The 2015 European Roundtable: Suppliers weigh in on interpack, energy savings and premium chocolate
European confectionery suppliers reflect on the increase in regional shows, the growth spots in markets, and the challenges of vertical start-ups.
Editor’s Note: The 17th European Suppliers Roundtable was held on June 11, 2015 at the Radisson Blu Edwardian Hotel in London. The following represents an edited transcript of the meeting.
CI: Now that the post interpack 2014 euphoria has passed, it’s possible to determine the true aftereffects of the show. Have the leads generated at the show resulted in serious customer opportunities?
Thomas Matosek: I think the situation’s probably the same for most of us. Most of the customer contacts we’ve met at interpack we already knew from before, but there are also some new leads. And some of those have turned into projects and short-term sales while others we are still working on.
Jan Hammink: When we look at interpack and we analyze it, it becomes a little bit less important than some other shows in other parts of the country. For example, shows in India, shows in the Middle East — they’ve become more important, and actually they are less expensive. So, of course, we will probably always attend interpack because when you’re not there, you’re not there as a company anymore. But when you look at the sales effects, then the effects of the show become less and less important for us.
Thomas Matosek: I agree with Jan. Not only those regional shows, but especially ProSweets is becoming more important.
CI: So are you saying that in the past people would say that they would make deals right on the floor, and that’s less so at interpack than it was?
Jan Hammink: Well, deals on the floor — I mean in the past it really was the case that you had a lot of orders on the floor. But then that was the process. Today, that’s less the case. We don’t go to a show to get orders. I don’t think that’s the case. You get leads, you get new contacts, you get renewed contacts and things like that. Now there are some shows — in exhibitions in India, in some parts, some in the Middle East and China — they become more and more important and more cost effective. Of course, your customer base still comes to interpack — almost all your customers come to interpack; that’s true. But the costs are also going up, up, up and up, and the effectivity of the exhibition in our opinion is less than it was.
CI: Interesting. Any other comments there?
Ralf Schäffer:I think the meaning of interpack itself has changed in the last 10 years or 15 years. As mentioned earlier, back then people came there to order, to get special prices, and some even bought right on the spot. Today, it’s more to present the company in relation to other companies. So, even though interpack’s role has changed, it is still the leading exhibition for our industry and I think that it will remain until we all retire.
Jan Hammink: You cannot avoid being there. For example, last year, we had a show in India, and still there were a lot of people from Pakistan and from other countries — and even in the Middle East. So, you see a lot of international customers coming to these local shows, and it’s happening more and more often.
Martin McDermott: For sure, but I think also that interpack is perhaps the only platform that we have where we as companies exhibit almost every piece of equipment that we have, and that’s a good introduction and a good pathway for future business. And I think by doing that and continuing to do that, we have the opportunity then in those countries, like India — the regional exhibitions — to get locals to know us. They see what we have at interpack and they come. So, I think it continues to be a very important show.
Keith Graham: I don’t think it’s a question of interpack becoming less important; I think shows generally are becoming more important, which is ironic considering websites and the availability of information there is today; far, far more than it was 30 years ago. But you just have to look at the number of people who come to interpack. It’s the same as it has been for 10, 20 years. It’s full. Somehow or other they manage to cram more exhibitors in every show — I don’t know quite how they’re doing it, but they are — and large companies are taking bigger stands and expanding. So, it is still, I think, the most important exhibition, but exhibitions generally are becoming more important than they were a few years ago. I think it’s probably because travel is easier and cheaper and people are more used to it. And the investment decisions they’re making are so important to their business they can’t afford to rely on just the company’s reputation or a salesman who turns up; they have to be able to see the equipment, judge it in the context of its competitors, all those sorts of things. And interpack is by far and away the best for that. But that doesn’t diminish the fact that other shows — regional shows — are becoming more important, and you’ve got to do both.
Mads Hedstrøm: interpack is a very good exhibition and, as you said, we’ll probably come there till the day we’re not here anymore. And I will also say, as Jan said, the exhibitions in Dubai and India and wherever they’re cropping up —we go out there and have a booth out there and try to show our machinery more locally. And if you travel to the Middle East, you will find out that you will see people that you wouldn’t see at the interpack exhibition, mostly because of visas. For them, it’s easy to jump on an airplane and be in Dubai or wherever they are — Indonesia, Pakistan.
CI: So, do you find yourself doing more of these regional smaller shows?
Mads Hedstrøm: I think we do shows all the time. I think it’s become an industry.
Thomas Bischof: But for all these shows, the role model itself is interpack. If you see — most often there is Dusseldorf Messe; Cologne Messe. Behind those shows — those regional shows — they just copy and paste what they do. A little bit smaller, but basically the role model is interpack for all these regional shows, which become more and more important. As you said, there are still the local people from India who are not travelling, maybe, to Europe for certain reasons. One is money; the other one is still visas.
Bernd Grabherr: But last year it was really a combination between Interpack and ProSweets. I believe ProSweets benefitted from the activity at interpack. For example, we had many projects which began during interpack, and then we have the same visitors at ProSweets, and then we have the final decision. I think it is always a combination. I think ProSweets alone will not be that interesting, but in the combination after interpack it was very interesting. My opinion is that the next ProSweets will not be so interesting because there is no interpack. But it’s only my personal opinion.
Massimo Pietra: Well, I believe that interpack will not fade just because it is quite easy for all of us who are European-based to bring machines to it; much easier than taking them to India. But, of course, we are developing the other exhibitions as well. We are going to India; we are going to the Middle East. We are going everywhere we have to be to be closer to those customers who don’t travel that much, because even multinational groups in the last years are tightening on travel expenses.
Jan Hammink: When I look at ProSweets, for us, it is the best show. And you look at expenses and you look at how many customers are visiting you, and you see that the combination with the ISM — you see a wonderful combination. Again, as long as interpack will exist, we will be there, but when someone would decide, ‘And now there will be no Interpack’, we would be very happy with that.
CI: Let me add an addendum to the question; how many sales leads actually become contracts and how long does it take?
Mads Hedstrøm: I can’t give you a percentage, say 7.5 percent, but what I can tell you is that it’s an uncommon thing, especially at interpack. You sell something, you start some new projects, you start competing with the other guys who are there, and then you go on nearly to the next interpack. So —
CI: It can take that long.
Mads Hedstrøm: Yes, it does. You will get customers who come two and a half years after and say, ‘You remember we talked about this line, which you quoted me at Interpack? I’m ready now.’ So it’s an uncommon thing, in my opinion.
Jan Hammink: We cannot see any correlations between interpack and sales turnover. And we looked at it for several years. We cannot say, ‘This year’s an interpack and somewhere, one year or two years after interpack we have significantly more sales.’ You look at the long term. In the past, when you had interpack, the year after interpack you had a lot more sales. The effect is gone in our company. We don’t see it anymore.
Markus Rustler:But you have to ask the question: How would it turn out if you were not participating in interpack? Would the sales then drop?
Jan Hammink: Well, when we would not participate in interpack, sales would go down, but if that event disappeared — I’m sure that it would have no effect on our sales. But those are two different scenarios.
Francois Adele: I also still see that six months before interpack people stop buying. They will just wait to see a machine and —
CI: Hope for a better deal, right?
Ralf Schaffer: Or new technology.
CI: That’s true, yes.
Ralf Schäffer: Because interpack is usually the show where the new technology is first presented to the public.
Frank Müntzberg: I think we can’t really compare interpack with the others because for us it’s the benchmark. We have a three-year cycle on R&D that is related to interpack. It’s not related to any other show. So, we put all the best new things at interpack and we compare ourselves; we see trends, whether our good colleagues and our customers are doing the same. So, interpack is the benchmark and we are investing significantly for the show and we will continue to do that as long as it maintains its status. And in the past we did see very often some disruption on sales, or on orders coming in, for the last three/four months before interpack. We don’t really see that anymore. So, interpack has developed even more as a benchmark. That’s how we see it.
Keith Graham: We did some tracking studies to convince a skeptical owner that it was worth spending all the money, and if you look at the number of brand new inquiries you get at interpack that turn into orders, it’s quite low. They’re big orders, so it more or less pays for being at the show. But if you then look at all of the discussions we had with customers about ongoing projects and all the ones that turn up four, six, even 12 months later, where you perhaps had a discussion at interpack — add all those together, then a significant proportion of your business is affected in some way by interpack.
Martin McDermott: And the R&D thing, that’s a very good point, because that has its own dynamics, you know? Everything is centered around that. Everybody’s working toward that because now the sales guy who wants to be on the booth and then gets the question: ‘So what’s new?’ can say something more than just ‘Well, my suit.’
Ralf Schäffer: I agree with what Frank Müntzberg said here, that it’s an innovation driver for our innovation — three-year cycles — and I think it’s more and more used also by the customers to look at the different companies and then to make a general decision — not to discuss projects, really; just to make a general decision to go ahead with this company or to have a chance to discuss an alternative. We have ongoing projects and the customer even says, ‘We don’t discuss at interpack.’ Nobody has really time to do it; then it’s better — and to travel is cheaper and easier and so on. I think it’s really to compare and to see the industry — where is the direction and who is now the player — the big player, small player; which company could be an alternative to what I have already or what I know already, or is the one who’s, let’s say, will be the correct partner or supplier for the company. I think that is the meaning of interpack. And in addition, of course, to develop contacts.
But ProSweets for me is, let’s say, a very congenial place to have many contacts in a short time, because all the customers — or let’s say the medium-sized customers — all the contact persons are there. From the big internationals, some of them are coming, but normally their sales organizations don’t even know our companies. But, of course, it’s a very good meeting place for all the medium and smaller customers, because they are there, the owner is there, the general manager is there, and they just come and have a look for a few minutes or an hour or whatever. And I think that it’s a little bit different then. I mean, basically, on ProSweets we just show a machine to show that we are a machine supplier, but we don’t display the range of equipment which we do at interpack.
Markus Rustler: I agree that ProSweets has developed very nicely. And it has become a very good show, but it’s heavily dependent on the ISM. ISM has diminished in size during the last few years; it’s getting smaller and smaller, and I can tell you as soon as ISM disappears, ProSweets will also be gone.
CI: But do you think that ISM will actually disappear?
Markus Rustler: I see a tendency, yes.
CI: You do?
Markus Rustler: Yes. More and more of the large German players don’t come to the show anymore; internationals don’t come to the show anymore. If you talk to customers also, small and medium-sized family businesses from South America but also from Turkey, from Spain and Italy — more and more of them say it doesn’t make sense anymore; the effort isn’t worth the outcome anymore. Because what was ISM created for? ISM was originally created basically as a communication platform for small and medium-sized companies to present their products to the purchasing departments of the big sales groups like Lidl and so on. It’s not necessary anymore. They have their own manufacturing plants nowadays, or they have their fixed partners, so most of the benefits for the small and medium-sized customers exhibiting at ISM have more or less gone. That’s what you hear every year. That’s why I think ISM — maybe another 10 years — it will be gone.
Mike Dalby: Well, I find that interesting, because the comment that Andy Mann [A.M.P. Rose’s managing director] asked me to pass on was that interpack is not only for our industry; it’s the general packaging industry as well, So it’s a scatter-gun approach, whereas ProSweets is very much aimed at the specific industry that we’re all in. We tend to think that ProSweets is quite important because you’ve have all your people in one place at one time and you can maximize your time and your effort even though it’s only over three days. But we also go along with what’s already been said about the regional places, like Dubai, like India, like China, like wherever else in Asia, which are becoming more and more important. Customers in those regions tend to go more — or send more personnel to those individual regional shows than they do to Interpack. But I agree: you can’t come out of interpack. Interpack is, if you want, the prime exhibition. But the regional ones are getting more and more important. But I hope I live long enough to see 10 more years of ProSweets, to see whether Markus Rustler is right. But it’s an interesting theory he puts forward.
Markus Rustler: Yes. I mean, just if you look at the number of halls ISM has opened for exhibitors, every year there’s one or two halls less. Last year it was only — what — five halls? Twenty years ago it used to be 10 halls.
Ralf Schaffer: And interpack is always fully occupied a year before. The last interpack, there were more than 200 companies on the waiting list to go to interpack. And the grounds lend themselves to showcase running equipment.
Dee Wakefield: Markus, of the big companies that don’t exhibit at ISM any longer — and we know who they are — do their engineers or their marketing people come around to ProSweets?
Markus Rustler: Some of them do. Indeed, this has been one of the developments, that some companies that are not exhibiting at ISM are sending their engineering teams to ProSweets because it has developed nicely and it has become bigger and bigger. The point I was making is that I’m not sure if ISM disappears that ProSweets can stand on its own.
Jan Hammink: I believe when ISM is gone, there is no future for ProSweets. It’s the combination that makes it attractive.
Mike Beckert: I think we see the tendency for local shows to garner more interest stems from our customers who are changing their travelling policies. No longer are they investing money to send a whole group of 10, 20 people to interpack. Since we are having different shows in different years, it is, as Ralf Schäffer says, that the executives travel to interpack to see who would be the right partner for the next three years working on projects. It’s also a case of whereby they are changing also their philosophy and, say, instead of having 20-30 suppliers, minimizing the total to only a couple of them, also to change their costs internally. So they are going in smaller groups and then also attending the regional shows. This allows them to discuss different things of what they’ve seen. Thus, it’s not one major investment in one year, but several outlays during the course of three years.
Ralf Schäffer: Moreover, to work on projects three years is a long period of time; so you have to do it continuously.
Mike Beckert: Now the question is: What is the first part? Is it they change the travel schedules to go to the more important exhibitions, or, vice versa, that they say, ‘We don’t have to send everybody to Germany; we can prioritize going to the local ones?
CI: Everyone was talking about energy savings, improved hygiene and the simplification of changeovers at the last interpack. It’s a year later. Is that really what customers are interested in? If not, what, then?
Thomas Matosek: I think the trend is ongoing, but it’s mainly about energy savings. Sustainability is something I would say — it’s nice to have, for promoting, for us as well as for our own customers, but — well, cost reduction continues to be the real driver. I do think most people are interested in energy savings. And this is not only about using certain energy-efficient components or motors, but this is also about alternative technologies and processes.
Markus Rustler: Energy saving is, of course, also an issue in the packaging field but not as much as it is in processing, because, compared to processing, packaging, of course, uses very little energy. We clearly see this not only since the last interpack but also before. It’s the demand from our customers to have machines that are easier to operate, easier to maintain, to clean, simply because cost is a driver in the production of confectionery items. And more and more, customers tend to use unskilled labor to operate the machines. So, we try to design machines in a way that you can basically pick somebody from the street, put him on the machine and have him operate the machine.
Ralf Schäffer: I think energy is just a very small part of it. Of course, everybody’s talking about energy because it’s very popular and very fashionable, but at the end of the day — what Markus said is true — the customer wants to have a line which has very good overall efficiency, including low running costs.
Jan Hammink: When we look at our equipment — of course, grinding equipment uses quite a lot of energy — it depends on the area where you sell, whether energy consumption is important or not. When you sell in Russia, energy is not a big item. When you sell in Saudi Arabia, energy is not a big item. When you sell in West Africa, energy can be really critical, and not just because of the cost, but also because there is just not enough energy. And you have other parts of the area where energy costs are really a big part of the total cost. So, the energy aspect is very much dependent on the area. The other aspects, like changeovers, simple maintenance of the machines — all this kind of stuff is, of course, worldwide a very important item, but energy’s very specific on the country.
Mads Hedstrøm: But you want a machine that is efficient; you want a machine that you can control easily; you want a machine where you can save money.
Jan Hammink: Yes.
Mads Hedstrøm: Or efficiency — cleanability — but also energy.
Jan Hammink: No; there are countries where it is completely not important and nobody will pay any attention to the energy aspect.
Mads Hedstrøm: However, we’ve seen tremendous success with the energy saving program our company has initiated.
Jan Hammink: Yes, but then you know also that there are certain areas of the world where that aspect is almost not on the table.
Martin McDermott: I can’t agree with that. No, no, I can’t agree with that, because, I mean, we developed a system, Ecograv, which uses the moisture of the glucose to cook the sugar. As a result, and we’re starting at a higher solids level, we’re using less steam. And we’ve had even in areas of Russia, where oil is their major source of income, where they have bought equipment because of energy savings. It continues to be of great interest.
Jan Hammink: But you’re talking about steam. It could be that the factory has a problem with the capacity of steam, but it is not really the money in energy that is important.
Martin McDermott: It’s about energy savings. That’s what we’re talking about, and steam is an energy.
Keith Graham: I think one of the aspects on energy saving in particular is: Does the energy saving technique affect the end product? And if you can design a machine that gives you exactly the same product but uses less energy and costs about the same amount of money, anybody’s going to buy it; it’d be ridiculous not to.
Martin McDermott: Absolutely.
Keith Graham: And it’s the same thing for hygiene. If you can design an ultra-hygienic machine that is the same price, or even slightly higher price, easier to clean and does the job in the same way, people will buy it. Where I think we are seeing resistance from customers is if you come up with a very elaborate, very expensive energy-saving device — it’s got a 20-year payback, for example — they won’t buy that, and it’d be madness.
Martin McDermott: Sure. And the payback has to be within, you know, 18 months or something. It has to be something that people can see.
Keith Graham: Yes. If long paybacks were acceptable, all the factories would have solar panels on the roof, and they don’t, because the paybacks are too long. And as I suppose the leading manufacturers of equipment in the world, we have to be taking those steps and moving things forward, because if we don’t the people coming up behind us will do it and then we’ll have nowhere to go. But we can’t say things like hygiene, flexibility and energy saving are so important that the customers will pay a premium for it; they won’t. They expect it as part of the package.
Martin McDermott: A minimum. They will pay a minimum premium.
Keith Graham: Yeah, okay, a minimum premium.
Martin McDermott: And also, if you can develop something that helps your whole process — you know, by developing one part of a line which will make the second part of the line easier to sell because of that, then that also is a benefit.
Keith Graham: Yes.
Frank Müntzberg: We sign a lot of contracts with a guarantee. But I think we — today, if you are a leading manufacturer, you simply have to be ahead on the energy saving — and if we are not then somebody will overtake us. Another critical area is actually food safety. Of course, that is related to sanitation, but I think food safety is a separate point also, especially for the big brands. They cannot afford to have any risks, and that drives a lot of the sanitation issues and also how to be able to really strip down a machine from the contact parts.
Mike Beckert: Yes, that goes hand-in-hand. We started a couple of years ago with this hygienic design and looked at how we could accomplish it, and then all of a sudden we realized that we simplified it. That means everything that is in contact with the food we minimized as much as possible, and that means it’s also simplifying the process. The revelation was, more or less, to make it hygienic is to simplify the system. So, that was an important point — that by working on one you can have an influence also on the other one, and if this goes in the same direction, everybody’s happy.
Mads Hedstrøm: Did the price go down?
Mike Beckert: Yes, in some ways we — there are certainly some areas you cannot avoid that you have an increase or a premium — but in some areas we were able to run neutral. That means that we have not increased the price even by more hygienic equipment because you simplified it and so you took some things out — some gimmicks that are nice to have but are maybe a waste. So you simplified it and it ended up that it was cheaper than the former solution and that overall, it was running price neutral. And if the customer sees that it’s neutral, they are happy with that. It must be not less expensive; it must be the same and then they are usually very happy.
Martin McDermott: We used to say that making a kitchen for candy cooking should be CIP-able, but it has become so important now that you’re almost making a CIP system that can make candy. It really is becoming more and more challenging — but interesting.
Ralf Schäffer: The problem in my opinion is that larger manufacturing groups have, let’s say, responsible people for hygiene, for health and safety and for the production, and then you have three different opinions on the customer side, and we have to find the best solution out of this.
Mike Dalby: Energy saving is obviously an important thing, but if you’re in the packaging machinery business then it’s usually, or traditionally, been the slowest end. It’s the pinch point, or has been the pinch point, in the production line. Much more is now given to easy size change — quick size change.
Hygiene is also becoming more and more important on packaging machinery because, by its nature, packaging machinery tends to have nooks and crannies and bits and pieces and it’s got more rotating parts which can be ingressed by weevils and all sorts of stuff. So, trying to reorganize old machines or even current machines which were designed before hygiene, was very much at the top of the list, has become more and more important.
But the interesting thing is that we’ve just done a massive project with a very large company and we’ve had a lot of input from them with their particular product knowledge. It’s resulted in a machine that has been produced which has almost instant size change, instant pack format change and that kind of thing. I hesitate to say it’s nothing like the traditional cut-and-wrap or bunch wrap — that kind of product, you can’t do quick size changes on it. You may be able to take it a little bit further with things like servomotors and stuff like that, but what I would call the traditional small piece wrappers — I think it’s a long way down the line before you can do anything with that.
But certainly, as more and more products are going into flow-wrap type applications, that’s where the higher speeds and where easier size changes are going to come along. So, I think that the hygiene and the size-change ability is more important to the producer at the moment than energy savings, because they can get more savings on reducing changeover times because the lines aren’t down as long.
Ralf Schäffer: It’s the overall efficiency at the end of the day. That is what is really the most important.
Mike Dalby: Yes, that’s right. Overall efficiency.
CI: How would you characterize the current state of the global confectionery market, and what are your projections/expectations for the remaining half of the year?
Mads Hedstrøm: We’ve been doing very well — 2014 and the start of 2015. It looks for us pretty good for the rest of the year. We’re not getting the business in Russia, but we are getting it somewhere else around the world.
CI: No apprehensions about the rest of the year?
Mads Hedstrøm: No, I think it’s going to end up good.
Thomas Bischof:Well, I would say for us it’s the same. 2014 was a very good year. 2015 started also well and what we can see in the pipeline is still good. I would say there might be a little slowdown in the growth. So, what we saw in 2013 and 2014, the multinationals built up capacities outside their own markets — you know, going to India, going to China, going to Malaysia — and now it’s up to them to make those plants efficient and then use the capacity. And so that’s a topic, but this gives us also business, and so that’s why I say it’s still good. But I would say the growth is slowing down — maybe also already in the second half.
CI: Okay. Now, what about chocolate consumption, and premium chocolate specifically? At least in the United States, that segment seems to be growing above the average norm.
Thomas Bischof: I would say the United States is far behind with that trend, because in Europe, premium chocolate always existed. Companies here realized, ‘Hey, that’s where I can make money’ — you know, less volume; high margins. That’s what you basically want. And the United States somehow never adapted to that trend. Now, slowly, they are coming there, because Lindt stepped in. For me, Lindt started this in the United States. With the acquisition of Ghirardelli, they came into the market, and then they launched this premium segment, which up to then — to my understanding — didn’t exist in the United States. And I would say chocolate — those premium brand chocolates are coming more and more in the United States — and the market shows some potential. If you look at the volume that is consumed overall, that’s just amazing, so to me that’s really a growth engine for the U.S. market. And as you can see, the first European — UK brands are stepping into that, even with biscuits — premium biscuits, for example. So, I guess that trend’s definitely going on in the United States — premium.
Massimo Pietra: Well, for us it was a great year last year; this year, we don’t expect such growth. But it looks quite stable. Let’s say the loss of business in Russia was compensated again by other faster-growing areas. Thomas mentioned, for example, India, which is growing quite well. Even premium, which is a challenge since they are trying to improve the products to compete in that category.
CI: Keith, you cover a broad range of product items.
Keith Graham: We do, yes. Certainly in confectionery — and we’re only involved in sugar confectionery — hard candy, lollipops, jellies, that kind of thing. What’s most interesting at the minute is hard candy and lollipops is fairly stable as far as we’re concerned, but there’s a tremendous interest in soft confectionery now, particularly jellies, from India, Asia. It’s that part of the market which is developing more quickly than the hard candy. Sugar confectionery generally is not growing anywhere near the rate worldwide that chocolate is. There is growth there, but it’s modest.
CI: Are you getting involved in medicated confections?
Keith Graham: Yes.
CI: Can you elaborate on that a little bit?
Keith Graham: Well, there is a lot of interest in it. What is most interesting is that we’re not selling this equipment to confectioners. The confectioners aren’t getting into this market; it’s companies that are in the healthcare and even pharmaceutical industries. And it’s not medicated as such; medicated products are things that you take only when you feel the need for a therapeutic benefit: cough sweets.
Where the real excitement is in the functional nutraceutical area, which are things that people take every day — vitamins, minerals, fiber, Omega 3, all that kind of stuff. And that’s something you take on a daily basis. And I think consumers are waking up to the fact and the suppliers are waking up to the fact that it doesn’t have to be a nasty little pill — and in many ways you don’t want it to be a nasty little pill. You’re taking something not because you’re ill; you take pills or capsules when you’re ill. If you can put these products into a palatable format — something that doesn’t look like medication — the idea is that people will feel better about consuming them.
CI: And some people have issues, actually, swallowing pills, so this is another format which is easier to consume.
Keith Graham: Yes. Certainly for young children, if you feel the need to supplement their diet, then it is a more convenient format. But again, I think it’s something people are becoming more aware of, the need to get the various basic nutrients into their diet, and if you can’t guarantee getting it through your food — if you eat a lot of processed food — then supplementing it in some way, particularly as you get older, is a good way of doing it, so there’s a lot of interest in that.
Martin McDermott: Obviously, it’s more demanding for us as suppliers, because we have to obtain certain certifications with regards to pharmaceutical products. So, you can’t just supply a candy kitchen for a product that contains those vital vitamins, calcium, active ingredients. So, the certification of the line is almost as important as the equipment itself, and that demands having a team who is skilled and trained to do this type of thing.
Bernd Grabherr: We supply machines for coated products which — in comparison with other goods — comprise a very, very small market segment within the global confectionery universe. But at the moment the U.S. market is growing very, very strong. I think on one side we’re dealing with slow growth in Europe, and the other side is that the American large companies are developing at the moment many new products. That’s what I can see currently. In Europe it’s always the same, I think; there is no difference in comparison with the other years. And I think in my opinion, the Chinese market is slowing down a little bit at the moment, entering a stagnation phase.
Frank Müntzberg: Well, we have seen quite significant growth in the last three or four years. We also see that it seems to be easing out a little bit. China is definitely slower, and we also know from feedback from the multinationals that they are not investing as heavily at the moment in China. Then we see Western Europe coming back — especially Germany. We see many more investments in Germany, and in general Western Europe seems to be moving again. Then North Africa and Middle East has been very strong.
CI: Even without Libya?
Frank Muntzberg: Yes.
Francois Adele: Yeah, actually we see from both sides. I mean, Western Europe growing much better than it was. Actually, we have some growth in China. But, I mean, all of South America dropped completely; the United States is coming back; and the Middle East is also growing a lot.
Ralf Schäffer: I think if you talk about real chocolate in the world market, I think there’s an increase that is more than average. In many countries the conditions are changing whereby there’s the possibility to sell the products in air-conditioned supermarkets, which the multinationals are doing. This is increasing in many countries, and therefore many of the local companies change from this compound chocolate, which they used up to now, to real chocolate to increase the value of the product and to increase the quality of the product. I think that is a special trend at the moment.
Markus Rustler: Well, not really much to add. I mean, everything has already been mentioned. It’s very different from region to region and from confectionery segment to confectionery segment. Overall, yes, chocolate is still growing in most parts of the world. Sugar confectionery, especially hard candy — also gum — is more on a stable, horizontal line.
CI: Flat, yes?
Markus Rustler: Not really increasing, and jelly — yes, jelly is at the moment the big thing in many parts of the world. We’ve already said that. Russia has come back a bit in terms of turnover, but then, yeah, other markets, like the Middle East, like Africa and also western Africa — so, countries like Senegal, Nigeria, Cameroon — are quite interesting for us; we sell quite a lot of equipment there. The United States has also started again and, yes, Western Europe is surprisingly picking up again, probably more from a replacement perspective — so, old equipment is replaced by more modern, more efficient equipment. Obviously, the overall amount of consumers isn’t increasing in Western Europe; rather it’s declining. Overall, we believe that in the long-term confectionery market will further grow.
Simply, the world population is growing; available income — money to spend — is growing in most parts of the world, so for all of us it should be, if we don’t do too many mistakes, a quite bright future.
Martin McDermott: I agree with most of what’s been said. I can offer our opinions on stuff like hard candy. Yeah, stable. However, medicated hard candy seems to be — it’s increasing for us, anyway. Jelly is a very important market. Jelly with adding actives or adding vitamins, calcium, etc. — that seems to be hot right now. And, of course, available income — what Markus just said — is quite important, and you’re seeing that in areas of the world like India, where they don’t have a lot of available income.
Martin McDermott: Russia for us has also slowed down. We did have sizeable business there; we still have a good sales team, who are very actively involved in projects and continue to work on those projects. We still get business but it’s dropped. But looking at the world market, it has increased.
Thomas Matosek: Well, we had to face a kind of stagnation last year — 2014 — not necessarily related to interpack. We started 2015 very well. Orders started coming in last quarter 2014 so we started 2015 with a very nice backlog and we’ve been busy all the time; our confection sites are just full and we’re very confident that we’ll finish this year very nicely — very successfully — one of the best years in the company history. As far as trends are concerned, I see a trend, yes, to premium products, to high-quality products. I agree with Thomas, for example. But not only looking at real chocolate but also compound, for example — and more and more people are interested in improving the quality of their compound, whether it be through filling or coatings or even — I mean, in countries where they make chocolate bars or confections using compound, there are people who are looking for better quality from those. As far as regions are concerned, I’d say Russia, of course, and Asia also has slowed down. South America is picking up; we’re doing a lot of business in Africa. That’s more related to cocoa processing rather than chocolate production. And despite the economic and political situation and all the speculations, Western Europe is picking up. There is a lot of momentum in Western Europe.
CI: It’s good to see a mature market still having a lot of clout, right?
Thomas Matosek: Yes.
Peter Malin: We’re more in specialty sort of areas, and we’re seeing quite a lot of growth in the bean-to-bar market, but on a small scale. There’s a lot of people wanting premium and niche products in that area — not huge volumes, but medium-size lines. And then also we do a lot on hazelnut processing, so often that goes with the chocolate, but the hazelnut’s grown a lot in South America — there’s been a lot of processing plants going in there. Obviously in Italy we still have our homeland of nut and chocolate combinations for a great number of people, and that has steady growth. And I think there’s been a lot more export of that around Europe as well, which has led to some growth.
CI: Are there markets aside from Western Europe that you’ve engaged, such as the United States where there’s been a renaissance in the bean-to-bar category?
Peter Malin: We’re not personally, but I think that’s because of the company size. We’re sort of growing in stages. So, I think the American market’s quite a different market; you have to spend a bit of time there and understand it. So, we’ve done more Latin America than mainland North America.
Mike Dalby: The European market, particularly the euro region, for us, doesn’t show any sign of growth, but, of course, the pound has increased in strength against the euro, so that’s a problem. Whereas in the States we’re better against the dollar nowadays than we used to be, so that traditional market in the States is still good for us. We also have success in Central and South America and West Africa, and we’re seeing quite a bit of growth in India in particular.
CI: You have quite a large operation there, right?
Mike Dalby: Yeah, we do, but it’s not just the machines that we’re building in India that’s selling within the country; there are machines made in Gainsborough as well, which we’re getting out there. Chocolate particularly is a growth market in India. It’s projected at 15 percent per annum or something like that, which comes back to the business of having better stores to sell it and the ability to keep it in its proper condition. But we’re moving off in — we’re staying in confectionery, obviously, but we are moving off into another area, which I alluded to earlier on, about basically snack packing, which has been successful for us.
Mike Beckert: So we have had, in the last couple of years, moderate growth. We are slightly behind last year, because last year we had an outstanding year; we had one of the highest turnovers in the company’s history. But if you are looking in the last five years, we had moderate growth, and I think it was really well received. We are not going into different industries. So, we are doing really well in some of our Kreuter equipment, which relates to chocolate such as enrobing units and cooling tunnels. Our cooking side is a stable business for us, and where we are still improving is on our Bepex equipment — the forming and cutting — which is making a comeback.
Jan Hammink: Well, let’s say 2013 was for us the best year ever; 2014 — normally we have a growth between, let’s say, 15 percent and 20 percent per year in general, but last year was in that respect disappointing, with a significant decrease in general. Profitability was still nice, but. of course, turnover for the long term is very important. So, that won’t be a good year for us in turnover. This year will be — that’s already sure — will be a nice year again. So, last year was really disappointing.
CI: So, what do you attribute your decline in turnover last year to?
Jan Hammink: Well, the decline stemmed from the Russia-Ukraine crisis. It was a very strong area and it just stopped. When we look at this year, everything will improve. We will have a nice turnover; we will have a nice profit. Markets such as the Middle East will be very important; India will be very important , but also China — China is becoming more and more important. And we do more and more in cocoa, so we get an extra revenue shot there.
CI: And areas such as Indonesia and Malaysia — are they important?
Jan Hammink: Yes, stable. That’s always an important area.
CI: So, I understand there’s very little room for error these days amongst multinationals and others when a new line or machine is commissioned. Instead of having several weeks to work out the bugs, a line or equipment needs to be running almost immediately. Is that the case? And if so, what structural and/or organizational changes have you implemented to ensure your equipment conforms to this new instant perfection?
Martin McDermott: I think that it’s probably a word in everybody’s mouth, this vertical start-up thing. First, you have to be well-prepared. I mean, vertical start-up is not vertical start-up. You have to install, you have to commission and everything has to be more or less right before you start the equipment in a production model. So, when you look at the words ‘vertical start-up’ and you think you deliver the equipment and it has to run straight away, that’s not true. You have to prepare it, and the preparation is what takes the work. So, your organization has to be set up to deal with functional descriptions and to get your percentages right and everything has to work out to reach the unit’s overall efficiency.
Massimo Pietra: I mean, it’s not easy, but we are investing significantly in vertical start-up because that’s clearly a need from our customers. All of work with big customers; they run big lines; the line must start quickly and in the best way. So, it’s not easy, but we are investing a lot of effort to be good from the very beginning as well as to minimize and discover any possible cause of inefficiency to be able to start quicker. This is one of the most important issues we are facing in these last two/three years, actually. And it goes together also with hygiene, sanitation, switching production from one product to another. It’s not easy at all, but that’s the challenge — it’s where we’re going.
CI: So, have you changed the structure of your commissioning team, or…?
Massimo Pietra: Yes. Well, also, internally, resources have been dedicated to this specific aspect, together with customers, to try to be the most effective possible from the very beginning.
CI: And I assume that this adds cost or expense, right?
Massimo Pietra: Yes, but the customer is never happy to accept these additional costs, but he is aware of that, so he accepts that. If the solution works, he’ll accept it.
Francois Adele: Most of us also produce processing equipment. So, with processing equipment, it’s not just one goal to achieve. There’s quality improvement; there’s also processing time improvement. So you can finish very quickly, but that’s not the goal. The customer will live with the equipment and it’s very important for him to have some time for learning, time for improving the equipment, because after that he will have to live with the equipment. At that point, you have the operators who will press the button and deal with the processing time, live with a certain quality. So, if you can improve, of course, this during the commissioning — and the commissioning takes some time to generate improvement, that’s time well spent. It’s never lost and stems from good collaboration.
Ralf Schäffer: Of course, our customers are interested in reducing the time of the installation and start-up, and that’s why the multinationals try to somehow standardize the equipment that so there’s not always a one-off here or there. So, they don’t allow, for example, the local project engineers anymore to decide that the machine should look like this or this and always a one-off; they try to get the experience from different factories and look to standardize the equipment.
Francois Adele: Yes. There are more and more people now asking for SAT — that’s a site acceptance test — to be sure that everything is also done in the right way, everything is fully controlled and we don’t forget anything.
Ralf Schaffer: Also the FAT, the factory acceptance test, to make sure that the equipment meets expectations.
Martin McDermott: I mean, it’s not bad. It allows us to be more structured.
Mads Hedstrøm: Of course, this is more quality control; it’s being better prepared than you have been 20 years ago, but there’s also one thing which is good about a vertical start-up — that’s what they’re calling it now. It’s that they also have to be more prepared when you get in. Because very often in the past, they were not prepared. So, when you have these groups saying, ‘We want a vertical start-up’ then you start saying, ‘Yes, okay, but then you have to da-da-da…’ And they’re pretty good at it, some of them; you have a plan and then you can really go in and install very big lines in very short time. Again, you have to work together and it’s not only us; it’s also the group itself.
Peter Malin: I think if it’s planned it’s fine; it’s just a lot of the time it’s not planned, because the orders are placed late. Then they’re delayed and delayed, but the end date they still want to keep the same. The accountants have put the payback in the plan, so therefore they have to start production as quickly as possible in order to get the payback.
Thomas Bischof: But it also depends on the project, I would say. I mean, there are projects, like I think you, Ralf, mentioned — you know, they are, ‘Give me another line’ and then they said, ‘Okay; the line is on the ship’ — ‘Oh, but can you put it on the other side of the world?’ It happens also sometimes to us, and then you have to come up with those fast start ups. Then you have also, like Mads said, you know, ‘Okay, okay, but when we have turned round the boat, you make sure that you have da-da-da-da’ and then these kinds of things work. But what I would like to add is we see it’s different with the same group depending on the project and where it is. For example, doing a start-up for Hershey in Hershey, Pa. is completely different than doing a start-up in Malaysia. Or for Nestlé in Vevey and doing the start-up for Nestlé in India.
Mike Beckert: We also see the same tendency as — for example, that it’s not only our parts that we are supplying; also the infrastructure has to be there. As Ralf Schäffer said, the multinationals, they try to standardize equipment to get shorter lead times. They also have their factories laid out all the same, for example like Aldi has. So they also have to do their homework to make the vertical start-up happen. And certainly they are investing also more in paperwork than beforehand to prepare their specification, what they want to see on SATs, FATs and so on, which also makes it much easier for the supplier to prepare themselves. Thus, this eliminates the situation of a customer coming to an FAT and then showing up and saying, ‘This and this we want to see.’ As everyone knows, it’s very hard as a supplier to react on short-term notice to such changes.
CI: In spite of incredible turmoil, the Middle East continues to show promise as a growth market for confections. What’s driving this surge and which areas show the most promise?
Markus Rustler: United Arab Emirates, Jordan, Kuwait, Egypt. There’s quite a big consumer group in the Middle East. Say about 300 million people? And quite a young demographic.
CI: Africa continues to crop up as an emerging market with incredible potential. At best, confectionery growth has been spotty and sporadic. Do you agree with this assessment? Which markets are real engines for growth?
Frank Müntzberg: Yes, certain markets in Africa are doing very well. Extremely well, especially in Morocco. And when we discuss Africa, we split it up in four parts: North Africa, East, West and South, where we see a very high potential, actually — almost a boom — in North Africa and quite a good business in South Africa. As for the East and West, perhaps because we are not as strong in those areas, we haven’t maximized the potential there.
Markus Rustler: Nigeria has several large confectionery producers. Nothing new, they have been there for the last 30 years, using European equipment, especially in the sugar confectionery side. Everything that’s hard candy, bubble gum, chewing gum, toffees to some extent — these things are produced there and always have been produced there. And that is the western part: mainly Nigeria, but also Senegal is quite interesting. And then in the eastern part it’s mainly, of course, Kenya — there are some big producers there — Ethiopia is picking up — some new companies starting there — and also in Rwanda, the market there is starting to develop.
CI: I know that there’s been some effort there in order to stimulate the growth of cacao in some central Africa nations. Anyone seeing that?
Peter Malin: Well, Ghana is the main, one, obviously.
CI: Yes, I know, but that’s West Africa. Ghana, Ivory Coast, whatever, but Tanzania…?
Peter Malin: There’s a little bit there, but Nigeria’s developing a lot, as you know, with the new government coming in. The new government has placed the emphasis on agriculture and developing the quality, so they’re going to be looking at supporting cocoa growth in Nigeria.
CI: And how do you deal with the instability factor? One day the government’s there; perhaps the next day there’s conflicts, whatever. Is that just normal business?
Massimo Pietra: Actually, I agree that we are doing very well in North Africa and South Africa — North Africa especially — and one of the reasons might be that they are starting to export to sub-Saharan areas.
Francois Adele: There is also some change in the government. As an example, in Nigeria, they have banned imported goods, so they are now forced to manufacture themselves, so they are forced to buy machines in Nigeria. So that’s a change in the government, which will actually help us there.
Jan Hammink: Well, for us, especially West Africa — and I’m not talking about cocoa; cocoa is important, but West Africa becomes more important for confectionery, for bread spreads, etc. And you talk about Ivory Coast, and you talk about Ghana, Senegal. So, really you feel that the local people have some more money to spend.
CI: With regards to automation and technology, what kind of breakthroughs do you believe are around the corner that would significantly change the industry?
Jan Hammink: I really think that we’re talking here about an industry that is very mature. So, you don’t get breakthroughs and revolutions; you get just small steps. It’s not new like the internet or computers or whatever; it’s traditional and stable.
Thomas Bischof: But IOT — that’s something that maybe will affect us in the future.
CI: IOT means what exactly?
Thomas Bischof: Internet of Things: you know, how machines operate.
Jan Hammink: But they do. We have already distance control of our machines. We have all this kind of stuff, but it goes step by step. That’s not a revolution; that’s just a small thing.
Thomas Bischof: No, it’s for sure not a revolution, but if you see, like, mobile phones and how we operate — how humans and machines operate in the future, I think that’s somehow something that will affect us.
CI: In the past, packaging was viewed as the bottleneck to increased running speeds and improved efficiencies. How far have ongoing improvements and developments changed that perception, and are you seeing a movement towards simpler packaging formats, or is the opposite the case?
Mike Dalby: That’s a pointed question. Well, it’s a variety of things. Let me take a flow pack type operation, for example. I looked at a machine whenever it was — Tuesday — and I come from an age when it was all sprockets and chains and stuff like that, although I did live through the stepping motor scenario. This machine I looked in the back of, which was essentially a multi-packing unit with an ability to change the numbers of packs like that, or the number of individual packs in a multipack, change the layers of the individuals in the multipack, and there wasn’t a chain or a sprocket or a vacuum belt or anything that I recognized from the old stage. And it was a development which, as I said earlier on, we did with some consultants, which was quite enlightening, and I think that possibly that’s the way to go in the future and you’ll see a lot more of what we’ve done.
Markus Rustler: When you say bottleneck, what’s the reference?
CI: Well, traditionally, I would say in the past, processing was operating at speeds faster than packaging could handle, so you could add additional machines or you increase the speeds of the machines, etc. That’s the way it was viewed, I would say 15, 20 years ago. Obviously now things have changed a bit, depending upon the product item.
Markus Rustler: But the physical limitations are still, of course, the same, aren’t they? There are certain speeds where you can run a movement on a mechanical or servo-driven machine which you can’t overcome, and the ways out are either multi-lanes — having multiple lanes on one machine could be one solution. Other solutions — what we do quite successfully is change the principle — we use lots of continuous-motion technology to increase speeds significantly. So, compared to the traditional packaging machines that move the product through folding stations, we rather have a continuous run of the product through the machine, past folding stations, so that we can increase the speed. But in the end there are limits in terms of physics which you simply cannot overcome.
Ralf Schäffer: Also sometimes there are limitations based on the product.
Markus Rustler: Also from the product, because the faster you run the product through a wrapper, of course, the higher the force you apply to the product — at least with existing and known technologies. If it comes as you mentioned, Mike, to having more flexible machines in terms of, for example, changing count in multipacks, this is, of course — it’s possible, especially with flow pack equipment. I don’t know if you recall last interpack we showed a continuous-motion wrapper for pre-formed articles that just fold-wraps to the single piece and then puts it into a flow pack stick. And, of course, if you want to change from three to five or seven count, this can be done very quickly and very easily; it’s not a big issue today anymore.
CI: And what about your perspective on more complex packaging or simpler packaging?
Markus Rustler: Well, the trend we see over the last years is to more simple packaging when it comes to primary wrapping.
Massimo Pietra: More complexity on the secondary packaging.
Markus Rustler: Yes, the complexity comes on the secondary packaging, but then at much lower speeds, of course.
Massimo Pietra: Yes.
Markus Rustler: The primary wrapping usually requires very high speeds, if we are talking about a significant tonnage of products, at least, and then, yes, the more fancy boxes or whatever usually come in the second stage. But the trend which can be seen over the past years is — there’s a good reason for that — is flow packing, especially in developing markets, where almost all products go into flow pack, simply for protection reasons: humidity and not continuous cooling chains, which simply do not exist at the moment. But we also know from our customers they would love to have other options to flow pack, because flow pack is not very attractive as a wrapping style.
CI: That’s true; the twist wrap still has that charm, right?
CI: Okay. Any other thoughts on future developments in packaging?
Ralf Schäffer: We’ve worked with a customer who had a product that was available in different sizes, and production depended on the demand from the warehouse or storage. So, depending on the efficiency or availability of the different packaging machines — they had one packaging machine adjusted to a smaller product and another one for a bigger product. Thus, we were able to run the line with different product sizes as requested by the packaging line.
CI: And on that note, we’ll conclude this roundtable. And thank you all for your participation.