UK-based Bunzl operates in North America, Europe and Australisia by providing distribution, packaging, disposable supplies, and cleaning and safety products for food processors, supermarkets,redistributors and non-food markets.

Many manufacturers prefer to pay for outsourced services for non-core activities rather than make up front investments to do the task themselves. Bunzl sees the food sector as a growing source ofbusiness at a time when high energy and raw materials costs are cutting into the profits of the industry.

Details of the company's strategy in its financial reports provide a good indication of some of the trends currently affecting the food sector. For one, Bunzl is expanding its geographical coveragein the faster growing central European markets like some of its customers.

Bunzl reported it has initiated what it describes as "conversations" with strategic global vendors who want to outsource their distribution requirements in North America and elsewherearound the world.

"Our global platform is attractive to many North American suppliers who have international distribution needs," the company stated. "As we develop these programmes itaffords us the opportunity to increase our service to global customers as well."

The company noted that its margins remain under pressure, particularly in the supermarket sector, as there continues to be a shift to the larger store format. However, smaller specialised storeshave recently made progress in taking market share from large warehouse stores, presenting an opportunity for the company.

The company anticipates growth in the niche sector. In addition, it plans to continue expanding its business in the redistribution, food processor and convenience store sectors. The company willalso expand its janitorial and sanitary products and services.

"These areas are growing and offer good opportunities for implementing our distribution model," the company stated.

Earlier this year Bunzl demerged its plastics supplies segment, Filtrona. Before the sale the grocery and food service sectors made up 56 per cent of Bunzl's business. The leaner company is alsofocusing on the food service sector through a series of acquisitions.

"As constituent parts of what is now a focused, international, value-added distribution and outsourcing group, we expect each region will grow both organically and by acquisition,"the company stated in an announcement. "Bunzl overall will continue to expand its market coverage both geographically and by sector as we consolidate our industry internationally."

Acquisitions in continental Europe and Australasia helped double the company's revenue and treble operating profit. Filtrona's contribution to revenues and profits are not included in the figures.

Acquisition activity continued in 2005 with the purchase of Gelpa in late January. The Netherlands based company had €49m of sales in 2004 and principally serves the retail and food processingsectors.

In July the company acquired Tecep, which had sales of €41m in 2004 and operations in Hungary, Czech Republic, Slovakia, Romania and Poland. Tecep is focused mainly the retail, foodservice,catering and food processing sectors.

Bunzl said the Tecep acquisition expands its position in the growing central European markets. Also in July, the company purchased Australia-based Sanicare. The company supplies disposable productsto the healthcare market, which Bunzl also sees as a growing sector.

Early this month the company announced its intention to purchase US-based Sofco. The company had sales of $175m in 2004 and provides services in the grocery, redistribution, healthcare andindustrial sectors.

Bunzl estimates its acquisitions so far this year will add about £175m to revenues this year at a total cost of £78m.

In Europe the company expects organic growth to continue as its win new contracts both in the UK, Ireland and continental Europe.

Economic conditions may dampen organic growth in some parts of Europe but this should be offset by the company's increasing presence in the faster growing economies in central Europe.

The company expects to make more acquisitions to extend its geographic coverage and deepen participation in its chosen sectors.

"Our increased scale and efficiency across Europe as a whole should continue to benefit our results," the company stated.

In the first half of this year revenue for the group rose by 22 per cent due to organic growth supplemented by acquisitions. Operating profit was up 28 per cent as a result of acquisitions andincreased scale across Europe. Margins rose to 6.7 per cent from 6.4 per cent as increases in continental Europe, Australasia, the UK and Ireland more than offset a decrease in North America.

Recent acquisitions with lower margins than the company's average were a major contributor to the net margin reduction. Currency translation pulled down revenue and profit growth by about one to1.5 per cent.

The company said it has managed to control operating costs despite significant increases in fuel costs and freight expense.

"By implementing our best practices programme throughout our warehouse system and by increasingly sophisticated management of truck routes, we have been able to offset these additionalcosts and even show some improvements," Bunzl stated. "Programmes instituted to maximise use of our warehouse space have also contributed to the reduction of costs."

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