers. There’s been a huge consolidation in pump suppliers. So just getting hold of pumps that we need to handle all our products can take 14 weeks sometimes, whereas before you would expect them to be on two-week delivery time. So the reliable and ready delivery of components for the machine building process has been an issue and I don’t see it changing. I see that continuing into 2012.
MICHAEL PFANNMUELLER: For us, it was a very successful year as a Group, which for us means the Habasit Group all over the world. And I think, as all the colleagues here said, if the OEM and machine manufacturers are doing fine, it’s fine for us too. This is an indication. If our business is running fine, I can say the machine producers are doing fine also. As for 2012, we see a bit of stagnation. But remember, this means stagnation at a high level, the same level we reached last year, maybe with a slight bump.
CI: Okay. So flat in this instance is not necessarily bad, right?
MICHAEL PFANNMUELLER: No.
CI: Did interpack fulfill your expectations for the show and how were your innovations, improvements received by its attendees? Also. what changes, if any, did you notice at last year’s show?
MATTHEW COTTAM: Well, as always, interpack was good and I still see it as our main exhibition in the world for confectionery machinery. In terms of expectations, I think we were hoping to see more orders coming out of the Middle East. These didn’t materialize. Montse touched on it earlier about the Arab Spring and the problems that are prevalent in Syria and Egypt; it has just denied us getting business in these countries. Maybe interpack 2014 will be the opportunity to start that one.
CI: Those problems still continue then, because even though Libya has — is still having its issues — there are complications in the other Arab Spring countries as well.
MATTHEW COTTAM: I would say so.
MONTSE CIRERA: And not just because of the Arab Spring complications. For example, the Maghreb area [Morocco, Algeria, Tunisia, Libya and Mauritania] contains important markets. But confectionery companies there are also suffering because their customers are not buying. So it’s not just Syria and Egypt. It’s a wide swath across Northwest Africa.
JORDI TORRES: For us, another interesting development at interpack involved new product development. The projects that we launched at interpack were more successful than any other year. In addition, there were new customers asking for complete systems.
CI: Turnkey systems, right?
JORDI TORRES: That’s it, turnkey, yes.
GIULIO BELLANTI: I would say that in general, visitors to the show come with a clear idea of what they wanted. So they did their homework and then followed up by investigating something that was unclear. In our case, I’d say the participation was similar to the previous edition, but the quality of the visits was much higher.
In terms of innovation and improvements, we got a couple of comments from people visiting us who said that they saw a lot of improvements, but no real breakthrough innovation.
RALF SCHÄFFER: First, I’m a member of the interpack board and one of the focuses has been to promote this exhibition internationally, which is evident. We see a general trend whereby the number of visitors is going down, but the quality is much higher than before.
Ten years ago people primarily went to the show to walk around and look. Yes, they had a list of companies they wanted to visit, but they really weren’t prepared.
Today, they prepare themselves regarding what they want to see, what they are interested in, but also earnestly looking for new innovations. So even though the number of people attending is going down, the quality is higher. That is good for us, because we have more time for the qualified people.
CI: It’s a much more serious visitor event.
RALF SCHÄFFER: It’s serious visitors, yes.
JORDI TORRES: The time when people came and asked, ‘I want to make chocolate, so what do I need?’ has gone.
CI:How does the recently held ProSweets show compare with interpack regarding customers?
RALF SCHÄFFER: At ProSweets, we had a few machines there, but basically we were very seldom with a customer at the machine, because it’s just a meeting place. For me, it’s just a meeting place to see the customers. In the years when ProSweets did not exist, our sales staff went to the ISM and visited the customers there. But then they had their customers, so it was not a good way to deal with them. But now we have a meeting place and we can put our machines there as an accessory.
MASSIMO PIETRA: Yes, I fully agree with Ralf and as long as ProSweets stays as a meeting point, as a place where you can sit and talk to your customers without going into the last technical detail it’s going to work, in my opinion. If they try to convert it into a second interpack, it’s not going to work.
THOMAS MATOSEK: Again, I think, as everybody else has already mentioned, the number of visitors [at interpack] in total was much less than 2008, but the quality was much better.
CI:Let’s focus now on our ingredient suppliers. What’s been your focus during the past year?
MONTSE CIRERA: For us, the past years, not just last year, we have experienced increased raw materials costs. For example, some resins have tripled their pricing in one year. So our main R&D efforts can be best described as being in two boxes: on one side we are putting intense efforts to develop new formulas and new technologies to mitigate this huge price increase in our products; and on the other side, we are emphasizing the development of nutraceutical and pharmaceutical products.
CI: And as you mentioned before, the largest selling pharmaceutical product is nicotine gum.
MONTSE CIRERA: It’s very different when you develop pharmaceutical products as compared to confectionery gums. The time-to-market of the products are completely different. It may take five to 10 years before you are ready to launch a pharmaceutical product.
Nicotine gum, of course, is a well-known example of a medicated chewing gum. But there are more projects going on that required further research and study not involving nicotine.
In the nutraceutical field we see probiotics, for example, that are being applied in chewing gum. We are also looking at supplements. There are more studies about gum proving that it can be a good delivery system for some medicines, facilitating absorption during the chewing process as opposed to going through intestinal tract. It’s also quicker.
CI:Anything in the R&D pipeline that you could share with us that is kind of extraordinary or a breakthrough?
MONTSE CIRERA: No, but I can tell you about a consolidated product that we launched in 2009 and we are now expanding the range. That is the compressed powder gum. Instead of doing chewing gum in the traditional way with extrusion, etc, and with a traditional gum base, we’ve launched another type of product that is a mixture between gum base and sweeteners in a powdered form. So for a pharmaceutical company it’s easy to handle and to compress with the standard equipment.
Also, medicated active principals would be damaged using the standard extrusion because of the temperatures, the high temperatures and because of the wet content in the formulas. With compressed gum, it’s not a problem. You use dry formulas and compression occurs at room temperature. So you can have compressed chewing gum that looks like a tablet, but it’s still a chewing gum.
CI: Does it have the same texture quality, the same flavor delivery, etc, like regular gum?
MONTSE CIRERA: It’s a little bit different. For example, it can accept many more flavors, so it’s good for if you want to develop high value products. You can add much more flavor, you can play with different types of flavor much more and also it’s good because it can help you to mask some active ingredients that sometimes have an off taste.
CI: Okay. And do you see gum consumption increasing globally?
MONTSE CIRERA: Globally, yes.
CI: Okay. Specific regions then?
MONTSE CIRERA: Asia is leading the path, yes.
CI: Let’s turn to a topic that’s a big buzz word these days: corporate sustainability. Have many of your customers embraced corporate social responsibility and how has this affected the way you do business?
KEITH GRAHAM: I think the main thing that impacts us is energy use. They have to be seen or want to be seen as being as careful as they can with energy consumption, so energy-saving devices, energy-saving technology is much sought after. We had an open day in our factory a couple of weeks ago and two of the people who came to it were involved in social and corporate responsibility. We’ve had these events before, but we’ve never had people with that in their job title turning up. Moreover, these are serious, well-paid, talented people with a lot of influence within the company looking at that kind of technology. I’m not sure this has filtered all the way down to even the mid-sized companies, but certainly for the big corporations, it’s really important to them to be seen to be doing everything they possibly can.
CI: So they were quizzing you about whether you were able to reduce energy consumption on your machinery?
KEITH GRAHAM: Yes.
CI: And have you?
KEITH GRAHAM: Yes, where it’s feasible to do so without affecting the products. That’s one of the things that holds us back. If you’ve got an established factory, there are lots of things you can do to reduce your overall energy consumption without going anywhere near the product. As soon as you start wanting to change the process in order to reduce energy consumption, you risk changing the product and nobody wants to do that. But where we’re using — say on our cookers, for example, steam — that can be recycled without changing the process or the product in any way. So that kind of technology is of interest.
As long as we can reclaim the heat or the steam and make it available, the companies we’re dealing with are looking at ways of taking that and using it. It is becoming a big deal for the major corporations.
MONTSE CIRERA: There’s another change that we’ve been seeing; our customers are asking us to guarantee and to sign their code of conduct. We, in turn, are asking our suppliers to do the same. Everyone today is more socially conscious about the kind of conditions present regarding their workforce, safety issues, corporate accountability. And it’s not just large corporations, medium-sized companies are asking us that we sign their code of conduct as well. It’s part of the changes affecting business and if we can make the world a safer place, then good.
CI: A greener place, right?
MONTSE CIRERA: A greener place as well, yes.
MADS HEDSTROM: Going back to energy conservation, our customers are interested in getting machinery that uses less electricity. Of course, they cannot change the whole machine part from day one to two, but they’re very interested. So when they look at new machinery they are asking, ‘How can I save money also on the energy consumption?’
JAN HAMMINK: There are two issues, here. First, there is saving money. Still, when you operate in developing countries, sometimes there’s just not enough energy. There is not enough electricity and then it is not even a matter of money, but it is a matter of having access to and availability of power. Thus, energy consumption is a very, very important issue, sometimes more important in developing countries than in the developed world, because it’s just not there.
CI: I will ask the equipment manufacturing group here, which of you are currently working on reducing energy consumption in your equipment?
MICHAEL PFANNMUELLER: It’s not so much energy consumption, but more about reducing resource consumption. For example, if you have equipment for better sanitation, you can save water, you can save manpower and finally, help the customer to save money. It’s ideal if you reach this. Sometimes it happens.
CI: So you hit all three, right?
MICHAEL PFANNMUELLER: Yes. For example, we have one customer who had to clean his belt and that took four hours with five people involved to clean this belt. It’s a very big belt. And now it’s possible to have only one supervisor, because our equipment is cleaning the belt itself. The self-cleaning system uses less water, less cleaning agents.
CI: Perfect. And I think as Thomas mentioned before, customers are also interested in honing their corporate image as well, right?
GIULIO BELLANTI: There’s more sensitivity on this. I noticed that big groups like Danone declare on their yogurt, for example, how much they reduced their carbon emissions. So on our customers’ side it might be a money-driven issue, but then there are those customers who might be more sensitive to corporate social responsibility aspects. Consequently, it might be not our customer who is sensitive to corporate social responsibility, but rather their customers that might be more and more sensitive.
KEITH GRAHAM: It used to be the case that a corporate social responsibility statement appeared in a company’s annual report and that was it. Then it made its way onto websites and now it’s making its way onto the packaging. Now, it’s dedicated personnel visiting our plant. So it’s something that our customers believe is important since their customers believe it is important as well. This is not going to go away.
CI: And how difficult is it from an engineering design point of view to reduce energy demand for equipment?
MADS HEDSTROM: It depends on what kind of equipment, it depends on which part of the process it is, but you can always find something, somewhere in the machinery where you can reduce energy consumption.
WOLFGANG PFORSICH: The question should be about getting paid for an energy reduction solution. You can always find solutions saving energy. For an engineer, normally that’s not a problem. The issue today revolves around the total cost of ownership [cost of acquisition and operating costs]. Big corporations normally comment that it’s not only the energy consumption or resource conservation that’s part of the total cost of ownership, but also costs encompassing the operators. We’re seeing the total cost of ownership apply to after sales service and supplier visits. These become part of a complex contract involving a code of conduct, sourcing, etc.
CI: Do you find that customers are willing to pay for your energy consumption features or not?
THOMAS MATOSEK: In the end it’s much easier to push a project through when you can prove to your customer that it pays for itself.
MATTHEW COTTAM: Water conservation is an easy one. Many of us use vacuum systems and we all need lots of cold water to run a vacuum system. But it’s very easy to put a closed loop system in there to reduce the loss of water. However, not all countries appreciate it. For example, in Canada they tell you, ‘Well, we’ve got as much water as we want and we’ll just use it’. Whereas if you go to California they’re prepared to pay for water saving measures.
CI: It’s an interesting point; it depends upon the customer.
DEE WAKEFIELD: Andrew: you manufacture in India, don’t you? Have they got the luxury of even thinking about being green or energy conservation?
ANDREW MANN: I think the point Jan makes regarding energy is more prevalent in places like India where they might not have the connected load, so energy can be an issue there. But no, they’re more concerned about production than green aspects.
THOMAS MATOSEK: German engineers have tended for the last decades to make their equipment as strong and as powerful as possible. They built in the biggest motors to cover any application, biggest heat exchangers, biggest cooling capacities and this, I believe, has to change. It has been changing, but it’s a change that has to occur with our thinking. We need to design with energy conservation in mind, making a line, making a system fit the application it will be used for and avoiding unnecessary energy. And there are people in our industry already that are making a living out of it, upgrading, overhauling existing lines, chocolate moulding lines, for example, just replacing insulations or changing cooling systems to bring the energy consumption down.
CI: So you’re saying many of these lines or pieces of equipment were maybe over engineered, is that correct?
THOMAS MATOSEK: Yes, this is the right word.
CI: And now can be downsized, so to speak, for the appropriate usage.
JAN HAMMINK: Yes, that’s possible, but there are other issues. For example, we are more or less forced to use certain types of motors that are more efficient because of European regulations. But it’s very dependent upon how many times the motor stops and starts, because when it stops and starts many times it is less efficient than an old-fashioned motor. So when we talk about saving energy, much of it revolves around paperwork and regulations. You are not necessarily really saving energy.
MATTHEW COTTAM: It’s box-ticking as opposed to real savings.
GIULIO BELLANTI: Still, customers are asking more and more for our support to think differently. I mean they are asking, ‘OK, you are making incremental improvements, but think about a different way to get to the same result.’ So they are pushing more and more to think out of the box and say, ‘OK, you are improving what is existing, but is there another way to get to the same result? Think about it. Probably not, but just think about it.’
CI: Have you come across a different way to do things by thinking out of the box?
GIULIO BELLANTI: It’s always very difficult, because it’s what we said before: it’s the difference between improvements and innovation. Innovation is something completely different and it takes time, it takes effort and it’s not so frequent. So, naturally we are investing in that direction, but most of the time what you wind up doing is improving existing technology. So customers are asking more and more to introduce innovations, to think out of the box, because they understand that there can be the possibility to improve something which is existing, but they might get much more if you are capable to offer support on other aspects. So it’s not just changing the motor, but seeing the big picture and being able to advise customers.
MADS HEDSTROM: That’s exactly what we did on our tempering machines. Instead of just saying ‘put a smaller motor’ or ‘do this, do that,’ we got some clever heads to sit down and think about how can we save more energy on this tempering machine. And then we found another way, another concept, a different way of tempering than we normally did on tempering machines, which saves between 50-80% on energy. So, if we can think out of the box, within a few years, we will be able to develop more energy saving machinery.
JORDI TORRES: Energy saving will be the big issue in the next coming years. I’m pretty sure that people will ask more and more about saving energy, because the resources will be less and less.
CI: In an effort to squeeze savings, confectionery manufacturers are looking to reduce costs in processing and packaging. So, as equipment manufacturers, have you had to reduce margins, streamline assembly processes, find alternative material sourcing and/or walk away from business as a result?
THOMAS MATOSEK:All the above.
CI: That was an easy answer. Have you actually walked away from business because somebody is really pushing you that hard?
THOMAS MATOSEK: Yes. I think the market has become tighter for us, for all of us here, over the last 10 or 15 years. It’s become a customers’ market rather than a suppliers’ market. On one hand, our customers have another choice, maybe a wider choice these days than 20 years ago. On the other hand, they’re not willing to pay that much more anymore for top-of-the-line equipment. Besides increased costs for precious resources — electrical energy, water — they are facing higher commodity costs. So because our customers are under more pressure, they try to pass it on to us and they ask us for more economic solutions.
JORDI TORRES: In the present situation, I understand that customers know about the shrinking of the market, so they are more demanding when they ask for quotations. Thus, they have more comparisons, so they really squeeze us much more than what they did in the past, that’s clear. And sometimes they do not want to pay for the quality or the innovation that you’re offering. So sometimes even if you are offering some good innovation or some improvement, people are not willing to pay. They may appreciate it, but they are not willing to pay the price.
MATTHEW COTTAM: I would argue the commodity costs are far more important to our customers than the energy costs that we were discussing previously. So things like weight control, start-up losses, shutdown losses are far more important, to the point where people will pay more for extra equipment or enhanced equipment to reduce these costs, more than they would probably pay to look at some energy-reduction method. And with a lot of our processes now involving fruit, fruit being a commodity less in use than sugar or corn syrup, then when you get involved with the fruit side of the confectionery industry, the commodity costs become significant. Then they’re very keen to use every last gram of fruit that they’re putting into the line. So it makes — again talking about contracts — it makes contracts more difficult, because they want things written into contracts that stipulate accuracies and start-up losses and shutdown losses, which before, was something you didn’t really come across.
CI: Do they mention changeover times?
MATTHEW COTTAM: Yes. Well, changeover time per se is not that important as the amount of product that could be lost during a product changeover time.
CI: Okay. And they want that in a contract?
MATTHEW COTTAM: Yes, they want it. You have to stipulate what you’re going to achieve, which is a challenge at times.
STEVEN STAAL: Well, that brings you back to the point Jan made: it’s all about process control, from start to finish. It’s all about the accuracy and consistency of your process and the fact that your customers can trust that your machine delivers what they think it delivers.
KEITH GRAHAM: The best way of ensuring that is to take operators out of the equation, as far as you can. That’s the single biggest source of process control error and inconsistency. So anything you can automate that was previously done manually will reduce waste and will improve weight control and consistency.
RALF SCHÄFFER:Some of our customers are also investing money in detailing the traceability of the product. As some of you know, in the past it was very common that the milk chocolate and the dark chocolate was somehow mixed a little bit, with nobody recognizing the difference. Today, manufacturers thoroughly sanitize production lines during product changeovers. In the end they can guarantee to their customers, who are the retailers, that this is really only the dark chocolate, that there’s no milk chocolate still inside. So that’s also a very big issue at the moment, including the use of so called rework that’s traceable.
CI: Food safety. Everyone’s talking about it, what about your customers? Are they demanding changes in your machine design?
THOMAS MATOSEK:Food safety and hygienic design of equipment was the issue at interpack 2008. The topic at 2008 probably originated because of some allergen issues in the United States. My impression today is that we manufacturers first started to make our own equipment more hygienic from all perspectives. In doing so, we tried to improve things, which didn’t necessarily match our customers’ expectations. What we’ve done in the meantime is we’ve listened more to our customers and we’ve elaborated on putting in hygienic solutions that better meet their expectations.
CI: So are your customers doing more complete washing down of equipment than ever before? What’s the program?
THOMAS MATOSEK: I think they do, and that’s not the only thing they do. They not only clean and wash the equipment — changing from one product to another — they even sometimes have a separate team inspecting them. In this manner, they are controlling their own colleagues within the company, and that’s something which I’ve seen happening during factory acceptance tests at a manufacturer. They brought one team that’s making product during a field equipment test, another team in charge of cleaning the equipment and a third team being in charge of inspecting the clean equipment, making wipe tests, etc.
KEITH GRAHAM: It may vary from industry to industry, but certainly some of the comments we’ve had from our customers is that they, what they don’t want to do is wash machinery in situ [on site], because of two things: one is that the water will often drive bacteria into places where it is then inaccessible, and the other is dealing with the water on the shop floor. So we’re put a lot of effort into redesigning machinery so that it can be cleaned by hand, rather than by washing it down. If you do need to wash it down, it’s taken out of the facility.
CI: Okay, so that’s a completely different perspective on how you design the machine, right?
KEITH GRAHAM: It is. Another change involves leaving everything exposed so maintenance can get to it. In the past, we covered everything up. With open design, debris will accumulate, but you can easily clean it off.
THOMAS MATOSEK: Not only do you need to be able to clean all the surfaces getting into contact with the product, you need to be able to inspect them as well. That’s why you have to open up everything.
CI: Let’s move on toward growth markets, such as the BRIC countries and now this new acronym MIST – Mexico, Indonesia, South America and Turkey. Where are you seeing the most growth?
JORDI TORRES: Mainly Brazil: we’re seeing a lot of interest in Brazil. I will underline Indonesia as well, in a different way. South America has been blooming a little bit during the last couple of years, but the focus on Brazil has been tremendous. And from the other side, Indonesia is a market that really is pushing from all the areas, with activity from Malaysia, Singapore, Philippines.
MASSIMO PIETRA: All the countries you mentioned here are the countries where we sold machinery last year. So those are the areas where we are selling quite a lot. The European market has, of course, less growth; it’s just replacement of machinery and some new extra capacity lines. The real growth comes from those countries.
CI: Are you surprised by any one of the areas in terms of growth?
MASSIMO PIETRA: A bit by China, actually, because for years it looked like they weren’t interested in chocolate. Consumption is growing, but it hasn’t reached significant levels. Nonetheless, the multinationals are investing.
ANDREW MANN: These countries are definitely our main market. We also have manufacturing in India where we have a factory that employs 60-plus people there.
Much of that investment has been fueled mainly by domestic growth. About 50% of the sales from our Indian factory are within India, so that’s something we didn’t expect when we started manufacturing in India.
CI: Did you consider it a large risk on your part to invest in India?
ANDREW MANN: It was a large risk.
CI: When did you invest there?
ANDREW MANN: 15 years back. We invested a lot in it, and it’s probably only in the last five years where we’ve seen proper returns from it, but it’s now a very successful manufacturing unit.
CI: If I may pursue this a little further, are you planning to expand operations in India?
ANDREW MANN: It’s constantly expanding. Like I say, 50% of its sales are within India, 50% are exports, and both of those sides are growing.
CI: And challenges involved with India back then and today have changed dramatically?
ANDREW MANN: Yes. Back then it was much more difficult. Getting simple things was very difficult, the supplier base wasn’t really there 15 years ago, but it’s improving all the time and yes, it’s now a very strong and quite a developed economy.
CI: I’d heard about Turkey, which has many more confectionary companies than most people would imagine. How many of you are involved in Turkey?
MADS HEDSTROM: We are involved in Turkey, we started our own sales office two years ago in Turkey. That has been a success for us.
RALF SCHÄFFER: These MIST countries – Mexico, Indonesia, South America and Turkey – I have to separate Turkey out because we’ve been involved with confectionery companies there for the past six, seven, eight years there. It represents one of the biggest markets where we have sold equipment; it was really unbelievable how many of our machines are in Turkey.
MADS HEDSTROM: It’s also our largest market.
RALF SCHÄFFER: And I think I agree that Indonesia is really picking up at the moment, so there are investments going on, and South America has come back. Mexico for us is probably a bit flat with occasional projects. Of course, South America is strong, with Brazil being the biggest market, although there are also some projects in other countries, but mainly Brazil. Russia is a very important market for us since many years, and India is improving a lot. China is also getting better. In China we have a lot of local companies that are improving, they’re investing.
CI: And those of you who are in China – and I think I can only address the sweet side – that actually domestic consumption has grown tremendously on the sweet side, and that in the past China would be exporting a lot of its sweet confections abroad, but now that isn’t quite the case. Is that correct or not? Can anyone address this?
KEITH GRAHAM: I think one of the things that’s happened over the past few years is that the multinationals have been moving into China, setting up plants, using our equipment and have been having some success in the Chinese market. Consumers are now willing and able to pay for high quality, Western-style products, and the indigenous Chinese manufacturers are now having to respond. Certainly, from our experience, that is the best way for them to respond, which is to buy similar equipment in order to make similar products — not copies, but developing their own products around that emphasis. To do so means they must have European or American equipment.
CI:And since we’ve roamed into China, has the whole intellectual property issue been resolved there or not?
MATTHEW COTTAM: No.
RALF SCHÄFFER: I mean, theoretically yes, because the laws in China are very similar to the European laws, but in practice there’s a big difference. What can you do? If there’s somebody who copies your machine or copies your product, you can pursue legal action. Then the company ceases to exist.
One area that holds potential is Africa. Currently, chocolate is not the real issue there, but that, too, will come. I mean, Africa will be an interesting market in the next 10 years. Just look at what China is investing — I’m not talking about the North African countries, I’m talking about middle Africa — to support those countries there.
CI: So we should expect Africa to be the next big marketplace?
RALF SCHÄFFER: I think so, in the long term, yes.
JORDI TORRES: Mid- and long-term, I think we’ll have to look at Cameroon, Nigeria, Gabon. For example the Chamber of Commerce of Russia sponsors trade missions to different countries and every year they go to South Africa. I took part on this mission. This year they have changed from going to South Africa for Angola.
CI: That’s quite a switch.
JORDI TORRES: Yes, there’s more attention on Angola rather than South Africa, so it seems that Angola will be booming.
GIULIO BELLANTI: Angola is booming after the civil war ended: there are investments in every sector.
CI: And since we’re talking about Africa, is there still hope for Libya and countries like Tunisia.
MATTHEW COTTAM: Within one or two years I’m sure it will change. Kenya had a big problem, but it’s the center of East Africa and now it’s booming. Remember, the civil strife that they had in Kenya was only two or three years ago: it wasn’t very long ago when they had huge political problems with the election of leaders and there were shootings in the street, but now that’s all gone; now there’s business to done there.
CI:Several companies here have formed alliances in order to supply turnkey systems and offer their customers “one-stop” shopping. Are such efforts proving successful?
WOLFGANG PFORSICH: I think this has been done for years. Even if you don’t deliver a complete system, maybe the agent or the sales network have both, some more on the side of processing, other on the packaging side. If now, as Thomas said, the demand for turnkey systems is increasing, then it’s depending on the size of the customer company. If they have a lot of internal rules to follow, they like to have one contact person, one company for a project, to oversee responsibility, overall planning and such things, it’s easier for them to go with one group. But if it’s a midsized company, or someone operating in East Europe or Turkey, then it’s different. That’s our experience.
MASSIMO PIETRA: We, ourselves, have invested in that concept. We believe that turnkey solutions represent one of the trends. So we did it at a deeper level with a merger, then at another level with Caotech and Probat, because we do believe that you have an advantage. It doesn’t mean you always sell turnkey solutions, but the idea is that you are ready. We can offer the customer a complete solution.
CI: And you’ve seen a payback?
MASSIMO PIETRA: We have already seen paybacks, and our big customers are coming more and more often to us, proposing turnkey projects, because again, responsibility is one of the most critical issues. When you have many machines, when you have to deliver a product and you have many machines in the process to deliver that product, then you never know whose responsibility it is from here to there. When you have 20 different PLCs in a production line, this is what we see worries out customers.
GIULIO BELLANTI: In addition to that, what worries our customers is the fact that they have reduced the technical departments. As a result, they outsource, or rely on suppliers to do a proper design of the systems itself, which was not the case years ago. Years ago, if a supplier proposed something which was not, let’s say, feasible, there was someone within the company saying, ‘This doesn’t work; please review and correct.’ Today they are in a situation where purchasing departments are becoming stronger and stronger. And when it’s just purchasing, they rely on suppliers to set up a system that works. So whoever provides a turnkey solution through an agent or through a company, that’s a competitive advantage. Unfortunately, not all agents are able to coordinate all that’s required. In other instances, some large companies do not like dealing with agents. They prefer to deal with the supplier. It’s related to what we said earlier this morning — seeing the big picture in order to optimize the system.
CI: Now, some of you here have formal alliances, some have informal alliances; is the formal alliance the wave of the future?
JORDI TORRES: I don’t know. Everybody here has, as you said, some formal or informal alliances. But at the end of the day, the evolution of any company — like a human being — has to be by cooperation. You cannot achieve anything alone in this life, even in one’s personal life, it’s important to cooperate. So cooperation is a must to grow and to survive in this business, or in any business. So to find synergies with companies where you really have common points and cooperate with them is a must today, otherwise — quite likely — some companies, some businesses will disappear. As Jan said, a turnkey project is composed of many, many different things, and one cannot do everything. Hence, it’s essential that we cooperate, whether it’s official or unofficial.
CI:Thank you for your participation, which provides our readers with valuable insights about the current state of affairs in confectionery.