CHICAGO – While committed to expanding further as an ingredient supplier, Archer Daniels Midland Co. has been and will remain disciplined and methodical as it ventures into new arenas, said the company’s top executive.
In a recent interview at ADM’s Chicago headquarters with Food Business News, Juan Luciano, ADM chairman and c.e.o., spoke about the company’s recent acquisitions, how the business has changed over the past two years and what may be expected in the years ahead. He said acquisitions represent one part of what ADM is trying to execute in the marketplace.
“M.&A. is not a strategy in itself,” he said. “We have a strategy.”
A native of Argentina, Mr. Luciano rose to the position of c.e.o. in January 2015, succeeding Patricia A. Woertz. He assumed the additional role of chairman in January 2016. He had joined ADM in April 2011 following a lengthy career at Dow Chemical Co. extending back to 1985. At ADM, Mr. Luciano now heads an agriculturally-based business with 32,000 employees serving customers in more than 160 countries.
The changing complexion of ADM’s business portfolio mirrors powerful demographic changes, Mr. Luciano noted. For many years, consumers have been increasing their intake of protein, animal- and vegetable-based, a market ADM already had been successfully serving. Newer, though, is the intensive focus of consumers on healthier diets, cleaner labels and, to a degree, convenience.
“That’s driven probably by fundamental demographic changes,” Mr. Luciano said. “One is the millennials, and they think about food more as an experience, smaller brands versus bigger brands. They like more purpose in their brands, they like healthier foods. I have examples of millennials at home like you have examples at home, and you see them behaving differently.
“So we are targeting that sector, but also people 65 and older. For the first time in history, globally, this group will soon be larger than the number of children age five and younger. And, especially in the U.S., this is a very affluent market — several trillion dollars. These are people who are going to live well into their 80s. They want to feel great and be able to enjoy retirement, their money and be able to play golf, hike and bike. And they are watching more of what they eat. We saw that trend, and we needed to continue to be relevant to our customers, so we decided to go a little bit more ‘big time’ into ingredients and created a division.”
From Mr. Luciano’s perspective, ADM’s strength as an ingredient supplier reflects not only the breadth of its expanding product portfolio but also the value emanating from its heritage grain business.
“We have the best inputs, because we have access to all kinds of supply at the best possible cost,” he said. “That feeds the processing business. This then suddenly gives us some building blocks with the advantage of the inputs and the transportation and also gives us an incredible customer base.
“With these building blocks, it allows us to innovate with all these customers. These big customers are experiencing this major consumer shift so they want to become more nimble. They want to move, and ADM will be with them as their product lines evolve.”
“Once we started (by acquiring Wild) we began to see opportunities,” Mr. Luciano said. “But we’re very careful. In any of these products, we make moves where we have some leverage. For example, our team that originates soybeans in Bolivia for our crushing plant, we use them to originate chia. So we try to continue to be synergistic to what we do.”
Late in 2015, ADM acquired Eatem Foods Co., another flavor systems developer and producer, based in Vineland, N.J.
“Wild is mainly in beverage and sweet flavors, and Eatem specializes in flavors for food and savory,” Mr. Luciano said.
Two smaller acquisitions have followed in 2016. In February, the company announced it had reached an agreement to acquire a controlling stake in Harvest Innovations, an Indianola, Iowa, business specializing in minimally processed, expeller-pressed soy proteins, oils and gluten-free ingredients. In May, ADM acquired complete ownership of Amazon Flavors, a Brazilian manufacturer of natural extracts, emulsions and compounds. Previously, ADM had owned a 40% stake in Amazon.
“Harvest Innovations is good at G.M.O.-free, clean label, specialty products,” Mr. Luciano said. “We will continue to build our portfolio, not with the goal of getting to any specific size but with the intention of continuing to offer a very cohesive portfolio of products or ingredients that actually covers every aspect of nutrition, function, texture and taste.
“We have addressed the four capabilities of taste, texture, nutrition and function, but we will always go deeper into things. We are sensitive to all the trends out there, and the number of directions you can go is infinite. We need to be very careful because we want to be sure we invest behind real, enduring trends and not fads, not things that will disappear tomorrow.
“When we put capital on the ground, we keep people, and we need to make sure we get the return for our shareholders. Our best indication of that is from our customers, and we stay close to our customers, we follow what they tell us the consumer is doing and wanting. When we have enough understanding of that, we match the capabilities with a small acquisition.”
Mr. Luciano views with pride the progress of the last two years, which he characterized as “the most significant portfolio transformation in ADM’s history.”
In addition to the acquisitions, the company divested cocoa, chocolate, South American fertilizer, lactic acid and Brazilian sugarcane ethanol businesses.
The acquisition of Wild Flavors has raised questions about the size of ADM’s appetite for additional large purchases. Mr. Luciano said ADM is charting a targeted course.
“Look at the ingredients we now have,” he said. “We started with the specialty proteins, which are based on soy. And we have edible beans and we have the fibers that are based on corn and we have emulsifiers and polyols, also from corn. We have mint, we have nuts and then you move to basically integrated systems and that’s where we want to go. We want to go from simple ingredients to the ability to do anything in this area. And everything we add is done very thoughtfully. That’s why we have not bought large companies. We’re buying small companies to try to get specifically what we need. We want to fill gaps, to be relevant to each customer segment. So we bring specific products. But we have created one of the broadest portfolios existing in the industry. And we feel very good about that.”
Mr. Luciano offered another reason why acquiring a large ingredient company may not be attractive to ADM.
“The allure of a big ingredient company acquisition is normally cost synergies,” he said. “At this point in time, because we’re building the team, we’re building the greatest ingredient company out there. We are in a stage of building capabilities. I’d rather take the small companies and add all those capabilities. We are very proud of what we have achieved, but you have to understand, out of 114 years in ADM, we’ve had an ingredients business unit since Jan. 1, 2015. So, we’ve made a lot of progress. We are $2.5 billion. We love it, we’re making money, we’re growing. But we are just getting started.”