May 2017
Land of Opportunity: Swire in the United States

For many, the name Swire is synonymous with business operations in Asia Pacific, and yet the group has enjoyed a strong presence in the United States for decades. In recent years, there has been rapid expansion in the food and beverage market across three of our operating companies. In this issue of Swire News, we examine how Swire Coca-Cola, USA ("SCCUSA"), United States Cold Storage ("USCS") and James Finlay ("Finlays") have led the way in this sector, and look at what the future holds for this market.

Swire's growing footprint in the United States

Swire set up its first branch office in the USA, in New York, in 1874, after building its UK trading business on imports from North America and the West Indies for more than half a century. Over the years, Swire has evolved from a trading firm to a global conglomerate and in addition to beverages and cold storage, the group's substantial interests in the United States today range from property development to aircraft engineering: Swire Properties is a major developer in Miami, while HAECO Americas is one of the leading aircraft Maintenance, Repair and Overhaul providers in the country. In 2016, Swire's US businesses produced a turnover of US$3,922 million, with US$2,569 million in capital employed and over 11,000 people working across various operations.

Compared with other business areas within the group, the food and beverage industry is generally characterised by stable growth rates and steady returns on investment, which can play a balancing role alongside some of Swire's cyclical businesses. Added to this is the fact that the group's growing food and beverage footprint in the United States' domestic market represents a source of profits quite unrelated to the economies of China and other East Asian countries, therefore offering additional resilience within the Swire portfolio.

(Left to right) Jack Pelo, President and Chief Executive Officer, Swire Coca-Cola, USA, Steve Olyha, Chief Executive Officer, Finlay Extracts and Ingredients USA and Dave Harlan, President and Chief Executive Officer, United States Cold Storage.
(Left to right) Jack Pelo, President and Chief Executive Officer, Swire Coca-Cola, USA, Steve Olyha, Chief Executive Officer, Finlay Extracts and Ingredients USA and Dave Harlan, President and Chief Executive Officer, United States Cold Storage.

The group's success in expanding its activities in the United States has hinged on Swire's reputation and dedication to excellence, but each business has been able to take advantage of different opportunities to develop without the need for centralised direction. For example, Swire Beverages' decades-long record for high-quality execution has encouraged The Coca-Cola Company to grant new franchise territory to SCCUSA. In the case of USCS, growth is the direct result of investing in modern warehouses and developing top-quality customer service. At Finlays, the ability to provide consumer insight and innovative solutions has been a compelling factor, enabling the company to stay ahead in the fastgrowing ready-to-drink tea and coffee markets.

Finlays is a leading supplier of tea and coffee extracts to major beverage brand-owners and food service companies.
Finlays is a leading supplier of tea and coffee extracts to major beverage brand-owners and food service companies.

Finlays USA: creating opportunities
through key acquisition

In the United States, Finlays is a leading supplier of tea and coffee to major beverage brand-owners and food-service companies. Its portfolio consists of tea extracts, tea leaves and coffee extracts. Formed during the 18th century in Glasgow, Scotland, Finlays has played an important role in the development of the global tea industry.

For Steve Olyha, Chief Executive Officer of Finlay Extracts and Ingredients USA, the United States market offers a host of opportunities due to a willingness among consumers to try new products: "With a population of more than 320 million, the market here is large, diverse and innovative. Tea and coffee are well-established parts of a typical consumer's beverage habits, but we
continually see innovation and change – as with the recent, rapid
growth of cold-brewed coffee," he says.

A landmark move in Finlays' rapid expansion in the US was the acquisition of Autocrat, LLC, in early 2014. Autocrat was a prominent supplier of high-quality coffee extracts, and the strategy enabled Finlays to take a leading position in this market. As Steve Olyha explains, "Both businesses had common customers, and today they have seamlessly integrated across all functions as part of the global Finlays family. The integration of the sales force has seen wider geographical coverage, greater focus on core accounts and improved sales. This was achieved by introducing training programmes that give our teams the ability to cross-sell the tea and coffee portfolio. Today, roughly 60% of our revenue comes from tea and 40% is from coffee and, last year, revenue grew by 10% and 17% respectively in these markets."

The recent expansion of SCCUSA’s franchise territories has brought major increases in sales volume.
The recent expansion of SCCUSA’s franchise territories has brought major increases in sales volume.

SCCUSA: building on a strong foundation

Swire is the third largest independent bottler for The Coca-Cola Company in the United States. The story dates back to 1978, when the group sought to expand its soft drinks business beyond Asia Pacific, and purchased the franchise rights to become The Coca-Cola Company's bottler in Salt Lake City, Utah. Since then, Swire has purchased other franchised bottling operations, forming the bottling, distribution and sales company SCCUSA. Growth continued at a modest but steady rate until 2014, when the company embarked on an expansion strategy that would quadruple its size over three years.

SCCUSA's latest growth is due to The Coca-Cola Company's decision to reshape its development strategy and operating model by instituting a refranchising strategy. "Coca-Cola's refranchising plan enables better execution and has led to faster revenue growth for the entire Coca-Cola System," explains Jack Pelo, President and Chief Executive Officer, SCCUSA. "The first transaction of our recent expansion was the purchase of the Mile High Territory (Eastern Colorado and Denver) from The Coca-Cola Company in 2014. This was followed by the acquisition of territory in Southern Arizona and New Mexico in 2016, and in the Pacific Northwest in April 2017. By late summer 2017, we will complete the acquisition of production plants in Tempe, Arizona, and Denver, Colorado. In just over three years, we will have added 4,000 employees and grown to 47 sales centres and six production plants in 13 states across the western United States, while increasing sales volume."

USCS's Covington facility in Tennessee. USCS has 38 temperature-controlled warehouses spread across 13 states.
USCS’s Covington facility in Tennessee. USCS has 38 temperature-controlled warehouses spread across 13 states.

USCS: first-rate solutions for
diverse customers

Attracting more customers is at the heart of every business. For USCS, which is the third largest public refrigerated warehouse company in the US, strong growth has gone hand-in-hand with fostering solid relationships with a range of customers. With a footprint comprising 38 temperaturecontrolled warehouses spread across 13 states, the company has doubled in size and tripled its revenue over the past decade, thanks to a large customer base of household names, including Kellogg's, Unilever, Amy's Kitchen and Land O'Lakes, among others.

But as Dave Harlan, President and Chief Executive Officer at USCS, explains, "We also have smaller customers in places such as the Carolinas and Delaware. Those facilities are more focused on processing meat or poultry, and import and export-type businesses. In the central valleys of California we have customers who produce fruit and vegetables, and in Laredo, Texas, we have a lot of cross-dock products coming in from Mexico. It is hugely varied, but our core customers are food manufacturers that need frozen and refrigerated distribution services."
United States Cold Storage
Swire Coca-Cola, USA
Show All

A bigger, bolder future

However, none of these three Swire businesses exists in complete isolation from one another. While it is true they operate in different sections of the food and beverage industry's food chain, they share some common customers. Because of this, skills and knowledge have proved transferrable. For example, SCCUSA CEO, Jack Pelo, is also a Director of the Board at USCS, to which he brings useful insights and experience. Meanwhile, USCS has been able to help Finlays gain a firmer grasp of the processes and risks associated with land acquisition and site development in the United States, thanks to its own growth over the past decade.

One characteristic that defines each of Swire's food and beverage businesses in the United States is a vision of exciting growth over the coming years. USCS is to double the size of the company through innovation and expansion into new markets. As CEO Dave Harlan says, We are looking at expanding into Denver, Colorado, the Los Angeles area and Minneapolis, Minnesota, and we have initiatives in place to develop employees and embrace automation to make us more efficient. We have also gotten away from using ammonia as a refrigerant in most of our new warehouses and now operate more CO2 cascade refrigeration systems than any of our competitors.

While SCCUSA's main focus for 2017 is the completion of its current expansion programme, there is also a desire to integrate all newly acquired operations, territories and associates into the company. Says Jack Pelo: We are the only bottler in the United States whose territory stretches from the Canadian border to the Mexican border. The expansion means an obvious increase in sales volume and customers, but we are also excited about the synergies that will be created by adding new production proficiencies and unifying our customer care approach across a broader geography.

Looking at longer-term prospects, Jack Pelo says that although the non-alcoholic ready-to-drink market in the United States is quite mature, it is changing. SCCUSA and the entire Coca-Cola System recognise that changes need to be made in order to meet growing consumer demand for low and no-sugar options as well as more still beverages. Therefore, the shift in our business strategy is to become a 'total' beverage company, by giving people more of the drinks they want – including low and no-sugar options across a wide array of categories – in more packages, sold in more locations.

Finlays' main growth driver is product innovation, which is why the company continuously invests in research and development, consumer research and market insight. In addition to its coffee extracts manufacturing facility and R&D laboratory in Lincoln, Rhode Island, and its tea "Centre of Excellence" in Florham Park, New Jersey, Finlays is currently constructing a new facility in Rhode Island, scheduled for completion in late 2017. The first phase of the facility will consist of a worldclass R&D centre, alongside a pilot manufacturing facility for tea extracts, heralding a major expansion in manufacturing capacity. As CEO Steve Olyha says, "We expect to see continued fast growth in both tea and coffee in the United States market, and the new R&D centre and expanded production capacity in coffee extracts will support our growth. Finlays' global aim is to be the preferred supplier of tea for the world's leading beverage brands and food service companies. In the United States, we also seek to play a major role in supplying coffee extracts to the same customers." 

The future of Swire's food and beverage operations in the United States is exciting and promises ever greater possibilities. Each company is driven by a passion for innovation and the determination to expand its footprint across the country. It is this outlook, coupled with Swire's unswerving dedication to excellence, which has already established a solid platform for achieving even more success in the future.
SwireNews 2017 May Issue
Download this issue in PDF