Groupe Doux facing 2015 with renewed confidence
France’s Groupe Doux has exited administration and has embarked on an investment plan that should give it a more stable future and see it start to increase its share of export markets.
Arnaud Marion, chairman of the board of French company Groupe Doux, is known in France for his talent in turning around businesses in difficulty. He joined Groupe Doux in late 2013 to help restore the fortunes of one of France’s largest poultry producers. The company was in administration and facing the loss of EUR60 million (US$70.7 million) in export subsidies annually.
Since then, a year has passed and Bernard Cazaban asked him what’s changed.
CAZABAN : Your company has recently gone through a turbulent period. Are the group’s activities now on a firm path for the future?
MARION : The “recently” is now quite old as it was in 2012 that the company went through its difficulties. Since then, we have continued to grow and make improvements in the business to reach the profitable position that we find ourselves in today.
We now have 2,200 employees, our full production is sold and we have no stock. In 2012, we were in administration, but today we are no longer facing legal proceedings. Furthermore, growth in our business is both paced and profitable.
CAZABAN: Nevertheless, even a few months ago, the bankruptcy of Groupe Doux seemed inevitable. Which factors in particular have allowed you to turn the business around?
MARION: We’ve been working hard, and our employees have being doing a remarkable job, committing to a changing economic model.
We had to adapt in the middle of administration to a new arrangement -- the removal of European export refunds.
I fought for the survival of the company and its redirection, which I never doubted, and today I am pleased to see that I was right in my strategy choices. We implemented a plan to make the company more competitive, and have followed a strategy that has helped to offset the loss of refunds.
CAZABAN: Which steps did you follow last year to restore competitiveness to the company?
MARION: Our new deal started in 2012. It was built through our 40 corporate executives identifying 70 key areas for improvement, to increase competitiveness, but prior to that we had already developed a strategy for profitable export, both for products manufactured in France and abroad.
We were looking to save millions. We reduced the number of sites, either through closure or disposal, even saving a cent per kilogram improved our competitiveness upstream, we kept only profitable product lines, and further invested in automation. A cent per kilo on annual production of 200,000 tons results in an annual saving of EUR200,000.
The staff at the headquarters was also reduced, with the ending of operations in Brazil and the closure of fresh poultry production. So, we’ve adjusted the number of production sites, and become more competitive internally and externally. Not one of our customers has left us, and we’ve even managed to win new customers.
CAZABAN: Subsidies for exports, particularly to the Arabian Peninsula, were abruptly halted in July 2013, despite them being expected to last into 2014. Is this the main reason that Groupe Doux went through such a period of uncertainty?
MARION: Groupe Doux was already about to go bankrupt prior to the removal of the European aid package, which occurred while the company was in administration so complicating recovery.
The losses related to the fresh poultry meat industrial sector – liquidated in July 2012 – and which had weakened the group for 10 years. This was focused on the French market where Doux was a big player, but still smaller than its competitors.
This sector, which employed, 1,700 people across various sites, lost EUR30 million per year. We managed to save 700 jobs, but several sites were sold and 1,000 people were fired.
The removal of subsidies, far from condemning us, showed us that becoming more competitive was possible, and it has been the trigger for revolution that helped us change our economic model.
You know, we have closed the competitiveness gap with Brazil, however, exchange rate changes have increased the financial differential between their production and ours. Brazil has devalued its currency by about 30 percent over the last two years, allowing the currency to offset rising inflation, particularly wage inflation, while we are operating in a market where prices are stable.
The recovery of the dollar against the euro brought us a breath of fresh air, and structurally, our economy is doing better and is more stable than the Brazilian economy, even though our competitors are strong.
CAZABAN: Have you been able to draw up a long-term plan to protect the company?
MARION: We are poultry producers, processors and traders. We are profitable in our first two activities, but subject to exchange rate fluctuations and market prices in the third.
We currently have nine sites – three slaughterhouses, two manufactured product sites, two hatcheries and two feed mills. We have the country’s largest hatchery and we integrate the entire production chain.
Our current plan is based on high volume production with steadily rising, but profitable growth. We have established a plan to invest EUR110 million over 10 years, and we are currently investing EUR1 million per month -- that’s EUR23 million over the next two years!
Competitiveness cannot simply be demanded, however, it has to be created and plans implemented, and investment is a strong tool. Our Chateaulin slaughterhouse is now, without doubt, the most competitive industrial scale frozen whole poultry producer in the world.
Doux, from a structural point of view, is close to its Brazilian competitors in terms of competitiveness given the high automation of its sites. However, it is true that the game of the currencies disturbs this and gives a clear advantage to Brazilian producers.
CAZABAN: The group produces about 15,000 tons of chicken each month, and its capacity could reach 17,500-18,000 tons. Are you planning to increase output in the coming months?
MARION: Our production method allows better control of prices, and it is true that demand is greater than supply. Our 10-year plan sees an increase in production of about 40 percent, but it will be less than the market, and our part in the world of exports will be stable. The global market is growing, and we plan to develop in new territories. Don’t forget also that France has decreased its production over the last two years, with other producers closing down. Our goal is to build a sustainable model with a strong brand which can be synonymous with quality.
CAZABAN: How strong is competition in your markets?
Competition in international markets is strong, and has become even more so following devaluation of the Brazilian currency, but there is room for everyone.
Yet, it’s obvious that there are fewer and fewer profitable players, following successive takeovers. This concentration is a sign that the players must have a critical size to act in these markets, as customers demand a lot, both in terms of quality and volume.
Approximately 85 percent of chicken exports are now made by only three major players: the two Brazilian concerns JBS and BRF, and Doux, the smallest of the three, and which now accounts for 95 percent of European exports.
CAZABAN: How are you now dealing with the export market?
The stability and strength of our model explain how we have survived, but economic variables, such as exchange fluctuations and the price of raw materials can still disrupt the business. We have to make the right moves. Our premium brand Doux can as well rely on the strong loyalty of our consumers in more than 70 countries.
CAZABAN: With all the changes taking place in the company, is there a danger of further redundancies, or are employees’ positions secure?
MARION : You know, over the last two years, we’ve recruited 500 employees on temporary contracts
and we are now a team of 2,200 without even a single hour of temporary layoffs, despite going into administration. No redundancies are planned – only recruitment.
CAZABAN : You appear to be confident about the future, but some remain skeptical about Groupe Doux’s ability to compete.
MARION : For two years, there were many skeptics. There were also many who predicted our demise, even at the highest level, but they were all wrong. I believe that those who talked so critically about us were the most inept. What I can also tell you is that our foreign competitors respect us a lot, as do our clients. And we respect them, since we could work together to make the market more and more about quality.
CAZABAN : Last September, at SPACE, you expected clear political support from the French authorities. Did you get it, and you happy with the situation?
MARION : At SPACE, Minister Stephane Le Foll supported my and Didier Calmels’ work at Groupe Doux – he wanted to respond to the skeptical people that you’ve mentioned.
But to address your specific question, my work at Groupe Doux has not cost the taxpayer a single euro, and we pay our taxes and social security contributions scrupulously. Stephane Le Foll supports us because he has seen the seriousness of my approach, and the results are there to support it.