KEY INTERVIEW: La Morella Nuts – Differentiation Through Premium and Fresh Specialization
31 Aug 2015 --- Swiss headquartered Barry Callebaut is the world’s leading manufacturer of chocolate and cocoa products (B2B), with a sales volume of 1.7 million tons and sales revenue of CHF5.9bn (US$6.5bn). In fact, 1 in 5 chocolate and cocoa products, includes Barry Callebaut. But a recent shift at the company has seen it increasingly look to grow its business in adjacent products that match with chocolate.
One part of this strategy has been to grow its nuts product business. The 2012 acquisition of Spain’s La Morella Nuts made it the leader in nut-based ingredients in Europe. This move was followed by the June 2015 acquisition of American Almond, to give gourmet and food manufacturer customers access to a significantly broadened specialties products portfolio. American Almond manufactures about 2,000 MT of nut specialties a year and generated sales revenue of approximately US$15.9 million in 2014.
La Morella Nuts is significantly larger in volume, however, producing around 10,000 MT of fine nut products a year for customers across the globe at two Spanish factories (Reus & Castellvell). This breaks down into 5,000 MT hazelnut-based products, 3,000 MT of almond-based products and 1,000 MT other nuts products (macadamias, pecans, pistachios and walnuts). 80% of the company’s hazelnuts are sourced from Spain itself. For almonds, this figure is lower at 70%, as certain sizes are only possible to obtain from California [27/30].
In terms of the global market for hazelnuts, Spain is a very small player, only accounting for 2% of volume. It is dwarfed by the world’s biggest supplier of Turkey, which accounts for 74% of hazelnuts, and Italy (12%). This means that international hazelnut market forces have a major impact on what is happening for all players. Prices of hazelnuts reached the dizzying heights of US$17,000 per metric ton in May 2015, as depleted stocks followed a poor 2014 harvest in Turkey, due a devastating strong frost. Costs have since dropped to $9,000 a ton, with much better expectations for the 2015 harvest, however.
Spain’s position in the global almond market is also quite small, at just 5%. Here the whole market is dominated by the Californian almond industry, which accounts for 80% of almonds, with Australia (also at 5%), the only other significant source of global almond supply. So the 2015 Californian drought will have a destocking effect too, that cannot be made up through other regions. Prices of the Californian 27/30 almonds have topped the $10,000 per month levels in July 2015, with standard and Valencia variants also up dramatically in recent months.
So despite being the largest nut company in Europe, La Morella can never challenge US and Turkish suppliers in terms of scale. The company therefore aims to stand out on a platform of premium quality, through a naturalness guarantee. “What we want is to be the no. 1 in specialty products, not a commodity supplier,” says Nathalie Garrigue, General Manager la Morella Nuts. “We are always trying to look for the best tasting product for our customer. You can always make more volume. We can have more volume on raw products, but we are not interested in things like raw almond paste. This is a choice. We really want to specialize our business in specialties.”
The company markets a freshness and premium platform, by ensuring that nuts are grown, cracked, roasted and processed at a very local level. Farmers bring their harvest to local collection centers and nut crackers, with storage for a maximum of 1 season in perfect conditions. Ultimate freshness is guaranteed by swift processing, with no stock kept at La Morella’s own facility. For every customer order, nuts are deshelled just before shipment and are processed, packed and sealed immediately. All finalized products leave the Reus facility within 24 hours.
For Garrigue, a specialized expansion strategy will continue. “In terms of supply, we will go outside if we don’t have the production here on-site, because our aim is fresh products. You only can achieve that when you do so in the place where you have your producers and farmers. In terms of acquisitions, we recently acquired one nuts company in the US, but they are really specialty products and we don’t want to acquire a big commodity player tomorrow either. If we do something it is for our customer.”
So what does this business bring to the Barry Callebaut portfolio and where are the opportunities? “We have a big knowledge of the different segments of the market, where we have been working for many years, such as chocolate, and they are the same customers. Then we are trying to fit more into the expectations of our customer and adapt some products and enlarge our range,” Garrigue explains.
This can include adapting the roasting and caramelization of different products, depending on the customer application. “Now we can really speak with our customers about application, because at the end, we are proposing everything from chocolate inclusion to nuts. We can give customers all the portfolio that they can use at the end on confectionery and cereal.”
In terms of innovation, the company is permanently looking to take the industry forward. Some 5 years ago, La Morella developed an invisible and edible oxygen barrier coating to increase shelf-life, based on a blend of a hydrocolloid (E464: Hydroxypropylmethylcellulose) and a natural tocopherol that does not change organoleptic properties, and is thermally resistant and a good barrier against oxygen. The solution is suitable for all products where nuts are in contact with air (i.e. sensitive to oxidation) and is now being applied to diverse applications in bakery, confectionery and cereals.
Another breakthrough in formulation is promised in the next 12 months, although Garrigue is remaining coy on specifics. “We are working every day to develop the use of our nuts in different segments. What we want is to develop unique products with a unique process for all the nuts that we supply. We think that in 6-12 months, we will be able to propose a unique product to the market.” The benefits will relate partly to shelf-life extension, but the solution will also provide textural benefits.
Moving forward in terms of addressing consumer trends, Garrigue is optimistic in a market where global demand for these types of nuts continues to rise by +10% each year. “Nuts are fun because they are healthy, suitable for all types of food, trendy and something that consumers put more of into their daily food,” she says.
“We continue with our classic hazelnut and almond. Since 1 year, we are developing a product based on macadamia and pecan nuts,” she notes. “Macadamia and pecan saw more demand from the Asian market and now we can see it coming here. So we are developing more around this for the confectionery and ice cream markets and we see more nuts.”
Fluctuations in pricing, whether low or high, are an issue of concern, especially when looking at the situation in Spain. In the short term, companies may benefit from paying lower prices for nuts. But if the prices become unsustainable for farmers, and it is no longer worth their while to grow hazelnuts or almonds, it will of course provide a much more serious long-term problem - especially for la Morella nuts as they source the majority of their nuts in Spain. According to Nathalie Garrigue, for Spanish nut farmers a US$8-12,000 band is fair and she would be in favor of some regularization. “I think that there is a need to regularize the price, because otherwise one crop will be good for farmers and another not; this is not sustainable to continue as a business and to maintain a correct price level,” she notes.
But the pricing fluctuations issue is unlikely to have any real impact at the consumer level, as nuts are a specialty, or as she calls them: a “plus” product. “Nuts are not really a big part of a finished product, representing just 1-5% of it. The impact in the finished price to the consumer is therefore minimal. Industry may speak in terms of tons, but for a consumer it is a matter of a few grams; we are a plus product to add a final touch, not the core,” Garrigue concludes.
La Morella Nuts will look to further innovation to ensure that that final finishing touch of a nut specialty can add just the right sensory experience to ensure repeat consumption.
By Robin Wyers
Philippe Janvier, VP of Specialties & Decorations at Barry Callebaut discusses the rationale behind the acquisition of La Morella Nuts in a video interview here!
