INTEGRATIVE

CASE

18
AGRANA: From a Local Supplier to a Global Player1
How did Vienna-based AGRANA grow from having five factories in Austria in 1988 to operating 54 factories
around the world in 2014?

Maria Hasenhüttl, University of Texas at Dallas

Erin Pleggenkuhle-Miles, University of Nebraska at Omaha

Although most readers of this book probably have never From Central and Eastern Europe
heard of AGRANA, virtually everybody has heard of
Coca-Cola, Danone, Hershey Foods, Nestlé, PepsiCo, and to the World
Tyson Foods. Headquartered and listed in Vienna, Austria, In many ways, the growth of AGRANA mirrored the chal-
AGRANA was one of the leading suppliers to these lenges associated with regional integration in Europe and
multinational brands around the world. With revenues of then with global integration of multinational production
$3.4  billion and capitalization of $1.4 billion, AGRANA over the last three decades. There were two components of
was the world’s leader in fruit preparations and one of European integration. First, European Union (EU) integra-
Central Europe’s leading sugar and starch companies. tion accelerated throughout Western Europe in the 1990s.
AGRANA was formed in 1988 as a holding company This meant that a firm such as AGRANA, based in a relative-
for three sugar factories and two starch factories in ly smaller country, Austria (with a population of 8.4 million),
Austria. In the last three decades, it has become a global needed to grow its economies of scale to fend off the larger
player, with 54 production plants in 26 countries with rivals from other European countries blessed with larger
three strategic pillars: sugar, starch, and fruit. AGRANA home country markets and hence larger economies of scale.
supplied most of its fruit preparations and fruit juice Second, since 1989, Central and Eastern European (CEE)
concentrates to the dairy, baked products, ice-cream, countries, formerly off limits to Western European firms,
and soft-drink industries. In fact, its fruit preparations have opened their markets.3 For Austrian firms such as
were in one-third of the world’s yoghurt. AGRANA saw AGRANA, the timing of CEE’s arrival as potential invest-
its fruit preparations rise alongside the growing popu- ment sites was fortunate. Facing powerful rivals from larger
larity of Greek yoghurt, which used twice as much fruit Western European countries but being constrained by its
as traditional yoghurt.2 In other words, you may not smaller home market, AGRANA aggressively expanded its
know AGRANA, but you have probably enjoyed many foreign direct investment (FDI) throughout CEE. Most CEE
AGRANA products. So, just how did AGRANA grow countries have become EU members since then. As a result,
from a small local supplier serving primarily the small CEE provided a much larger playground for AGRANA, al-
Austrian market to a global player? lowing it to enhance its scale, scope, and thus competitiveness.

1. © Maria Hasenhüttl and Erin Pleggenkuhle-Miles. Reprinted with permission.

2. R. Moriarty, 2013, Riding yogurt boom, fruit company Agrana plans Lysander plant; 120 jobs possible, www.syracuse.com/news/index.ssf/2013/03
/fruit_company_agrana_picks_lys.html.
3. Central and Eastern Europe (CEE) typically refers to (1) Central Europe (former Soviet bloc countries such as the Czech Republic, Hungary, Poland,
and Romania and three Baltic states of the former Soviet Union) and (2) Eastern Europe (the European portion of the 12 post-Soviet republics such as
Belarus, Russia, and Ukraine).

402

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 EXHIBIT 1 AGRANA Plant Locations

Segment 1988–1989 2002–2003 2006–2007 2010–2011 2013–2014

Sugar 4 15 13 10 10
Starch 2 5 5 5 5
Fruit 0 0 37 37 39
Total 6 20 55 52 54

Source: AGRANA company presentation, June 2007, www.agrana.com; AGRANA annual reports 2013–2014 and 2010–2011.

At the same time, multinational production by global Product-Related Diversification

giants such as Coca-Cola, ConAgra, Danone, Nestlé, and
AGRANA had long been associated with sugar and starch
PepsiCo had grown by leaps and bounds, thus reaching
production in CEE. Until 2003, AGRANA’s focus on the sugar
more parts of the world. Emerging as a strong player not
and starch industries worked well. However, the reorganiza-
only in Austria and CEE but also in the EU, AGRANA
tion of the European sugar market by the EU Commission
further “chased” its corporate buyers by investing in and
in 2006 motivated AGRANA to look in new directions for
locating supplier operations around the world. This
future growth opportunities.4 This new direction—fruit—
strategy allowed AGRANA to better cater to the expanding
became the third and largest division at AGRANA (see
needs of its corporate buyers.
Exhibit 1), and in less than ten years, AGRANA became the
Until 1918, Vienna had been the capital of the
world market leader in the production of fruit preparations.
Austro-Hungarian Empire, whose territory not only in-
But the question remained as to how to diversify.
cluded today’s Austria and Hungary, but also numerous
As a well-known processor in the sugar and starch
CEE regions. Although formal ties were lost (and, in fact,
industries, AGRANA wanted to capitalize on its core
cut during the Cold War), informal ties through cultural,
competence—the refining and processing of agricultural raw
linguistic, and historical links had never disappeared. These
materials (sugar beets, cereals, and potatoes). To capitalize
ties had been reactivated since the end of the Cold War,
on its accumulated knowledge of the refinement process,
fueling a rising interest among Austrian firms to enter CEE.
AGRANA decided to diversify into the fruit-processing
Overall, from an institution-based view, it seems natural
sector (Exhibit 2 gives a brief description of each of the three
that Austrian firms would be pushed by pressures arising
current divisions). First, entry into the fruit sector ensured
from the EU integration and pulled by the attractiveness
additional growth and complemented AGRANA’s position
of CEE. However, among hundreds of Austrian firms that
in the starch sector. Since the starch division was already
have invested in CEE, not all are successful and some have
a supplier to the food and beverage industry, this allowed
failed miserably. So how can AGRANA emerge as a win-
AGRANA to benefit from those relationships previously
ner from its forays into CEE? The answer boils down to
developed when it entered the fruit sector. Second, because
AGRANA’s firm-specific resources and capabilities, a topic
the fruit sector is closely related to AGRANA’s existing core
we turn to next.
sugar and starch businesses, AGRANA could employ the

4. One component of the Common Agricultural Policy of the EU is the common organization of the markets in the sugar sector (CMO Sugar). CMO Sugar
regulates both the total EU quantity of sugar production and the quantity of sugar production in each sugar-producing country. It also controls the range
of sugar prices, essentially limiting competition by assigning quotas to incumbent firms such as AGRANA. In 2006, the EU passed sugar reforms reducing
subsidies and price regulation, influencing the competition in the marketplace. These reforms included a reduction of sugar production by six million tons
over a four-year transition period. Sugar reforms such as these have forced some of AGRANA’s competitors to close a number of sugar facilities. However,
AGRANA’s executives were optimistic about AGRANA’s future due to its investments in the fruit and starch markets.

403

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404 PART 4
2 BUSINESS-LEVEL
INTEGRATED CASES
STRATEGIES

EXHIBIT 2 AGRANA Divisions

Sugar: AGRANA sugar division maintains nine sugar factories in five EU countries (Austria, Czech Republic,
Hungary, Romania, and Slovakia) and one in Bosnia-Herzegovina. AGRANA is one of the leading sugar companies
in Central and Eastern Europe. The sugar AGRANA processes is sold to both consumers (via the food trade) and
manufacturers in the food and beverage industries. Within this sector, AGRANA maintains customer loyalty by
playing off its competitive strengths, which include high product quality, matching product to customer needs,
customer service, and just-in-time logistics.
Starch (including bioethanol): AGRANA operates five starch factories in three countries (Austria, Hungary, and
Romania). The products are sold to the food and beverage, paper, textile, construction chemicals, pharmaceutical,
and cosmetic industries. To maintain long-term client relationships, AGRANA works in close collaboration with
its customers and develops “made-to-measure solutions” for its products. As a certified manufacturer of organic
products, AGRANA is Europe’s leading supplier of organic starch. The GM-free and strong organic focus are
a competitive strength in this sector. Bioethanol is part of the starch segment. The raw material for bioethanol
production in Europe is mostly corn, wheat, and concentrated sugar beet juice. AGRANA produces bioethanol in
combined starch and bioethanol manufacturing plants in Austria and Hungary.
Fruit: This third segment was added to the core sugar and starch segments to ensure continued growth during
a time when AGRANA reached the limits allowed by competition law in the sugar segment. The fruit division
operates 39 production plants across every continent. Like the starch division, the fruit division does not make any
consumer products, limiting itself to supplying manufacturers of brand-name food products. Its principal focus is
on fruit preparations and the manufacturing of fruit-juice concentrates. Fruit preparations are special customized
products made from a combination of high-grade fruits and sold in liquid or lump form. Manufacturing is done in
the immediate vicinity of AGRANA customers to ensure a fresh product. Fruit-juice concentrates are used as the
basis for fruit juice drinks and are supplied globally to fruit juice and beverage bottlers and fillers. The strategic
focus in this division is to continue to grow through geographic diversification.

Source: AGRANA International website, http://www.agrana.com.

expertise and market knowledge it had accumulated over plants to 13 and almost tripling its capacity. As the sug-
time, thus benefiting its new fruit division. AGRANA’s core ar division reached a ceiling to its growth potential due
competence of the refinement process allowed it to diversify to EU sugar reforms, AGRANA began searching for a
into this new segment smoothly. new opportunity for growth. Diversifying into the fruit
Johann Marihart, AGRANA’s CEO since 1992, believes industry aligned with AGRANA’s goal to be a leader in
that growth is an essential requirement for the manufacturing the industrial refinement of agricultural raw materials.
of high-grade products at competitive prices. Economies of AGRANA began its diversification into the fruit segment
scale have become a decisive factor for manufacturers in an in 2003 with the acquisitions of Denmark’s Vallø Saft and
increasingly competitive environment. In both the sugar and Austria’s Steirerobst. By July 2006, AGRANA’s fruit divi-
starch segments, AGRANA developed from a locally active sion had acquired three additional holding firms and was
company to one of Central Europe’s major manufacturers reorganized so all subsidiaries were operating under the
in a very short span of time. Extensive restructuring in the AGRANA brand.
sugar and starch divisions allowed AGRANA to continue AGRANA diversified into the fruit segment in 2003
to operate efficiently and competitively in the European through the acquisition of five firms. With the acquisition of
marketplace. Since its decision to diversify into the fruit- Denmark’s Vallø Saft Group (fruit-juice concentrates) in April
processing industry in 2003, Marihart had pursued 2003, AGRANA gained a presence in Denmark and Poland.
both an aggressive acquisition policy to exploit strategic The acquisition of an interest (33%) in Austria’s Steirerobst
opportunities in the fruit-preparation and fruit-juice (fruit preparations and fruit-juice concentrates) in June 2003
concentrates sectors as well as an emphasis on organic gave AGRANA an increased presence in Austria, Hungary,
growth through expansion. and Poland, while also establishing a presence in Romania,
Ukraine, and Russia. AGRANA fully acquired Steirerobst in
Acquisitions February 2006. The acquisition of France’s Atys Group (fruit
How did AGRANA implement its expansion strategy? preparations) in December 2005 was AGRANA’s largest
Through acquisitions and organic growth. Between 1990 acquisition because Atys had 20 plants across every conti-
and 2001, AGRANA focused on dynamic expansion into nent. Within a short period, AGRANA had fruit preparation
CEE sugar and starch markets by expanding from five facilities in 23 countries. In June 2006, with the 50/50 joint

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 Integrative Case 18 AGRANA: From a Local Supplier to a Global Player 405

EXHIBIT 3 AGRANA Plant Locations as of February 2014

Segment Sugar Starch Fruit Ethanol

North America (USA, Mexico) 4 15 4
South America (Argentina, Brazil) 2 5 2
EU-28 (Austria, Belgium, Czech Republic, Denmark, France, 9 5 19 2*
Germany, Hungary, Poland, Romania, Slovakia)
Europe Non-EU (Bosnia-Herzegovina, Russia, Serbia, Turkey, Ukraine) 1 5
Asia (China, South Korea) 3
Africa (Egypt, Morocco, South Africa) 4
Australia and Oceania (Australia, Fiji) 2
Total Plants 10 5 39
*The starch plants in Pischelsdorf, Austria, and Hungrana, Hungary, also produce bioethanol.

Source: AGRANA 2013–2014 Annual Report.

venture between the Vallø Saft Group and Xianyang Andre In addition to acquisitions and organic growth,
Juice Co. Ltd. (fruit-juice concentrates), AGRANA extend- AGRANA focused on streamlining and restructuring its
ed its reach to China. These acquisitions allowed AGRANA operations to increase efficiencies, reduce costs, and create
to quickly (within two years!) become a global player in the synergies. The merger in 2012 between AGRANA Juice
fruit segment. Exhibit 3 provides an overview of AGRANA’s Holding GmbH and Ybbstaler Fruit Austria GmbH that
current locations around the globe. formed YBBSTALER AGRANA Juice GmbH was expected
After this initial “acquisition spree,” AGRANA focused on to increase synergies and create further opportunities for
select acquisitions and expansions into markets that would growth. AGRANA further consolidated operations in
bring it closer to customers and allow it to take advantage of 2014, when (a) food-preparation production in Austria was
favorable market conditions. From 2010 to 2012, AGRANA moved to Gleisdorf, (b) the plant in Cape Town was closed
expanded its fruit preparations in four emerging markets— and all South African production was moved to the plant in
China, Egypt, Russia, and South Africa—to take advantage of Johannesburg, and (c) two separate research and innovation
future growth expectations. In May 2014, AGRANA opened facilities in Tulln, Austria, were combined to form the new
its fourth US fruit-preparations plant in Lysander, New York, AGRANA Research and Innovation Center. Research-and-
to serve the rising customer demand in Canada and the development (R&D) spending had increased every year—
Northeastern region of the United States and to counterbalance from $12 million in 2007–2008 to almost $20 million in
the flat growth in Europe. US markets offered strong growth 2013–2014 (Exhibit 4). The new research center was tasked
mostly because of the trend toward Greek yoghurt, which con- with exploiting synergies through research across divisions
tained double the fruit preparations of regular yoghurt. and through networking with other institutions.

EXHIBIT 4 AGRANA Operating Margin and R&D Expenditures

Fiscal Year Operating Margin (%)* R&D to Revenues (%) R&D Expenditure (US$ Millions)**
2013–2014 5.6 0.57 19.6
2012–2013 7.7 0.59 20.7
2011–2012 9.0 0.59 17.2
2010–2012 5.9 0.67 16.5
2009–2010 4.6 0.67 15.2
2008–2009 1.9 0.62 14.2
2007–2008 5.9 0.63 12.0
*Operating profit before exceptional items.
**Exchange rate used in calculation: US$1 = €0.88.

Source: AGRANA annual reports.

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406 PART 4 INTEGRATED CASES

EXHIBIT 5 AGRANA by Division

Sugar Starch Fruit Total

Staff 2014 2,399 1,008 5,371 8,778
2009-2010 Revenue 840.19 (37%) 608.52 (27%) 918.83 (40%) 2,215.92
2010-2011 Revenue 878.47 (33%) 703.72 (27%) 996.12 (40%) 2,469.13
2011-2012 Revenue 1,102.64 (37%) 881.47 (30%) 1,060.5 (36%) 2,938.50
2012-2013 Revenue 1,370.52 (39%) 927.65 (26%) 1,301.03 (37%) 3,495.13
2013-2014 Revenue 1,265.03 (34%) 978.75 (28%) 1,336.85 (38%) 3,615.39
*Reported in USD, February 28, 2014. Exchange rate used in calculation: US$1 = €0.88.
**Figures are reported in millions.

Source: AGRANA 2009-2010 to 2013-2014 Annual Reports.

The strategy of AGRANA was clearly laid out in its its extensive know-how of processing agricultural raw
2013–2014 annual report: “Through organic (nonac- materials with its technological expertise and opened the
quisitive) growth and with the help of acquisitions and door for further growth. Even though AGRANA became a
cooperative new ventures, the Group aims to consolidate and major manufacturer of bioethanol in Europe, this segment
steadily add to its worldwide market position.” AGRANA’s was dealing with low prices and a continuing difficult
growth strategy, consistent improvement in productivity, market situation.
and value-added approach enabled it to provide continual Sources: Based on media publications and company documents. The
increases in its enterprise value and dividend distributions to following sources were particularly helpful: (1) AGRANA investor
shareholders. The key to AGRANA’s global presence in the information provided by managing director, Christian Medved, to
fruit segment was not only its many acquisitions, but also its Professor Mike Peng at the Strategic Management Society Conference,
Vienna, October 2006; (2) AGRANA Company Profile 2007 and 2014; (3)
ability to quickly integrate those acquired into the group to
AGRANA Annual Reports 2005-2006 through 2013-2014, www.agrana.
realize synergistic effects. com (accessed February 15, 2015); (4) European Association of Sugar
In Exhibit 5, the annual revenue is given for each sector. Traders, www.sugartraders.co.uk/ (accessed May 4, 2007, and February 15,
Although the sugar division was the leader in 2005–2006, 2015); (5) N. Merret, 2007, Fruit segment drives Agrana growth, Food
the fruit division had been the revenue leader for most years Navigator.com Europe, January 12; (6) N. Merret, 2006, Agrana looks
east for competitive EU sugar markets, Confectionery News.com,
since it was established. The latest annual report (2013–
November 29; (7) C. Blume, N. Strang, & E. Farnstrand, 2002, Sweet
2014) showed that the fruit division made up 38% of total Fifteen: The Competition on the EU Sugar Markets, Swedish Competition
revenue. AGRANA attributed its growth in the fruit sector Authority Report, December.
to increases in dietary awareness and per capita income, two
trends that were projected to continue to rise in the future.
Case Discussion Questions
Diversifying into Biofuel 1. From an industry-based view, how would you
In light of further EU sugar reforms, AGRANA continually characterize competition in this industry?
looked for new growth opportunities. In May 2005, the 2. From a resource-based view, what is behind
supervisory board of AGRANA gave the go-ahead for AGRANA’s impressive growth?
the construction of an ethanol facility in Pichelsdorf,
Austria, and production began in 2008. AGRANA first 3. From an institution-based view, what opportunities
began making alcohol in 2005 in addition to starch and and challenges have been brought by the integration
isoglucose at its Hungrana, Hungary, plant in a preemptive of EU markets in both Western Europe and CEE?
move to accommodate forthcoming EU biofuel guidelines. 4. From an international perspective, what challenges
This move into ethanol was seen as a logical step by CEO do you foresee AGRANA facing as it continues
Marihart. Similar to its move into the fruit sector, the its expansion into other regions? Where and how
production of ethanol allowed AGRANA to combine should it expand?

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