Ingredion CEO on M&A: “I want us to be bolder and bigger in our thinking”

New Ingredion CEO, Jim Zallie is targeting strong growth for his company in specialty ingredients, which will be partly achieved through further acquisitions. M&A activity will almost certainly follow in the form of bolt-ons, but even something more transformational such as a major merger would be considered. “The exciting part about our company is that we have a strong balance sheet,” he says in a detailed exclusive interview with FoodIngredientsFirst. “The opportunity for bolt-on acquisitions would be a sweet spot for us, but equally, if an opportunity to be transformational that was more sizeable opened up, we are willing and interested in doing that as well. We are not narrowly focused, nor afraid of a tremendous opportunity to grow and build our portfolio.”

Zallie, who took up the role to succeed Ilene Gordon on January 1, 2018, is very ambitious for Ingredion’s room for growth. “One of the things I want to bring to the company is being bolder and bigger in our thinking, as the industry is changing,” he notes. There is a strong basis for the company with a highly diverse portfolio. “We serve more than 18,000 customers in 120 countries and have a wide-ranging portfolio of more than 1,000 ingredients. We are very proud of our relationship that offers global reach but local touch,” says Zallie. Innovation is undoubtedly a strong pillar for future growth too, with the US$5.83 billion (2017) company reinvesting approximately 3 percent of total specialty sales back into R&D. 

The evolution at Ingredion is profound, as it moves towards offering a highly comprehensive portfolio of specialty ingredients. The US-headquartered supplier was formed back in 2010 when the two major players of Corn Products International and National Starch merged. Since then it has become a significant ingredient player that functions as one of the major consolidators in the industry, with acquisitions including the purchase of starch supplier Penford in 2014 and Thailand’s Sun Flour in 2016. Ingredion used the recent IFT Food Expo in Chicago to highlight how concentrates and essences producer Kerr Concentrates (acquired in 2015) and hydrocolloids supplier TIC Gums (acquired at the end of 2016), added scope and portfolio synergies. The Ingredion, TIC and Kerr brands were showcased together on a single booth for the first time this year.

But there appears to be no holdup in the future expansion plans, with funds available should opportunity knock. “We are always actively pursuing activities to deploy cash and we have a very active agenda as it relates to all these prospecting opportunities, to bring companies into our business,” says Zallie, who believes the targets speak for themselves. “We want to grow our specialties business which was about 5 percent in 2009, of the portfolio and has grown to 28 percent of our overall revenue in 2018. We want to take this to 32-35 percent by 2022, a target of US$2 billion in sales. So the M&A that we will do will focus on enhancing our specialties presence. This is consistent with our long-term plan for growth,” he notes. 

Growth opportunities certainly exist within the clean and simple formulation space, but Zallie notes several potential other platforms too. “For us, it is all about enhancing the value propositions that we deliver on. Clean, simple & wholesome is one, texture is another, while health & nutrition is another also. Those are all consistent themes for us when it comes to expanding our ingredient portfolio,” he explains. 

For Zallie, concerns about an over consolidating ingredients sector are premature, with the industry still highly fragmented. “In my view, I see a tremendous amount of fragmentation in the industry. You have so many different innovative, smaller, medium-sized or niche ingredient suppliers. You have to look at it on a global basis too. Specialty ingredients do find themselves around the world and are not really local or limited,” he says.

He is therefore not too concerned about the industry consolidating too far, at least at this stage. “Consolidation is happening in every industry – it is happening in the food CPG world and will happen in the food ingredients space too. But I still see it as very fragmented and much room for innovation with small and medium-sized companies,” Zallie states.

Growth for Ingredion can come at a regional level too. A strong global reach and footprint exists at Ingredion, but the lion’s share of company turnover and customers still come from North America. “If you take North America for Ingredion, 61 percent of our sales are in North America and 39 percent of our customers are based there, yet it only represents 7 percent of the world’s population. In contrast, Asia Pacific represents 12 percent of sales, 25 percent of customers but 57 percent of the world’s population.” 

He points out that today Ingredion has sales of over US$1 million in 65 countries around the world that represent 80 percent of the world’s population. “We feel excited that we can leverage the global operating model with headroom for growth where we are underrepresented from a sales to population ratio. We are focused on getting more balance in our portfolio, but we are represented strongly in every region. 17 percent in sales in South America for example and 12 percent in Asia Pacific. We are known to be international,” Zallie explains.

Many opportunities for international growth exist. “We would like to diversify and grow in EMEA and Asia Pacific. But this doesn’t preclude us from seeking out good assets to enhance our portfolio, but also provide us with new technologies and good talent from around the world. From a sales representation standpoint, those three regions outside of North America will be a focus for us for more balance,” he says. 

With 35 years of experience within the food and ingredient business, Zallie joined Ingredion in 2010 when the company acquired National Starch LLC, where he served as President and CEO. Since then he has held the key Ingredion roles of Executive Vice President Global Specialties and President, Americas and been responsible for Ingredion's operations in the Asia Pacific and Europe, Middle East and Africa regions, along with corporate-wide responsibility for global innovation and operational excellence. 

His initial moves within the Ingredion CEO role have included structural simplification. “One of the things that I did as a first decision, was to bring an intense focus on commercial excellence,” he continues. “So I actually merged the capabilities that existed from the standpoint of our global key account program, our corporate marketing, sustainability and customer experience initiative. So we have combined all that to basically make sure that we are bringing the most value to all of our customers. It is about being extremely customer intelligent and easy to do business with. Our organization is incredibly energized right now around doing more for customers, in a very innovative and efficient way,” he adds.

For Zallie, the changing marketplace means a growing role for ingredients suppliers on the development side. “We are a B2B company and an enabler of innovation. We deliver winning products to our customers, whether on culinary, sensory, food science or technology platforms or consumer research with rapid prototyping and then sensory,” he notes. “This is required by CPG companies who have downsized R&D departments due to other pressures. In addition, smaller and medium-sized companies who don’t have access to R&D,” he adds. 

Opportunities exist for suppliers who are customer intimate, in tune with trends that are influencing customers and helping them to validate and formulate the systems and solutions that can get them from concept to the marketplace faster. “We consider ourselves to be an innovation accelerator, from idea to shelf. If you can be a proven innovation accelerator, selling a host of capabilities, such as eliminating steps in processing – assisting them that much further. That’s how you stand out today – customers, consumers and local tastes,” Zallie reveals.

But it is not all about growth, with cost savings today claimed to function as enablers for the future. Earlier this month, Ingredion announced plans to accelerate its “Cost Smart” program, designed to improve profitability and deliver increased value to shareholders. The company introduced this cost savings initiative, in its First Quarter 2018 Earnings Call on May 3, to further streamline its global business. The company is setting forth targets to include an anticipated US$75 million cost of sales savings, including global network optimization and US$50 million in anticipated SG&A savings by year-end 2021. The company expects restructuring costs to be incurred earlier in the program and expects savings to be realized beginning in 2018 and building momentum toward the targets through 2021.

“All players within our industry, whether CPG companies, who are our customers, or the small and medium-sized companies, and ingredient suppliers are facing inflationary headwinds,” says Zallie. “Everybody realizes that the benign environment that we have lived in for the last decade is beginning a reversal, with interest rates increasing around the world, the unwinding of stimulus and inflation as it relates to energy in terms of packaging and freight. You must have cost as a strategic priority, or you are going to be left behind and not going to be fit. We want to be very smart about where we are efficient because we want our people to focus more strategically and less tactically. We see it as an enabler for growth as well as creating shareholder value.” 

“Looking at it from the standpoint of investments that we can make wisely in systems, processes, technology, automation that can actually drive and deliver savings. We are very excited about what those opportunities afford to us because they will be able to redeploy them for growth, but also deliver profitability,” Zallie concludes. 

The full interview with Jim Zallie will appear in the September issue of The World of Food Ingredients. 

You can listen to a podcast of the interview here. 

By Robin Wyers