Derrimon’s distribution operations dipped into red again last year, and now the company is on a drive to strengthen that arm of the business by amplifying the branded items in its portfolio and making additions to its truck fleet.
It will mark a shift in focus that de-emphasises basic or bulk commodity supplies, while putting more muscle behind the marketing and sales of the brands it distributes.
Derrimon Trading Company’s transportation needs are being met by a fleet of 70 to 80 trucks, which is a mix of company-owned and contracted vehicles. Executive Chairman Derrick Cotterell says he’s looking to increase that number by 30 to 40 contractors before year end.
“We definitely need more truckers. We’re looking at ramping up the sales, and if we have to do that any at all, then we must have more in terms of rolling stock. It makes no sense getting orders and being unable to deliver them, “Cotterell told the Financial Gleaner after the company posted prominent want-ads for truckers.
That move came at the end of a bad year for the trading company.
For a second year running, Derrimon’s distribution arm made losses of more than $400 million. That atop a decline in operating profit for the segment that provides the most churn for the group, wholesale and retail, which also saw its profits plunge by more than $400 million. Together those two things, plus heavy finance charges to service the company’s $4-billion debt load, eviscerated Derrimon Trading’s bottom line in 2023. The debt rises to $7 billion once leases are included.
Derrimon still made a net profit of $182 million, but that outturn was less than a third of the $617 million in earnings achieved in 2022; in addition, the 2023 profit was inflated by nearly $16 million of tax credits.
Chief Financial Officer Ian Kelly said frankly that 2023 was a year that Derrimon would sooner forget, due to its many challenges. The company had to endure a changing business climate in the post-COVID era, which forced a re-examination of how it does business, he said.
“We found ourselves having to deal with big-ticket items, like $200 million for problems with our inventory. We also had to write off $100 million in bad debt. All of that added up to quite a substantial amount and affected our bottom line tremendously,” Kelly told the Financial Gleaner.
The Derrimon group operates three segments: distribution, which handles household products, Sun Powder detergents, bulk food products, and chilled and ambient beverages; wholesale and retail encompasses the Sampar’s, Select Grocers and Food Savers NY grocery operations; and manufacturing of flavours and fragrances, processed meats, packaged foods, and wooden pallets and by-products of wood, all through different member companies.
Underwhelming performance in distribution
Derrimon felt the most pain through its distribution arm, which saw its sales decline by a billion dollars to $7.16 billion, leading to an operating loss of $444 million. The segment was also weighed down by debt servicing costs of $496.35 million, which was just about $90 million more than 2022, and also formed the bulk of the overall $588- million charges paid across the group.
The retail segment also saw its profit dipping from $1.4 billion to $972 million, despite an uptick in revenue from $8.5 billion to $9.77 billion.
The underwhelming performance in distribution left total group revenue flat at $18.74 billion, barely blipping the needle from the $18.42 billion of sales achieved in 2022.
Cotterell said the company’s trading business, which is concentrated on basic commodities, such as flour, rice, fish and meat, was affected by the presence of what he calls “suitcase importers” who are able to undercut legitimate importers on price – ostensibly because they escape paying the level of duties that suppliers like Derrimon face at the ports.
“We are yet to understand the phenomenon,” said the Derrimon chairman and founder.
“I can’t say too much, but we had to take the decision that it is better to shift towards a brand-based model of business, rather than continue chasing shadows in this changing commodities game,” he remarked.
Derrimon owns various consumer brands, such as Delect, under which it distributes grocery items, Spicy Hill for packaged soups and spices, and Gentle and Refresh soaps; and it also represents about 10 third-party brands that the company distributes, some exclusively, under contract, Cotterell said.
The latter element of the business, distribution of branded consumer goods, is where Cotterell is now looking for new opportunity. It’s a space that’s highly competitive, and features heavy-hitters such as Wisynco, Seprod, GraceKennedy and Lasco Distributors.
Cotterell said that, over time, Derrimon will add another three to four proprietary brands and four to five brands under third-party distribution arrangements, and that the brand strategy would take shape over the next twelve months.
“Our customers can expect to see more of the brands in the portfolio and we will add more brands and brand extensions beginning now and into 2025,” he said.
The 105,000 square feet of storage space operated by Derrimon at Ferry in Kingston will be its main warehouse. The Kingston-based company also has another 60,000 square feet warehouse at its operational hub on Marcus Garvey Drive.
Amid the shift in focus, Derrimon has been ramping up promotion of the brands currently in its distribution portfolio, a campaign that kicked off in November 2023 and is part of the more extensive three-year programme to reposition the business.
To aid in the three-year effort, Derrimon Trading in January landed a loan from IDB Invest, a member of the Inter-American Development Bank group through which the multilateral agency backs private initiatives.
The loan will flow to Derrimon in three tranches: US$3 million for capital expenditure, which will be used to modernise the company’s warehouse and distribution centre and install solar panels; a US$5-million line of credit for Derrimon to purchase from suppliers in various jurisdictions, including Guyana, Suriname and Norway; and US$5 million for other capital expenditure and working capital. The latter was described as uncommitted in a market filing.
Cotterell has said that only US$8 million of the loan would be drawn down for now.
He said Derrimon was able to snag the loan deal on “very favourable terms” because the company had successfully argued that it had a role to play in food security, and had credentials as a listed company.
The three-year programme that the company has embarked on will focus on growing its domestic market share, while also cranking up sales to export markets.
“You’re already seeing us in the eastern USA, we’re pushing out to the rest of North America, including Canada, then there is Caricom, and we will also be going into Europe,” Cotterell said.
