What IKEA Taught Me About Food Companies: Hannu Ryopponen’s Journey Through Family Business, from Ikea CFO to the Board at Samworth Brothers

0:06I often say that culture sits in the walls of a company and the individual is not necessarily the one to blame for a slow or strange moving organization. It's everybody together. We almost subconsciously follow a certain pattern. That is culture in itself. And to move the culture is the challenges. And that's where you need also good leadership.

0:33Welcome to Curious Customer, the consumer podcast. This show is for anyone curious about the world of consumer. From insights, trends, companies, brands, and design, we'll uncover the hidden stories from the people at the forefront of consumer industries. The show has a wide range of guests, from marketing leaders to startup founders. So whether you're in the world of brand building or the startup ecosystem or simply curious about the world around us, then this podcast is for you. My name is Matt. I hope you enjoy the show. Hanu, thank you so much for joining. Really appreciate your time. So just to give a little bit of background on you first, I mean, you have an amazing CV, so I'm just going to cover a little bit of it.

1:13but you were Group CFO at IKEA for, I think, over 13 years. You then moved to Ahold, one of the world's largest grocery retailers. You've been outside of food as well, so you were on the advisory board at Citibank, and you're currently non-exec director at Samworth Brothers in the food manufacturing space. So that's what we're going to talk about today. We're going to talk about food trends. Maybe just to start us off, let's go back to your IKEA days. I want to understand the rationale behind IKEA selling food. It's a big food service provider and a customer is walking through and they've got their basket with a new rug, a new toy, a squeegee.

1:51And what compels them to go and buy IKEA meatballs? The whole idea came back in the, I think it was 70s. It was before my time. The founder wanted people to stay as long as possible in the IKEA stores. So he said, why don't we serve them a meal when they're halfway through? They go and sit down, have a meal, discuss what they've been seeing and what they should buy. The whole idea was to keep people in the store. Now, that has now become a restaurant chain, called it from the 90s, more or less forward. Every store has a restaurant. And that was the origin of what is now known, I think, as a sweet shop.

2:30Once you're true and you have argued enough with your spouse and the children are getting fired, to give you a hot dog was the founder's idea. at the end for next to nothing. And still today, I can get a hot dog for next to nothing. And a few other things as well. Take your meatballs home in a frozen package, if that appeals to you, or an ice cream for the children, whatever. So that whole food story has been driven by consumer reactions and consumer thinking as opposed to serving food as such. How do you think about that from a CFO perspective as you were back then? Because you're trying to push your P &L forwards, but at the same time you're keeping the price for the hot dog super, super low.

3:11Is that just really feeding into this whole experiential thing? It's a day out at IKEA, people get captured there for more hours, and thus that's better for your revenue line. The thing here was also to make people feel good when they go home and feel welcome back, i.e. not going back completely tired and knackered and irritated over having spent hours. Let's move on to Samworth Brothers. Samworth Brothers is not a consumer-facing brand, so it'd be really helpful if you just take a step back. If you can explain what the business is and also give a bit of a sense of scale. Turnover-wise, we are about£2 billion on the entire group.

3:5175 % is private label to the big supermarkets, from Tesco to Asda and everybody in between, as well as the forecourts at the petrol stations. Then there's another side to it, which is then the other 25 % approximately, which are branded, like Ginsters, pasties, which are reasonably well known. There's Higgety, which is more quiche. And then there's products, very popular with kids in school as part of their lunchbox and so on. The margins tend to be better on branded goods than on private label when the supermarket has to have their own share of the total revenue. Just on the private label then, so you're supplying sandwiches into Tesco's.

4:34How does that actually work? Do you own the end-to-end? Do you actually own the farm operations through the manufacturing, through logistics? How much of that does Samworth own and operate? We do not do any growing of any produce, be it animals or be it plants or seeds or whatever. That's all bought from suppliers that we have continuous contact with and checking the quality of the products. Then all the cooking and preparation, be it sandwiches, which obviously is a cold product, from the bread loaf that we buy in to the ham, to the cheese, chicken. But on the ready meal side and the pasty side, all the cooking is taking place at the Samworth bakeries, as we call them.

5:18Why don't you do any of the grain? It's a good question and very relevant. We have so far chosen not to go into that field of it. Not yet anything that has been announced or seriously even considered in the past. Now, 10, 11 years I've been on the board. Yeah, 10, 11 years. Okay, so just in terms of the UK food system then. So 10, 11 years, you've been through Brexit, you've been through supply chain issues in the last couple of years. Can you help me understand how those things have impacted food service in the UK? From our point of view, yes, there have been hiccups and deliveries. As you know, most of our products are fresh food, so they have a shelf life of two to three days.

5:59So the logistics has to be pretty much on time. We have freezers and we have cold rooms and all of that. We transport it on our own wheels. We have some 120, 30 big truck trailers that then deliver to depots of the big companies that then would eventually take it out. Same thing also applies to the branded goods. They are logistically delivered from us the same way as the private label wants to. Why did you decide to move in the direction of owning the logistics, which is owning that piece closer to your customer, rather than moving to own the growing, which you've just mentioned is kind of maybe in deliberation today?

6:39We want to secure the logistics. You know, it's a question of almost minutes. We want to control our own logistics completely, including the wheels that transport. If you've seen Sammer's lorry, it is a very clean and tidy, almost a bit boring looking, if you ask me. Now we're starting to get some advertising on them of our own products and so on. But that's been a key logistical aspect of securing our customer get on time, quality, right temperature during transport and so on and so forth to their depots in most cases. Got it. Okay. Let's talk about some of the brands then. So outside of the private label, just to pick two of them.

7:23Higgity, which is in the pie space, which is a very, is it playful? It's a modern pie brand. and then equally you've got Ginsters, which is a much more classic in the pasty space. How do those brands interplay? Do they actually support each other? Are they selling to different customers? How do you think about the family of brands that you own and operate? No, they could be very much delivered to the same customer. Somebody like Tesco, Waitrose for sure. They have Higgety and they have Ginsters and they're delivered by our own wheels often together than with other products as well. So the whole logistics, they're obviously gathered first in our own central warehouses or depots, if you want.

8:04And then from there, they go out to the various supermarkets. And when you're thinking about brands or bringing a new brand in, do you think about how much overlay there is, say, on the underlying ingredients to actually help your manufacturing process to run extremely smoothly? Or are you just really thinking about which brands are capturing customer attention? And if it's totally irrelevant to the existing brands in the portfolio, so what? You know, you'll still integrate it, acquire it, whatever it might be. If you take pasties as an example and ginsters, then most of it is produced in the same bakery as we also produce private label pasties.

8:42There might be some difference in the recipes and the ingredients, but can happen, doesn't always happen. It is far more independent in terms of their own production and so on. Okay. Yeah, fine. Take us into the boardroom. I'm so interested what gets discussed there. So you're in the board at Samworth Brothers. There's a lot of discourse at the moment about food trends and sustainability and behavioral shifts. What are the top couple of agenda items at a Samworth board meeting? The main issue we deal with is obviously investments in capacity, be it a new bakery, a new production line, and hence a capital allocation.

9:23in other words, to the various activities and product lines, bakeries, and so on. And of course, in connection with that, we have to also understand why should we increase the capacity for ginsters, as an example? Is there a clear demand for it? What's the status of the product from a consumer perspective, obviously, because a consumer is ultimately eating what we are producing. And that's part of the whole proposal that comes to us from the management board or the executive board for final decision and discussion. Trends are fairly stable. We are also in a fairly stable part of the industry itself in terms of the likely consumer changes.

10:04Having said that, though, we have also seen the changes that is happening and the online things where you might sit at your home in London and want the coffee and then you ring Bretton Manchier or whoever it might be and it's delivered to you 10 minutes later for quite a price but that's whatever the consumer decides so as those kind of trends are changing and and the closeness to consumers has become a far more important factor and to understand consumer trends and the switching which has been very noticeable obviously we had covid which was a bit of a maybe in the end of parentheses in terms of preferences.

10:44I remember from when I spent quite a bit of time in London and I was out on Baker Street, to be specific. I saw the eight o 'clock in the morning and everybody walked around with a coffee mug in their hand and a sandwich or whatever else. No breakfast at home. It's on the go. So these things are happening. And obviously we have to also reflect that. And hence also our focus, which started maybe, I don't know, call it eight years ago or so to go into the Starbucks and so on. And that is even now starting to change again, one more time. So the new generation certainly are far more quick than we used to be if I take my own generation to change.

11:25And also the options are there and there are quick entrepreneurs and startups who then see a little trend and sort of get a niche of some sort and suddenly might be a big company. Can we dive into a few more of these trends then? So you've mentioned one which was, I guess, like a shift to convenience, both in terms of e-commerce at home delivery, but also food on the go. But what about trends in terms of the actual underlying produce, you know, veganism versus meat and other trends like nutrition? So you purchased in 2015, a business called, I think, SCIMX, which is in the sports and nutrition space, like frankly very different to pies and pasties.

12:06So let's talk about some of those other trends relevant to maybe ingredients. And then I'd love to hear a bit more about that business and why you acquired it. Well, Cymex, as we called it, did not do very well to make a long story short. It was outside our know-how and it was a very different market. And I think there were far quicker movers in that market than us. And they were very specific for protein and muscle mass and the rest of it. Protein is still obviously a key component in consumers' minds, but what became very high trends during COVID, i.e. kind of non-meat and vegan and so on, has more or less disappeared.

12:48Well, no, disappeared is the wrong word, but certainly has slowed down the awareness and the focus on this. It's not a huge trend. It's a trend, and it's among more younger people, maybe also people with some other dietary issues or being more aware of gluten-free, for instance, is that good or bad for you? All the modern gluten we have in wheat, et cetera. But we saw, we had in fact quite a few lines where we tried to follow the vegan or vegetarian trends and just didn't work. It was difficult to really make money unless you possibly then would really highly specialize in something like that and be a niche player in that particular part.

13:32A little example is where we have an incubator where we have a brand called Holy Moly, a part owner of that. And Holy Moly is essentially avocado, guacamole, completely clean and tidy and has been quite successful in itself. However, not yet at the point where we feel it could be a mainline business for Sunbrook. There's a size and volume that would justify it. So what was it about Holy Moly that made you invest? Yes, and it is minority small bets that you're making. And are you making a few of them? Yes. We have today somewhere between three and five of them in this incubator called Perfect Red.

14:10And it is the whole idea is to possibly learn something about new thinking, also new systems on how you operate and how you work. Getting some totally fresh kind of almost operational consumer insight. And the management of Samworth itself is really not involved in any other way that some people are then sitting on the boards of these. So maybe what are some of those learnings? Are there any trends that you're starting to see come through that you think will be enduring? First of all, we have an aging population, as we all know, and their diet comes into play. And we are learning more and more about our personalized preferences from a more medical, biological viewpoint as we can handle more and more statistics and bigger volumes of data to understand how are you built and how am I built.

15:02The NHS, as an example, tends to talk about averages, but there is no average person around. We are all deviating more or less from that average. And hence, that will become a trend, I think, that maybe still five or 10 years out. But we need to be very aware of it and maybe also very careful. So I guess there's two parts to that. In one part, it's your ingredients moving them to be just generally more healthy. The second part is how do you actually build food systems that can enable people to have foods that are much more personalized to them? You know, as you just mentioned, we're learning so much more about our bodies.

15:37There is no average. We're all individual. How does a large scale food manufacturer and distributor think about that problem from five, ten years out from now? Which I guess, you know, the board, you mentioned that you're starting to think that far out. It's still only in the thinking box as opposed to in the production box, but it obviously will mean shorter series. So cleaning machinery and so on will come an aspect. There is a cost element in all of this that you need to keep in mind. and how far the big industry will go to meet that still remains to be seen because some of it becomes, I mean, the product price will become prohibitively expensive.

16:19Producing scale, you know, call it 10 ,000 sandwiches per day. You can't do them in lots of 50 or whatever. That would be financially very, very challenging. But having said that, again, something that I'm now a bit out in a thinking box as to how will tomorrow's AI and other computer systems be able to adjust and clean and deal with things in a different way than we know today. This is certainly something that we also spend time on today because it's all a question of rationalizing. Putting together a sandwich, take an example, you get the sliced bread, somebody has to put that on the line and so on and so forth.

16:58All of this can be automated and maybe even more exact because of how it's done and the quality than a manual line of people. And that's just a basic issue in itself, but still fairly early days in that respect as well. Yeah, so robotic manufacturing lines and things like that. Did you also look at synthetic proteins? So we've spoken about pies, pasties, both include protein in different forms. You've also mentioned the sort of trend at the moment around protein as well. What was your take on these synthetic protein plays, synthetic burgers and fish and things that came through and that seemed to have had a pretty tough time actually commercializing?

17:40Did you invest into any of that space? Did you integrate any of it? No, no. So far, we've been more making sure that there are natural organic ingredients in our products as opposed to the tens and thousands of yeast that you sometimes used to find 10, 15 years ago in products or other artificial products. So that whole aspect, you know, meat and so on may well happen, but it's certainly not part of our top line thinking today. The word sustainability, what does that mean for Sam Wirth Brothers? It's a very challenging question in terms of the production and the heating of ovens, the cook things.

18:20Sandwiches are a slightly different issue. But if you take a ready-made meal, a cottage pie or fish pie or whatever, then obviously it all has to be cooked from the mashed potato to the fish to whatever might be in there. And this whole heating, the pasties is another example. And that's a high focus. As we drop this, what are our main topics? Apart from investing money, you have health and safety. And then you have also the sustainability aspect as to where are we and how do we continuously, especially with new investments, can see what can be done to reduce oil, gas usage to start with and so on.

18:59And what drives that? So, I mean, is that the perspective that it's incumbent upon all of us to be more sustainable? Or is that because that's how your customer, be it Tesco or the end consumer buying the sandwich, because that's how they think and that they're actually driving these trends? I imagine that your average Tesco sandwich consumer doesn't actually really understand that it's even maybe made by Sandworth Brothers or what your sustainability credentials are. So I guess what's sort of driving that? First of all, you have legislation around these matters that mandate certain things. And that obviously is a continuous trend where the politicians want to show how clever they are in pushing those issues, quite rightly, but it's not an ironic comment or meant as such.

19:43And secondly, Tesco, Beatrice want to be able to say that they are healthy, they are good for society, and so on and so forth. And obviously, we have the same objective. We have some 10 ,000, 12 ,000 staff. That also is a concern of ours in their working environment, but also for them to feel that they are producing healthy food with sustainable solutions to our customers and ultimately the consumer. How do you think about the biggest opportunity ahead for Samworth Brothers and the biggest threat ahead for Samworth Brothers? Well, you talk about threats more from a financial perspective. Obviously, a COVID equivalent could be very threatening.

20:24We succeeded quite well. And it comes to the threat to food. You may remember, it must be 10, maybe even more years ago, there was a diet of some sort that was only carbs. And suddenly, almost everybody went on to it. And the supermarkets, really challenging to try to get their shelves filled with the right stuff. So things like that. And suddenly something is researched and finds that we have a big problem with one product, whatever it is, cancer, you know, so the risk is really high or what have you. And that is always a shift that then one would need to react to very quickly and could happen very quickly.

21:02But then again, people keep on smoking still today. Just on that point, how quickly can the UK food system or just Samworth Brothers specifically react? So if there is another major trend or shift like that, be it that diet that you just mentioned, how quickly can you actually change the produce that ends up on the shelf? Quite quickly. I would venture it within a week, if not even within 48 hours, that can happen. So I feel fairly confident that we and our competitors are quite flexible in that respect. If it then comes to the way you cook something or something more fundamental that the sandwiches shouldn't be sort of triangular any longer or whatever, that might cause a bit more of a problem because then you need to start to really change your production lines and how they operate and work.

21:51And that can lead to, first of all, investments. Secondly, some real engineering work needed. 48 hours, that's amazingly quick. And just to come back on what you see as perhaps one or two of the biggest opportunities ahead for Samworth, you've mentioned robotics in manufacturing, which I guess is incremental. That's improving your economics. You've mentioned AI as well, which I guess would be integrated in the robotics. But is there anything else that you're thinking about strategically from a five, 10 year perspective in terms of major shifts in the way that UK consumers are buying? Well, the issue that has been there as long as I've been involved in retail, as you know, IKEA is a private brand altogether.

22:31They today do sell some branded goods more in their sweet shop, as we mentioned. But even there, it's a lot of IKEA chocolates and what have you today, i.e. private label. This whole private label branded issue, I remember from my Ahold days, suddenly Albert Heijn, the origin of the Ahold group in the Netherlands, suddenly made a big switch towards private label. And that way, trying to reduce their cost, of course, and the volumes, and by getting exceedingly tough with the branded goods, trying to get their own, whatever it might be. It's not only chocolates and sweets, but also detergents even and stuff like that.

23:12So this shift is back and forth. Today's consumer, I can't say that they are this or that way, depending on also you have so many different classes of consumers in terms of education, in terms of economic income, maybe children or single persons and so on. But this is a swing that comes and goes a little bit and obviously something that is also debated as to should we have more branded or less branded in relation to the private label. Sandworth is traditionally a private label company. That's where you could say not quite the origin, but certainly the growth in supermarket relations and so on came from.

23:50What drives the swings in that behavior between consumers wanting to shop new, maybe emerging brands versus private label from grocers? I think it's a bit suddenly one brand, be it new or old, either an old one gets rejuvenated or comes with something slightly new and healthier and more exciting. Consumer today is a bit more fickle, if I would use that word, in terms of choosing and maybe trying things. And more and more is available and ready to eat practically. I'm going to switch this over to culture because one of the unique things about your career is working for family-owned businesses. So IKEA family-owned, Samworth Brothers is family-owned.

24:32I'm just interested in what that does in terms of both longer-term decision-making because you don't have the pressures of a CEO in a public listed company that has to be judged quarter by quarter on their earnings calls. You can take really, really long-term perspectives. I'm interested in kind of how that actually plays out in reality. And the second piece is, what type of culture have you observed in family-owned and family-run businesses that you think are good things? First of all, as you mentioned earlier and also a couple of other public companies I've been in, obviously the quarterly reports and the pressure on performance by the markets creates a fairly short-term view unless you're super big and can afford to have a little shop on the side where you play around with new things.

25:20And coming back to culture, I think you're quite right in both Sandbirth and IKEA, the culture is far longer term. You think more in cycles of generations than necessarily the next, certainly not the quarter, not even the year, maybe a five or 10 year cycle where you have some visibility as to what can happen. And then it helps to be big, i.e. big in your own market, wherever you play. IKEA, as an example, is probably today one of the biggest, if not the biggest, in its home furnishing segment. And very profitable, has been for years and years and is still today, as far as I know. And hence, you can also take a very, very long-term view.

25:59You don't have to panic about having cash for the next payroll at the end of the month. Sunbirth is the same way. It's a very stable, maybe also, hence, slightly lower risk in terms of jumping in a big way on new things, but making sure that there's sustainability. It's also good for the staff, things like that. And that then somehow becomes part of, as I call the culture, the glue in a company. It holds together the staff and the management and the board and everybody in terms of going forward in a more family way. But that's also a dangerous comparison because I don't think a company can be a family that may become a problem in itself eventually because you still have to produce profit.

26:44Private companies have shareholders who expect a certain return. The culture to me is almost a tangible thing. And I've seen situations where there's new specifically management coming in who have then failed because they didn't get the culture. The organization and the staff throws them out, including their colleagues and senior management levels. So in recruiting externally at top level, it's very, very challenging. You don't need much of what IKEA has apart from their tea lights and so on. But the online, but they could survive because they were so big and maybe also still attractive that people actually took the time to go to the stores.