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Erwin Burton (right), newly named chief operating officer of GraceKennedy's GK Foods division, is seen here with his boss, Douglas Orane, GK chairman.

Ashford W. Meikle, Business Reporter

GraceKennedy Limited, three weeks away from effecting announced changes to its structures, has put its Canada-based research unit to work on developing new products for Jamaica and North American markets.

The company is spending US$1 million ($66 million) on research and development, a relatively small sum, but newly appointed chief operating officer of GraceKennedy's Food Division, Erwin Burton, told Sunday Business the sum did not include marketing expenses.

"Research and development is a critical part of our strategy and we have employed overseas resources to determine what it is that consumers are in need of," said Burton.

"It's a very expensive exercise, but once we decide on that, our new product development unit takes it from there."

More cost-efficient operation

GraceKennedy is in the process of transforming itself into a leaner, more cost-efficient operation, cutting 89 jobs in the process through redundancies and retirements. From four divisions, the conglomerate will, as of December 1, have two: food and investments, the latter to be headed by Don Wehby.

Burton argues that with a leaner organisation, GraceKennedy will be in a better position to expand in both divisions, and has claimed his portfolio as the core of the new operation.

"GK Foods is now going to form the core business of GraceKennedy going forward, and that is really where our major investments will be concentrated, although it does not necessarily mean that we will not focus on GK Investments," said the COO, " ... we are aggressively going after growth in the food business both locally and domestically." GraceKennedy does business in some 36 countries in the United Kingdom, North America, the Caribbean, Africa, Europe and Japan, exporting most of its sauces to the latter.

While he declined to go into details, Burton said GraceKennedy was in serious negotiations to make an acquisition overseas.

"The likelihood of doing a deal is relatively good, but you know, you are never ever certain until you sign the sales cheque."

Growing revenues

Growing revenues will be particularly important for Grace which has seen its various divisions struggle in the increasingly competitive retail market with tightening profit margins and the general lacklustre growth of the Jamaican economy.

In fact, for its financial year to 31st December 2005, the company posted flat results in nominal terms. In real terms, its turnover was five points below inflation.

Last year, inflation was 12.9 per cent, while GraceKennedy's revenues rose 7.5 per cent, from $30.7 billion in 2004 to just over $33 billion. And its net profit fell by almost seven per cent, from $2.2 billion in 2004 to $2.1 billion.

In fact, investors were particularly harsh to the Grace stock in 2005 as the price depreciated by 26 per cent last year, plunging from $117.95 on the first trading day to $87.45 at the close of trading on December 30.

The stock traded at $57 on Wednesday.

"One of the objectives we have set ourselves is that eventually at least 50 per cent of our profits will be generated outside of Jamaica. Right now we are looking at growing our profits outside of Jamaica at 20 per cent per year," said Burton.

He noted that the Grace brand would be strategically exploited in the search for new overseas markets.

"We are looking at major change over the next five years which will be centred around the Grace-owned brands. They have very wide acceptance in the areas in which we operate. Within the next year, if our planned acquisitions go through, we are looking at doubling the Grace brand," said the GK executive.

ashford.meikle@gleanerjm.com.