Food manufacturing outs the country's best

Thursday 28th March 2002

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http://www.newriver.co.nz

We know people get excited by the All Blacks, the Black Caps and the America's Cup. But how do they react to business success?

Excitement is when your mind gets pleasantly fired up. What is it today that is making people feel more alert and alive in business?

We hope this first instalment in a new monthly series in The National Business Review exploring industries to find New Zealand's most exciting companies will provide the answer.

New River Ltd, sponsored by Xtra, has conducted a new type of survey that measures how New Zealand businesses are creating excitement.

This first survey turned the spotlight on food manufacturing - an industry that seems an unlikely place to find exciting business. With food manufacturing growing at just 1.9% a year, you might think there isn't much happening in the food sector.

But industry insiders painted a very different picture in the survey. They spoke of companies quietly achieving export growth rates of 40% a year and capturing leading market shares overseas, in fiercely competitive markets. They described firms introducing swathes of innovation into local or international markets, and others investing tens millions of dollars to expand their businesses. One company has even inspired a whole community.

How they rated

The exciting firms insiders pointed out are not necessarily those you'd expect. Without naming names, some big players in the industry didn't rate a single mention. Likewise, it isn't all happening in main centres: 61% of exciting firms are from outside the major cities.

Westland Milk Products is a Hokitika-based independent dairy co-operative;
Enzo is a Christchurch-based producer of food supplements;
Back Country Foods produces "outdoor foods" in Invercargill;
Kapiti Cheeses is a cheese and ice-cream maker in Paraparaumu; and
New Zealand Potato Plate Co is a potato starch products producer in Nelson.

Why they rated

Westland Milk Products rated highest for its market stance, overcoming barriers, financial growth, and its effect on the local community.

The Westland market stance is unique. When the dairy megamerger took place, Westland stayed apart. It was not a vote against Fonterra Co-operative Group, which remains one of Westland's major partners, but rather a position taken on principle; a deliberate stand to protect the local community against factory closures, job losses and capital flight.

With its subsequent outstanding performance, Westland overcame the perception barrier, demonstrating a small company could achieve success - in this case by doing better than others in the industry.

Up against the giants of the international industry, Westland's management achieved the highest payout of any dairy company by 20c, at $5.20 a kg. Its debt has been paid off and it is now investing more than $60 million in new plant capacity, creating even more jobs and opportunities for West Coasters.

According to industry insiders, Westland has inspired a community long tired of job losses and closures. People now sense the chance for a brighter future.

Enzo rated second highest, due mainly to its business growth rate and the potential effect of its products on others. In a world first, Enzo treated bark from New Zealand's commonest plantation tree, radiata pine, with pure water, turning it into one of most concentrated antioxidant food supplements available worldwide. It counteracts the harmful free radicals in a person's bloodstream.

To avoid suffering the wrath of the medical community, Enzo kept a low profile while building scientific evidence on the product's health benefits.

Recent clinical trials revealed "significantly reduced cardiovascular risks after just 12 weeks." All the while Enzo has been growing at 15% a year, exporting product as food additive to other food manufacturers in major markets like the US, UK and Singapore.

It is still early days for Enzo but it is akin to an alchemist who is turning lead into gold; Enzo is turning a near-waste product, pine bark, into something valuable and credible. And it has successfully grown its business internationally.

The third most exciting firm is Back Country Foods, which made the list based on its imaginative business and its local and international growth.

Back Country Foods developed a new food category here - outdoor foods. It offers whole, high-quality meals which are easily prepared outdoors using just boiling water. Not content with an innovative product idea, it also created the whole packaging and presentation for outdoor consumption. Cleverly, Back Country Foods has been distributing through places like sports and outdoor shops where trampers or tourists are likely to shop.

The results speak for themselves. Local markets are growing at 30% annually and exports to Australia are growing at 40%. In fact, they now lead in market share in Australia and were the first to introduce the product category to South Africa. Now people are even starting to turn Back Country products into fast food in the home.

Fourth on the most exciting list is Kapiti Cheeses, based on its business, local and international growth. Since starting in 1984, Kapiti Cheeses has been introducing innovative new products en masse into the premium-cheese category. It makes a variety of rich, mellow and expensive cheeses. Kapiti also entered the premium ice-cream market, offering more than 100 flavours such as its award-winning honey and fig.

In breaking into international markets, Kapiti employed imaginative marketing practices such as tailoring products to specific dietary laws of Middle Eastern groups. Up against dairy industry giants, its growth has been 8-30% a year.

Industry insiders say Kapiti has the leading market share in premium cheeses locally and has been highly successful internationally. Exports account for about 15% of production and Kapiti opened a new $5 million factory in December that should set the stage for still more growth.

Fifth most exciting is New Zealand Potato Plate Co, based on its imaginative business and its potential effect on others. The company produces styrofoam-like food packaging out of potato starch.

With technology developed in the UK, the award-winning Potato Plate Co is going some of the way to solving a major industry and social problem. Industry insiders said one of the major problems in the food manufacturing is the environmental problem of packaging. It creates a sea of waste.

The solution: Potato Plate Co's packaging is edible. Well edible at a pinch that is. Or if you don't want to eat it, just throw it in the compost and it's gone in three weeks. There is a way to go however, as the packaging cannot store liquids. The company is still too small to make a real impact in putting garbage dumps out of business. But this is a company for a better future. It can increase demand for farm products (potatoes), reduce the use of oil (what styrofoam is made of now), produce a healthy product, and reduce waste. An exciting combination.

Lessons learned

Positive outcomes were essential, and found in all of the exciting firms. When the All Blacks lose, it isn't exciting and interesting companies that go broke aren't exciting either. But it is not just the size of the bottom line that matters. The biggest food companies did not rate highly, as people in the industry were excited by more than just the scale of financial returns.
Other factors had to be there too. Growth and export growth were important, as with Back Country Foods and Kapiti Cheeses. But most important, as with Westland Milk and Enzo, was creating additional positives for others. These firms make profits by creating important new benefits for their customers, employees, suppliers or communities.
Market stance and overcoming challenges were more important again in creating excitement. Food manufacturing that excited people most was the one which took a definite and genuine position on something important, like Westland Milk's stand for the West Coast (and Peter Jackson's stand in insisting on making his film in New Zealand). These are inspirational leaders of business. When they set and overcome important, and difficult challenges, it really starts getting exciting.
Innovation alone is not enough. Contrary to the current hype, the challenge doesn't have to be pure innovation with interesting new products. Innovation in new products, for industry insiders, was only part of the picture. Of all the firms named as exciting, 95% had produced innovative products.
To create real excitement, innovation needed to be raised to a higher level. The exciting firms are doing new things on multiple fronts simultaneously. The firms that were dubbed as doing imaginative business operate on up to five fronts at once, with product innovation being only one emphasis. Back Country Foods and Kapiti Cheeses work on combining clever promotion, distribution, target marketing, production, as well as product innovation. It was the combination that made these companies stand out as exciting and probably what made the whole thing successful for them.
Excitement is pleasant but there's a more serious side to it. These companies, and others like them, are changing what others believe is possible in the food industry. But why have they gone into this industry when it is growing at just 1.9% a year? Why haven't they been held back by established wisdom? Why are they doing it this way? Because they're a wholly unreasonable bunch, and that's making them exciting.
Other shortlisted exciting companies in food manufacturing were: Kato, Spears Foods, Hubbard Foods, Anathoth Avocado Oils New Zealand.

Next month: the retail industry

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