Resilience Series Part 2: Lotus Bakeries
Studying Edelweiss Holdings to learn more about resilience
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We started off our resilience series, by taking a look at French barrel-maker, TFF Group. For the second profile in our resilience series, we’ll be looking at Lotus Bakeries.
You probably have seen one of these bad boys on an airplane. Very often these are given out as the free snack.
So what could be so special about these little cookies? Well, let’s find out.
The company was started in 1932 by Jan Boone Sr., when he made a caramelized cookie with no artificial ingredients. He named the company “Lotus” after the flower, which symbolizes purity. The company steadily grew and expanded into different geographies. The cookie became quite popular as Lotus branded it a perfect complement with coffee. In 1986, the company actually trademarked the term “Biscoff”, a combination of biscuit and coffee. That branding was under the leadership of Karel Boone, Jan Sr.’s son.
Lotus went public in Belgium — where it was founded — in 1988 and shortly afterward started getting distribution through US airlines. The first airline partner was Delta. Reviews from passengers were so good that Delta started ordering more. Pretty soon, Lotus was stamping the Delta logo on their Biscoffs because volumes were growing significantly. Then United and American started offering the cookies as well. When you think about it, Biscoffs really are a great option for an in-flight snack. Peanuts used to be the primary choice but as peanut allergies became more prevalent, other snacks filled its place (this is a very interesting rabbit hole but peanut allergies have increased more than 200% over the past two decades). Moreover, airline snacks need to survive different temperatures; so chocolates aren’t a great option because they can melt. Further, space is limited so big bags of chips are a little unwieldy. And of course, crumbs are important so something like a granola bar is generally out of the question. Lo and behold, Biscoffs are the perfect snack for airplanes.
In 2006, Matthieu Boone took the reins as CEO for five years before his son, Jan, took over. It’s likely not a coincidence that TFF Group and Lotus are both in the Edelweiss portfolio since both companies are on the fourth generation of the family business. You just don’t see that very often. The Boone family owns 65% of outstanding shares, compared to 71% for the Francois family.
In 2016, the US became the company’s largest market and three years later, Lotus opened a production facility in North Carolina. Two other similarities I see with Lotus and TFF are that 1/ the companies aren’t afraid to do tuck-in acquisitions to add more brands to their portfolio and 2/ they aren’t afraid to expand into new locations. The fact that both companies started in Europe but the US makes up a rather significant portion of both businesses is interesting. Lotus is now a collection of 11 brands, but Biscoff still is the main driver at about half of overall revenues.
Lotus management is well aware that there is a growing desire for healthier snacks as well. Another 20-ish% is from five brands which make up “Lotus Natural Foods”. These are nākd, BEAR, TREK, Kiddylicious and Peter's yard. The company will typically take an ownership stake in a snack company that it likes and if sales are doing well, it will buy the whole thing. In 2015, it bought 2/3rd’s of UK-based Natural Balance Foods for around $90 million, which included nākd and TREK. Then in May of 2020, Lotus bought out the founders’ remaining shares. It did a similar thing with Peter’s yard as it invested through its venture capital arm in 2019 and in 2022, it bought the entire thing. Have you ever heard of a bakery with a VC arm?
That probably sounds a little silly but it’s optimizing for resilience. Management could just double down on Biscoff but if consumer tastes are shifting, it needs to evolve as well.
The company has a very strong, globally recognized brand. This year, Biscoff moved up one spot in the global cookie rankings (yes, this is a real thing) to the sixth spot. Oreo is far and away the leader with Chips Ahoy at number two. It’s Lotus’s explicit ambition to become a top 3 cookie brand. As you look at some of these brands, the longevity is very impressive. Campbell’s Pepperidge Farms was started in 1937. General Mills’ Pillsbury was founded in 1872. Keebler, which is owned by Ferrero, began in 1853. These are really old companies! They’ve been bought and sold many times with dozens of managers over the years but they still carry on. It’s a testament to the power of sugar and the snacks that people enjoy. If their mom or dad bought a snack, they buy it for their kids and so on. There is real brand loyalty here. Someone doesn’t want a knock off Oreo — they want the real thing.
Lotus has done about $1 billion in TTM revenue, growing over 20% as the company raised prices to offset inflation as well as some volume growth from in-flight and natural foods growth. EBIT margins are 16% and have been steady for years. Free cash flow oscillates similarly to TFF as the company has relatively low maintenance capex but they aren’t afraid to build new production facilities. Lotus currently has 12 total plants, with two specifically made for producing Biscoff. A third Biscoff plant is being built in Thailand and it should be finished by 2026.
The recipe of long-term thinking through adding more snack brands, investing in production and using novel distribution methods has led to the company’s success and resilience.
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