Soufflet grows in grain industries

by Teresa Acklin
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Commitment to principles steers company through decades of growth and change.

   By Morton I. Sosland, Editor-in-Chief

   The evolution of Groupe Soufflet from its founding as a small French regional grain merchant to its current rank as Europe's largest flour miller and flour exporter provides a striking example of how a family-owned company has adapted to the many twists and turns of global agriculture and agribusiness. Soufflet ranks second in malting and is a major force in production of frozen dough, while still maintaining a prominent position in grain origination, merchandising and exporting.

   The group is headed by Michel Soufflet — who has been at the helm of the business since the death of his father, Jean Soufflet, in 1957 — and Michel's son, Jean-Michel Soufflet. The group has gained a global reputation in many different fields of agriculture and agribusiness not only because of its obvious success in responding to demanding change, but also because of the commitment that the family owners have to three basic principles.

   Michel Soufflet has spelled out these principles as maintaining independence and private ownership, pursuing innovation and growth and a continuing strong commitment to associates in the business as well as to the farmers and consumers the group serves. As stated in company literature, building “a good reputation among all our partners and customers,” is of great importance in everything the group does.

   These principles are important enough that the managers of the company working under the Soufflet father and son often cite them as reasons for joining the group and enjoying work at the company, regardless of difficulties posed by an uncertain economic and political environment.

   A recent visit to Nogent-sur-Seine, after an absence of nearly a decade, revealed how greatly the company had changed in anticipation of, as well as in response to, the transformation under way in the businesses in which it was engaged. This small town in the department of the Aube, at the center of France's most productive grain-growing area, between Champagne and Brie, is where the business had its start in 1900 when Michel Soufflet's mother's parents acquired a small country grain merchanting business. In 1927, Jean Soufflet, the founders' son-in-law and the father of Michel Soufflet, took over the business.

   Michel Soufflet had hardly been involved in the business, except the experience any son has in working in such an enterprise, when his father became ill in 1956 and died the following year. In an interview in 1987, Michel Soufflet recalled that his taking over the company at that time was like being “dropped off the deep end and not knowing how to swim.”

   He also pointed out that it was only two years later that the Treaty of Rome was signed, creating the European Economic Community and changing the structure of French and European agriculture and agribusiness to a greater degree than anyone could have anticipated at that time.

   This time the interview was with Jean-Michel Soufflet, the 36-year-old son who has played the key role in leading the group into its No. 1 position in European flour milling and in several other aspects of agribusiness. The close relation between father and son was striking this time, as already evident in an address the younger Soufflet had given in October to the grain market conference held in Brussels under sponsorship of AgraEurope and Sosland Publishing Co. Describing his family as “merely French country folk from a farming background at the head of a family business,” he said his principal job was being “the head of Michel Soufflet's fan club.”

   Michel Soufflet currently holds the position in the group as chairman and managing director, while Jean-Michel Soufflet is deputy managing director. J. Soufflet S.A. is the name of the holding company, and it is notably lacking in bureaucracy. Division managers report directly to Michel Soufflet, while the son is in charge of finance, accounting, legal, human relations and audit. As Jean-Michel Soufflet said in Brussels, “We never forget that the group's success in low, added value activities such as ours is essentially based on the man ‘in the field' rather than the technocrat at the head office.”

      BUILDING RELATIONS ACROSS UNITS.

   Emphasis in management of the group is placed on developing informal relations across all divisions and throughout the administrative headquarters staff in Nogent-sur-Seine. This emphasis on “easy relations” often surprises visitors to the Soufflet headquarters, especially those who are used to more complicated, formal structures. “They are very impressed by the reality of how easily we deal with each other,” he said.

   The key management group at the divisions, which underscores the complexity and the diversity of the Soufflet businesses, comprises:

   • Agriculture — Paul Cormoreche.

   • Trading — Jean-Pierre Dresti.

   • French milling — Bernard Chatillon.

   • Belgium milling — Alan Fadie.

   • Malting — Jacques Tricon.

   • Corn milling — Jean-Pierre Gros.

   • Baking — Marc Delvisun.

   • Rice and dry vegetables — Michel Bourdin.

   Bernard Valluis, director of external relations, and Raul Veit, who has responsibility for research and development as well as new projects and acquisitions, work closely with both father and son. Mr. Veit is heavily involved in a new venture into the production of diesel fuel from rapeseed.

   Mr. Valluis has an office in Paris, where the company's grain, flour, oilseed and malt export operations are managed. He also spends considerable time in Brussels, where the European Commission has its headquarters.

   With due credit to his family's fine sense of humor, the direction that Jean-Michel Soufflet has provided from the time he joined the company officially in 1982 has meant much for its current direction. Thus, his first job was at the company's first flour mill, and he has spent most of his career in the development of flour milling as a major engine of growth.

   The first mill, in Dienville, was purchased in 1978 because it was near Nogent-sur-Seine and had fallen into financial difficulties. Michel Soufflet had responded “why not” to the question of whether he was interested in buying the mill.

   Up to that time, the Soufflet business had been almost totally focused on building grain origination and merchanting business as well as farm supplies. It had a malting business that had begun to grow in the early 1970s as Michel Soufflet perceived the opportunities that being located in the center of France's high quality barley producing area provided. He also saw, as his initial industrial strategy, the expanding need for quality malt that was being created by rapid commercialization of Europe's brewing industry.

      GROWTH BY PANTIN PURCHASE.

   Jean-Michel Soufflet had gone to work at the Dienville flour mill because he was eager to have some independence from headquarters in his introduction to the business. Again reflecting his humor, he said in Brussels in October, “Each time that I left the milling industry to return to the head office with my father, there was an opportunity to acquire another mill.”

   The ultimate step in that regard came in mid-1994 when Groupe Soufflet completed the acquisition of Grands Moulins de Pantin, France's second-largest flour milling company that had been under control of the Haegel family. This acquisition came about because of a relationship that Jean-Michel Soufflet had developed with Laurent Haegel, who headed Pantin.

   The purchase of the Haegel family stock was completed as of July 1, 1994, giving Groupe Soufflet a combined milling operation with daily capacity to grind 2.5 million tonnes of wheat a year.

   Moulins Soufflet, the name for the milling organization, is headed by Bernard Chatillon, a member of a distinguished milling family who took over day-to-day operating responsibility in 1989, just as the company was about to acquire the Ceres milling business in Belgium.

      NEW SPACE FOR MILLING OFFICE.

   At Nogent-sur-Seine, the river town where Groupe Soufflet began and has grown, the group's presence is striking, if not overwhelming. Its headquarters office building, malting plant, grain silos and barge-loading facilities dominate the town's landscape, seen from either the river or other directions.

   Acquisition of the Pantin business and the decision to move all of milling administration to Nogent-sur-Seine (Pantin had occupied an office building in the center of Paris) have prompted a major expansion of office and administrative facilities. This was achieved by acquiring an old non-operating watermill that had previously been owned by Grands Moulins de Paris, France's largest milling company and now a part of the Bouygues construction group.

   This large building, second in height to the local church, has a riverside location that makes it one of the town's most imposing structures. Its turn-of-the-century architecture, which had been preserved in both the mill building and adjoining warehouse, is being retained in a major conversion project nearing completion that will provide three good-sized floors of office space for both Moulins Soufflet and the Pantin staff that for the immediate future has kept a separate identity.

   Moving the offices of Moulins Soufflet from the group's headquarters a few blocks away will free up space for the expansion that the business' growth requires.

   At the same time, Jean-Michel Soufflet has been busy integrating the two milling organizations in order to rationalize costs, weed out excess bureaucracy and bring Pantin under the Soufflet umbrella, where controlling and minimizing costs receive the highest priority.

   Saying that there had been no surprises in the Pantin acquisition, Jean-Michel Soufflet observed that rationalization of the two milling businesses would be completed within seven months. About 170 of the Pantin headquarters staff are no longer with the group, which meant that about a third of the people who worked for Pantin were made redundant. “We are confident that we have organized the business to our standards,” he said.

      TRADERS CLOSE TO MILLING.

   A discussion of this move of a few city blocks brought out once again one of the major tenets of the Soufflet business, which requires close cooperation and the exchange of information between the people engaged in trading wheat, barley and other grains and the management of the groups that also process grain. Unlike some of its competitors around the world, especially in North America, that have sought in recent years to integrate grain origination and marketing with purchasing by processing divisions, Soufflet has adhered to a longstanding policy of giving each processing and trading arm nearly total independence.

   “Each is an independent profit center,” Jean-Michel Soufflet stated. “Of course, we give each unit the right of first refusal to do the intra-group business, but frequently grain purchases are made from other suppliers and originators.”

   Of the 2.5 million tonnes of wheat and 570,000 tonnes of malting barley that the group's plants currently grind each year, he estimated that nearly a third originates with local merchants that are best situated to serve those plants. In the trading room that is the “heart” of Soufflet's main office, the traders and their assistants are seated around a large circular desk. On the room's perimeters are desks occupied by the purchasing managers for flour milling, malting and other processing units.

   The aim is to assure a complete and open exchange of information as to the outlook for supply-demand and prices, while at the same time not requiring the divisions to do business with each other. “We are completely organized into divisions, and each division has a general manager as well as a head buyer,” Jean-Michel Soufflet explained. “The charge to each group is to buy as cheaply as you can, while the grain originators are driven by a desire to sell at the highest price they can obtain.”

   He acknowledged that this sometimes leads to grumbling, noting that the company's grain traders doing business in Belgium have complained that they've been unable to sell even a single kilo of wheat to the Soufflet mills in that country.

      EXPORTS TAKE 60% OF FLOUR.

   Perhaps the most unusual aspect of Soufflet's expanding presence in flour milling is the degree to which the group is dependent on export sales for business. Even before the Pantin purchase, nearly 60% of the group's flour sales went to export markets, and Pantin itself was equally dependent on exports. Asked about this reliance on flour exports, which contrasts with the situation in the United States where few mills grind as much as 10% of their production for export, Jean-Michel Soufflet acknowledged that it presented challenges, but that it also was a situation that could not be quickly or easily changed. The reason for this reflects largely the makeup of the domestic flour market on the European Continent, which has been relatively static in recent years.

   Bernard Valluis, who guides the group's external relations, including export flour sales activities as well as representing it in important relationships with the European Commission in Brussels, participated in the discussion of flour exports. He joined Mr. Soufflet in expressing confidence in the European Union's commitment to maintaining exports of flour, even as it was required to reduce subsidized exports in response to implementation of the Uruguay Round of the General Agreement on Tariffs and Trade.

   Through its participation in several groups of exporting millers, in which Soufflet itself is the dominant party, especially since the acquisition of Grands Moulins de Pantin, the group manages annual flour export sales of 1.1 million tonnes, accounting for an estimated 18% of total world trade and slightly more than the aggregate of U.S. flour exports in recent years.

   Mr. Valluis also is the chairman of Euro-flour, the group organized in 1994 to represent the major European milling companies in promoting the cause of flour exports to the Commission in Brussels.

   He and Mr. Soufflet noted that the group's mills are especially well located to respond to export demand for flour. Jean-Michel Soufflet observed that the group's heavy participation in export markets allows it to run its mills at the maximum operating rate, helping to bring down costs in doing domestic flour business.

   “I believe that we have the lowest costs in Europe in serving the interior flour market,” he said, adding, “This is an important part of our strategy for the future. With more than 800 flour mills still operating in France and with consumption barely holding steady, capturing additional domestic business is difficult, even though we do already have a sizable presence among commercial (industrial) bakers as well as with small bakers.”

   He added, “By applying our skills in grain purchasing and in operating efficiencies, we believe that our costs of producing malting barley are 20% lower than our best competitors. I suspect that the differential may be even greater in the case of flour.”

   Along that line, he pointed out that the acquisition of Pantin not only gave the company the lead position in continental European flour milling, but also more than doubled the group's malting capacity.

   Soufflet Alimentaire operates rice packaging, in which the company ranks third in France, and vegetable drying, where it has the number one position. A trade name of Vivien Paille has been selected for these products in both consumer and food service markets, and a new plant was built that in effect tripled production capacity.

   The company's dry corn milling plant in Strasbourg mainly produces grits for use by brewers.

      FOCUS ON INDUSTRIAL GROWTH.

   Jean-Michel Soufflet left no doubt but that the company's strategy for the future development of the business calls for increasing attention to industrial activities, like flour milling, and less emphasis on the founding core business of originating grain from farmers. Building the grain business is not a priority of the group at present, he said, while emphasizing that purchasing grain from farmers was still regarded as a “root” and that the strength that was built in serving this aspect of agriculture had been important to the growth of industries.

   So far as grain origination was concerned, Jean-Michel Soufflet traced the change in attitude to a shift among farmers whom he described as being “less and less loyal and tougher and tougher to do business with.” In contrast to the time when special services provided to farmers assured the delivery of grain, he said the relationships have been affected by an intensification of competition, especially from “people who operate with a truck and a cellular phone.”

   He emphasized that the grain business is still very important to Groupe Soufflet, but he resisted ranking gaining a leadership position, say in grain exporting, as being an important goal like it once was. Grain origination activities are now primarily conducted in three areas of France where the group has identified opportunities to originate grain of especially desirable quality for use by millers and other processors in France and other countries.

   Presently, about 2.3 million tonnes of wheat, barley and rapeseed are originated from farmers annually in these areas — around Nogent, which comprises the Champagne and Burgundy areas; near La Rochelle in southwestern France, which grew out of the 1988 acquisition of the George and Paul Levy business; and the Cerapro territory south of Paris, between Orleans and Pithiviers, which was part of Pantin.

   While Soufflet has moved to establish a grain origination and marketing presence in many member countries of the E.U., its greatest success outside France has probably been in Britain, where it has a major position in both domestic origination and exporting. The group's trading arm, Negoce International, also has offices in the U.K., the Netherlands and Madrid, Spain.

      HUGE NEW PLANT FOR RAPESEED.

   Soufflet is a leader in France as a supplier of farm inputs, including seed, feed, fertilizer and fuel. Operating one division as an independent distributor of petroleum products to serve the farmers in its area has prompted Soufflet's newest industrial diversification — joining 26 other partners, mainly farmer cooperatives, in building a large new plant on the northern edge of Nogent-sur-Seine to process 400,000 tonnes of rapeseed annually into 100,000 tonnes of diesel fuel and 300,000 tonnes of rapeseed meal for use in livestock feed. Ground was currently being cleared and infrastructure installed, including a new channel from the Seine river. This new business, obviously an important investment for the entire area, will be managed by Soufflet under the name of Bio-Gazole.

   This business grew out of efforts in Europe to find an agricultural base for the production of fuels as well as the dispute with the United States over programs that the E.U. conducted that were viewed as limiting the market for U.S. soybeans and oilseed products. The resolution of this conflict gave Europe the right to grow oilseed for industrial products, and thus it was that the production of diesel fuel from rapeseed has gained a foothold.

   Special tax concessions have been granted that make the rapeseed-derived fuel competitive with diesel fuel made from petroleum. According to Soufflet officials, the product will be priced so as to encourage its marketing by regular fuel distributors.

   Participation of the farmer cooperatives in the huge new project was deemed important to assure the necessary supply of rapeseed. Farmers will be encouraged to produce rapeseed on area land that had been devoted to arable crops like wheat and barley, the production of which has been curtailed by the set-aside provisions of the Common Agricultural Policy.

   While grains are still at the core of the group's involvement with agriculture, its seed business has grown beyond grains, and it also, through Soufflet Vigne, provides a service to the large-scale vineyard operations in the area around Nogent-sur-Seine as well as in other agricultural regions where it operates.

   Even as the group has established bases in several different countries of western Europe, it has been cautious toward investing in central and eastern Europe. “You just can't be sure of what you're buying,” he said, referring not only to the quality of grain that is shipped but also the political and economic uncertainties ruling in many areas.

   He said that the Ukraine, which has grain producing areas not unlike France, suffers from great political insecurity. In China, where there's an urgent need for additional flour milling and malting capacity, the group would prefer to seek a position through trading rather than direct investment. While his family owns some farmland in the southern United States, he said he's doubtful whether any industrial investments will be made in America.

      FROZEN DOUGH STRATEGY.

   Hardly anything underscores the industrial commitment of Groupe Soufflet better than its growth in the baking business. Having entered baking in the mid-1980s largely as a result of the financial problem facing one of its baking customers, Soufflet in recent years has come to understand the potential for the development of the frozen dough business as well as the distribution of partially baked products.

   “This business personally interests me a lot,” Jean-Michel Soufflet stated, even though he acknowledged the problems that flour millers classically face when they try to enter into baking, and thus might be seen as competing with their flour customers. He said that this has led to two unusual sorts of pressures — from the bakers who want to acquire the baking business that Soufflet has developed, and from struggling baking customers who press Soufflet to buy their businesses. “We won't sell, and those who want us to buy are wrong, too,” he said.

   Soufflet's baking business, which mainly uses the Panilor name, operates five bakeries in France. It produces 38,000 tonnes of baked foods annually, of which nearly 95% is frozen. With a turnover of FFr230 million (U.S.$44 million) per year, the company ranks third behind Unilever and Neuhauser as a supplier of frozen dough in Europe. Its primary outlets are to small bakeries, food service and other specialty operators, with sales across a large part of northern Europe, including Scandinavia and Ireland. Exports account for nearly a third of the frozen dough sales.

   Recalling the earlier conversation about the difficulties of expanding flour sales in the domestic market, Jean-Michel Soufflet said he believes there is a great opportunity to expand domestic flour distribution as frozen dough. Like his American counterparts, he said the advantage in using frozen dough is irresistible to bakers and food service operators facing critical shortages of skilled labor.

   “Why shouldn't we make their croissants?” he asked. He noted that about 40% of the bakers in France currently utilize frozen dough in some part of their operations, and that his principal milling competitor in France, Grands Moulins de Paris, was also a competitor in frozen dough.

   And while frozen dough may help increase the group's share of the domestic market for flour-based foods, Jean-Michel Soufflet again emphasized that the baking management buys its flour from the lowest-cost and most advantageous source, not necessarily from Soufflet's own mills. Along that line, he pointed out that Moulins Soufflet produces an extensive line of baking mixes, in effect competing with group's frozen dough. In marketing frozen dough, Soufflet has developed relations with distributors that move the product directly to users.

   Soufflet's bakery division, through its distribution system, also has entered into a joint venture with Rich Products Corp., the largest manufacturer of frozen dough in the United States, and also, not so incidentally, a successful family-owned company. The venture, which grew out of a Rich initiative to develop an entry point into Europe, presently involves only non-dairy coffee whiteners and other non-dairy products in Rich's line, which are used mainly by food service outlets. “We find them to be very good partners,” Jean-Michel Soufflet noted. “They have modified their products in line with our suggestions, and we have visited each other's headquarters. Yes, we might do more in the future.”

      QUIET PERIOD FOR SEVERAL YEARS.

   Considering the massive rapeseed plant now under construction, the conversion of the old mill building to office space and the acquisition last summer of the Pantin flour milling business, it is no surprise to hear Jean-Michel Soufflet say that he expects the group “to be quiet for a couple of years while we prove that we can profitably operate what we've assembled.”

   He spoke positively of the group's relations with its principal bankers, led by Banque Nationale de Paris. Noting that B.N.P. has been the main finance source of the company for many years, he recalled what he said in his Brussels address about the importance, as well as the commitment, to maintaining ownership of Groupe Soufflet solely in the hands of the Soufflet family.

   Two main reasons are behind that principle. One is the speed with which decisions may be made. The second is that, “being privately owned, up until now we have not had to distribute dividends and have been able to reinvest all our profits within the group.” He recalled in the Nogent-sur-Seine discussion that he also had remarked that the group's bankers often said that “we've even gone beyond this.”

   “So far as Groupe Soufflet is concerned, we want to keep a tight grip on our independence for the time being,” Jean-Michel Soufflet declared.

   Even while predicting an era of quiet, Mr. Soufflet observed that the expansion of the E.U. to include three new member countries at the start of this year and possibly to take in nations of central and eastern Europe at the turn of the new century “requires us to think about possible changes in agricultural production, and especially in grain exporting.”

   He added that it's likely that an increasing share of E.U. grain exports may originate with these new member countries in the former Soviet Bloc. “This requires us to think seriously about possibly new origins in that part of the world,” he said.

   At the same time, he said that Soufflet has not had much success in originating grain in the central and eastern European countries for processing in western mills. “We've already experienced lots of quality problems to the point that we have little confidence in their ability to deliver the quality of grain we require.”

   The question about the opportunities in these eastern countries was prompted in part by seeing a truck on the highway right outside of Nogent-sur-Seine with a license plate from Hungary. “We see a growing number of these trucks here in the center of France,” the driver said.

   Jean-Michel Soufflet expressed confidence about the group's ability to deal with changing agricultural programs, including the CAP reform and the impact of the Uruguay Round on trade patterns. He reiterated his optimism about the high priority that he expects to be assigned to exports of processed products like flour and malt when the E.U. begins cutting back on export subsidies. As if to emphasize that point, he noted that the group has experienced its greatest growth in recent years in face of the CAP reform and the set-aside program that brought about sharp reductions in grain production.

   “We have shown that we can adapt to significant policy and market changes,” he said. “Based on the businesses that we are in, the vitality of the market and our own focus on maximizing efficiency, I have every confidence about the future of Groupe Soufflet.”

Groupe Soufflet data

TurnoverFFr19,490 million
(U.S.$3.6 billion)
AgricultureFFr2,930 million
TradingFFr12,840 million
IndustriesFFr3,720 million
Flour milling:
TurnoverFFr2,085 million
(U.S.$390 million)
Wheat grind1,285,000 tonnes
Malting:
TurnoverFFr670 million
(U.S.$125 million)
Barley grind267,000 tonnes
Maize milling:
TurnoverFFr345 million
(U.S.$64 million)
Maize grind199,000 tonnes
Rice and dry vegetables:
TurnoverFFr390 million
(U.S.$73 million)
Baking:
TurnoverFFr230 million
(U.S.$44 million)
These figures do not include Grands Moulins de Pantin, which was acquired by Groupe Soufflet as of July 1, 1994. Pantin in its 1993 fiscal year had turnover of FFr2,580 million (U.S.$480 million), of which flour milling accounted for FFr1,460 million grinding 790,000 tonnes of wheat. Malting, operated as malteries Franco-Belges, had turnover of FFr710 million and processed 291,000 tonnes of barley.

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