Olam’s refocused six-year strategy: US$1.6bn worth of divestments including sugar, reinvesting in nuts, cocoa and coffee

25 Jan 2019 --- Olam International is set to invest US$3.5 billion to enhance its leadership position and capture value from key emerging consumer trends while de-prioritizing selected businesses – sugar, rubber, wood products and fertilizer businesses – to release US$1.6 billion of cash for reinvestment. The divestments include “assets lying outside the strategic priorities” of Olam’s 2019-2024 strategic plan.

The company, a major player in markets for a number of agricultural commodities, plans to invest US$3.5 billion over the period in 12 prioritized businesses, including edible nuts, cocoa, coffee and cotton.  

Olam says that the move comes with the background of a shift in consumer preferences for food and ingredients. These are rapidly evolving with greater emphasis on health and nutritional value, clean labeling, authenticity, supply chain visibility, transparency and sustainability.These key trends are shaping the sector and driving Olam International to “refresh” its approach, honing its business towards this changing consumer landscape. The agri-business giant is rethinking towards “purpose brands” including investments in edible nuts, cocoa and coffee as part of a six-year strategy that will also see US$1.6 billion worth of divestments. 

Olam’s 2019-2024 strategic plan capitalizes on key trends shaping the sector and will focus on high-growth potential. Driven by consumers and advances in technology, these trends also include increasing demand for healthier foods, traceable and sustainable sourcing, e-commerce and the rise of “purpose” brands.

“With our focus on farm-gate origination, end-to-end traceability, sustainability, digital initiatives and innovations like AtSource, Olam is already primed to start capturing growth from this fast-changing landscape,” says Co-Founder and Group CEO, Sunny Verghese.

“Now, following a comprehensive review, our strategy is fully focused on harnessing these health and ethical sourcing trends, as well as changing consumer preferences. Crucially, our strategy will allow us to play a leading role in re-imagining global food and agri-supply chains for the better – sourcing raw materials within the earth’s capacity to regenerate and transforming those materials to deliver food, feed and fiber for a growing population.”

Olam’s growth strategy also plans to: 

• Drive margin improvement by enhancing cost and capital efficiency.
• Generate additional revenue streams by offering differentiated products/services such as AtSource, risk management solutions, value-added services, ingredients and product innovation; and from both existing and new channels such as co-manufacturing, the food service sector and e-commerce for small- and medium-sized customers.
• Explore partnerships and investments in new engines for growth by assessing opportunities to deliver to the consumers and farmers of tomorrow.

“This is a pivotal moment for Olam to refocus on our strengths and capitalize on new opportunities. By executing on our refreshed strategic plan, we aim to be a global food and agri-business supporting our customers’ growing need for sustainable and transparent supply chains with a clear focus on tomorrow’s consumer preferences,” says Executive Director and Group COO, A. Shekhar.

Chairman of the Board, Lim Ah Doo, adds how the plan is fully endorsed by the Board because it sets a “strong foundation for future growth.” The company is also in the process of appointing financial advisors to explore various options to maximize value for shareholders, he says. This is expected to be completed by Q4 2019.

Olam’s re-focused strategy comes two months after the company signed an agreement with Canvass Analytics Inc. to utilize Artificial Intelligence (AI) as part of the company’s strategy to find innovative and sustainable solutions to meet the growing demand for food, feed, fiber and fuel. 

Canvass Analytics offers an AI-enabled predictive analytics platform for the industrial Internet of Things (IoT). The insights offered by data and analytics provide opportunities to transform the way Olam operates and finds new ways to address challenges across the agricultural value chains.

Olam’s “refresh” comes at a time when a number of companies are facing the challenge of shifting consumer preferences and re-thinking their approach to the future of their food and beverage businesses and brands. 

At the beginning of 2018, Swiss food giant Nestlé said it was offloading its US confectionery business to the Ferrero Group in an estimated US$2.8 billion that allows Nestlé to concentrate on a range of growth categories including bottled water, coffee, frozen meals and infant nutrition.