Gloves off in fight for share of sports nutrition market
Simon Rowe looks at Irish dairy giant Glanbia, whicj bought the milk supply business of Fivemiletown Creamery last year
Don't let the mumsy image of its Avonmore branded milk and Kilmeaden cheeses fool you. Kilkenny-based dairy giant Glanbia is a corporate heavyweight slugging it out in the global sports nutrition market - and the gloves are off.
The Glanbia story is a triumph of brains and brawn.
In just over a decade, this former co-operative with deep roots in the Irish dairy industry has transformed itself into a behemoth of the bodybuilding and sports nutrition sector. Today many of its products are the number one choice of muscle-heads, elite athletes and professional cage fighters in a market set to be worth a whopping €20bn (£14.4m) by 2020.
Indeed, it's a sign of how far the Irish dairy giant has come since it was formed out of the merger of Avonmore Foods and Waterford Foods in 1997 that when Glanbia's full-year results were published in February, investors paid scant attention to its much-trumpeted new Protein Milk - and instead focused on its plans to flex its muscles in the high margin, high growth sports nutrition sector.
Glanbia, one of the world's largest producers of cheese, has built a €750m (£540.7m) global empire on the by-product of cheese - whey.
Dubbed the new 'super protein', whey is protein-packed yet fat free - a perfect combination to help build muscle, fitness and endurance. Glanbia is now the world's largest producer of whey protein isolate - the fuel of champions.
Annual growth rates exceed 10% and Glanbia is the largest global player, enjoying a 13% share of a fragmented market.
Former managing director John Moloney's decision to steer the firm into the sports nutrition market was an inspired one.
Moloney, who joined Waterford Co-op in 1987, transformed Glanbia from being an organisation with just 20% of its operations based outside of Ireland when he became MD in 2001 to over 70% in 2013 when he stepped down.
"Milk is a commodity that is subject to price volatility. Moreover, low-fat milk or milk with added vitamins is easily imitated by competitors and therefore offers only a limited and very short-lived competitive advantage," said Goodbody analyst Liam Igoe. "That's where Glanbia's insistence on research and innovation in sports nutrition has paid off."
In 2001, Glanbia spent just under £4.3m (€6m) on R&D -representing 0.3% of turnover. Today, Glanbia spends well in excess of £43.2m (€60m), or 2.6% of turnover.
While Glanbia's Irish dairy division has amassed an average operating profit margin of just 3.7% over the past decade, margins in its global nutrition and ingredients units exceed 10% and now generate almost three-quarters of total revenue.
Revenues in its Global Performance Nutrition sector were up by almost 14% in 2014 to £538m (€746m). In contrast, its Dairy Ireland arm saw revenues dip by 5.4% to £444m (€616m).
Glanbia's Performance Nutrition division is the company's new cash cow. Certainly the removal of EU milk quotas heralds a new era but whey is now the driving force of its business.
But the sports nutrition market is crowded. There are three main sectors: drinks, foods and supplements - with sports drinks such as Powerade, Gatorade and Lucozade enjoying the largest market share.
However, protein-based sports nutrition products such as bars, powders and ready-to-drink beverages are set to power ahead over the next five years as consumers look for convenient options for their protein intake.
In a bid to outmuscle its rivals, Glanbia has been on an acquisition spree. To date, the strategy has been simple: buy up the market leaders in each sector and target underdeveloped territories.
In the past six years Glanbia has spent almost £339m (€470m) acquiring four top-selling sports nutrition brands: Optimum Nutrition was bought for £153m (€213m); BSN (Bio-Engineered Supplements and Nutrition) was snapped up for £78m (€108m); Scandinavian market leader Nutrimino was bought for £18m (€25m); and US protein-supplement company The Isopure Company was acquired in a £86.5m (€120m) buyout last year.
Each one of these acquisitions signals Glanbia's intent to dominate every sector of the global sports nutrition market.
Their addition to Glanbia's balance sheet has a threefold benefit. They extend its brand portfolio to include protein, pre-workout, muscle gainers and builders, and general health products. They move the firm further into the mainstream endurance and fitness market. And they help move the business from one end of the value chain to the other.
Needless to say, milk and cheese are, to mix metaphors, still Glanbia's bread and butter. It processes approximately 6bn litres of milk annually in Ireland and the USA; it is Europe's largest manufacturer of mozzarella cheese, mainly for the pizza industry; it is the sole provider of the cream used in Bailey's liqueurs; and also boasts a range of yogurts and fresh soups in Ireland.
But as Glanbia limbers up for its next assault on the global sports nutrition market, an unlikely triumvirate of sporting heroes that includes Irish UFC star Conor McGregor, Arnold Schwarzenegger and Tiger Woods may stand in its way. These three muscle-bound stars each have links to a sports nutrition product that is giving Glanbia a run for its money.
MusclePharm sponsored Conor McGregor's UFC fight in Boston earlier this year. Its logo is prominently displayed on Tiger Woods' golf bag last weekend at The Masters in Augusta. And Arnie owns an 8% stake in the firm.
MusclePharm's net sales rocketed by over 100% in 2014, according to its half-year figures, jumping from £32.9m ($48m) to £66.4m ($97m), with its products selling in 120 countries as well as online. In a clever marketing move, MusclePharm has become the exclusive sponsor of the Ultimate Fighting Championship series, one of the fastest growing sports in the world.
Partnering with UFC - ranked by Forbes as the 10th most valuable sports brand in the world with a value estimated at £1.129bn ($1.65bn) - is a masterstroke. The once controversial sport is going mainstream and transitioning into a global brand.
Corporate giants are now queuing up to partner with UFC. Sportswear giant Reebok has just signed a deal worth £47m (€65m) over six years. This follows a seven-year broadcasting deal with Fox Sports worth £470m (€650m), which has elevated mixed martial arts (MMA) into the top tier of American sports, watched alongside the NFL, baseball and basketball.
Will the MMA and UFC market be the next battleground for Glanbia? Given the dairy giant's nimble corporate strategy to date, it's certainly in with a fighting chance.