Since spring 2022, Danish Crown has been severely challenged in terms of its competitive strength. Settlement prices for pigs in Denmark are currently far below those of the rest of Europe. Even though current prices for pigs are close to a record-high, Danish Crown’s settlement prices are far below the European average and prices in Germany.
Consequently, it has not been sufficiently attractive for Danish farmers to fatten pigs for slaughter in Denmark, so over the course of the summer period management has dedicated its efforts to drawing up a plan to simplify and rethink Danish Crown’s core business. The plan is now ready for execution. We need to streamline our business to improve earnings by at least DKK 1.5 billion within two years – and preferably sooner. Also, we need to segment our sales efforts and to a greater extent focus on customers who either prioritise Danish pork and Danish Crown products or who seek a business partner pursuing dedicated sustainability initiatives.
“I would like to praise our owners for supporting the Danish value chain from farm to fork. That facilitates a much tighter production management process, enabling us to carry out an essential simplification and renewal of our business model. Despite the past year of headwinds, we have in fact managed to retain our market shares for products to retailers and the foodservice market. We now need to win volume business in order to shift our entire business over time,” says Jais Valeur, Group CEO.
Danish Crown’s cooperative owners are currently being presented with the plan aimed at transforming Danish Crown from an abattoir based on economies of scale into a modern food company. The main features of the plan are:
- Administrative and support functions must be streamlined to reduce annual costs by at least DKK 250 million.
- Improved exploitation of capacity at abattoirs and factories and a more efficient and technologically advanced setup is to reduce production costs by at least DKK 500 million.
- Sales initiatives must be focused on core customers in retail, foodservice and industry in order to build partnerships with customers demanding data-driven traceability and sustainability, thereby lifting earnings by DKK 500 million.
- Profitability in the German slaughter activities and at our processing plant in China as well as completion of our investment in the new bacon factory in the UK are to contribute DKK 250 million.
- An additional savings potential has been identified in procurement as well as an opportunity for enhanced earnings in the Group’s subsidiaries, which could potentially contribute up to DKK 500 million.
The efficiency improvement plan is announced at a time when most areas of the Danish Crown Group have in fact developed favourably over a number of years, but we are facing challenges in our core business, which is placed in BU Danish Crown and handles the slaughtering of pigs in Denmark and Germany and processing of primarily pork.
The pressure on this part of our business is driven mainly by an unusually prolonged and sharp decline in exports to key markets like China, Japan, the USA, Australia and South Korea. Previously, Danish Crown has always been able to find alternative sales channels outside Europe during periods of declining sales in one or more of the attractive export markets. However, when prices of frozen pork in the global markets are much lower than prices of fresh pork in Europe, Danish Crown is unable to remain competitive because the high level of Danish wages makes the costs of slaughtering, cutting and deboning pigs more than DKK 1 per kilo higher in Denmark than in countries like Germany, Poland and Spain.
We therefore need to sell more in an already competitive European market characterised by strong preferences for local products. The solution is to redefine the business model and dedicate all resources to producing and selling products that will attract a sufficiently high price to offset the higher production costs in Denmark. Otherwise, we risk being second choice to lower-priced local products because of our higher production costs.
“We cannot solve our challenges through savings and efficiency improvements alone because this is also a matter of having the right business model, but we owe it to our cooperative owners to cut to the bone in the present situation. Initially, this should help close the gap to the other European countries. Meanwhile, it remains a fact that efficiency and optimum utilisation of production facilities will pave the way for profitability in the food industry. This is not new to us, but since we aggregated our pig abattoirs and processing activities in one business unit two years ago, we have not been efficient enough, so that is what we are addressing now,” says Jais Valeur.
As a consequence of the efficiency improvement plan, a number of wide-reaching changes to the management and organisation of BU Danish Crown will be effected immediately.
“We have a number of talents who already know our business in detail. With the help of a range of highly experienced colleagues, they will now been given more responsibility, and I’m confident that this team will become known in Danish Crown as the team who transformed Danish Crown from an abattoir into a value-creating modern food business for customers and consumers alike,” says Jais Valeur.