Pick restructures to keep competitive

Related tags Hungary European union

Hungary's accession to the European Union has already led to
increased competition in the food industry there, prompting one of
the country's leading food manufacturers, Pick Szeged, to embark
upon a two-year restructuring programme aimed at cutting costs and
improving productivity.

Tamas Kovacs, chairman of the salami maker, announced at last week's extraordinary general meeting that the company would sell the Herz meat products division, paprika processor Szegedi Paprika and its logistics unit, Pick Szallitasi, in order to streamline operations and focus on its core salami business.

Pick is also considering raising funds via a capital increase or through bank loans to bolster the core business.

Other measures include outsourcing certain operations - such as the fattening and slaughtering operations - and centralising the management of the highly diversified group.

Pick's most recent financial results highlight the need for the restructuring. In the first six months of the current year, the company posted losses of HUF110 million (€0.4m), a sharp decline compared to the HUF1.08 billion in profits registered a year earlier (although that figure cam almost entirely from one-off financial gains).

The losses were all the more worrying because the company had previously announced that it expected to double its profits for the 2004 financial year.

Pick has highlighted inefficient production as the main reason for its slide into the red, laying off 450 of its 2,000-plus workforce and hinting that more redundancies were likely as a result of the restructuring.

But the company has also been badly hit by the parlous state of the economy in its main export market, Germany. Some 42 per cent of Pick's sales come from exports, and with Germany accounting for the lion's share, the Hungarian group is particularly sensitive to fluctuations in demand in that market. The situation was exacerbated further by the recent decision to invest in increasing its meat processing capacity by 7,000 tons to 20,000 tons a year in expectation of increased demand from core markets - demand which has thus far failed to materialise.

Germany produces large quantities of salami in its own right, but Hungarian pork has an excellent quality reputation there, allowing them to sell at a premium price. Pick, as the biggest salami producer in Hungary, has benefited the most from this particular reputation, but there are now fears that the company may be obliged to source its meat elsewhere in order to cut costs - putting that reputation under serious threat and, in turn, risking a further decline in sales in the all-important German market.

Pick currently process 560,000 pigs a year, of which 200,000 are used to make the company's high quality salami.

Consolidation in the market may also be the key to improving efficiency, and the first tentative steps along this route were taken in August, when Pick's owner, the Arago financial group, sold 25 per cent of its stake in the firm to Budapest-based R-KO-N group, owner of other meat processors, Nyíri-Hús and Debreceni Hús. But the pace of consolidation will have to quicken substantially if the Hungarian meat processing sector is to operate at an efficiency level equivalent to that of western EU nations.

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