For­mula #2

A per­fect match for Black­mores and Bega

The Australian - The Deal - - News - Story by: SARAH-JANE TASKER

WHEN Bega met Black­mores, it was pure chem­istry. A two-hour lunch in Syd­ney’s Surry Hills be­tween the vi­ta­min com­pany’s chief Chris­tine Holgate and the cheese maker’s chair­man Barry Irvin was the start of a part­ner­ship that would pro­duce a baby for­mula line and tap into a mar­ket for medic­i­nal food. It may seem an un­likely busi­ness cou­pling, but sit down with the two en­thu­si­as­tic com­pany heads and it is clear they are both set on gain­ing a foothold in an emerg­ing mar­ket seg­ment be­ing driven by Asian con­sumers.

“Barry and I share a be­lief about medic­i­nal food as a cat­e­gory and nutri­tion around medic­i­nal food is go­ing to be an in­creas­ing trend in the mar­ket­place,” Holgate says.

Bega and Black­mores, which have clocked around 200 years’ ex­pe­ri­ence be­tween them, are widely recog­nised Aus­tralian brands on their own, but the new part­ner­ship launches them into the medic­i­nal food mar­ket with one of to­day’s most sought af­ter prod­ucts: in­fant for­mula.

Irvin says it was a com­mon share­holder who hinted the two firms should meet. The busy ex­ec­u­tives, who each say they were al­ready in­de­pen­dently think­ing about retail baby for­mula, met for that lunch more than a year ago. Holgate says they were both late and both prob­a­bly won­der­ing: “Why are we meet­ing?”

It was a dis­cus­sion, not about busi­ness, but about the dif­fer­ent char­i­ties they both sup­port that kicked off the in­for­mal meet­ing.

“Those softer dis­cus­sions led to us then talk­ing about peo­ple, staff, lead­er­ship … By dessert it got to ‘ we should talk about busi­ness’ and we started talk­ing about in­fant for­mula. By the end of that lunch we said we should do some­thing to­gether,” Irvin says.

For Holgate the de­ci­sion to launch an in­fant for­mula prod­uct is a per­sonal one – it stems from los­ing her sis­ter, the mother of two small boys, to can­cer eight years ago. Her sis­ter’s di­ag­no­sis was made just af­ter she gave birth to her se­cond son.

“Ed­die had to be given for­mula be­cause El­iz­a­beth was on so many drugs they were wor­ried about what would go into her breast milk,” Holgate says.

“Be­cause that had hap­pened to me, it was a very life chang­ing mo­ment. I al­ways loved the idea that one day we’d get the time and fo­cus [at Black­mores] to de­velop a range for women like my sis­ter and pro­duce a prod­uct they can be­lieve in the qual­ity of, and what is on the la­bel.”

In­fant for­mula isn’t new for Bega – its wholly owned sub­sidiary Tatura has been mak­ing it for more than 30 years for other com­pa­nies, with the first ma­jor cus­tomers in Ja­pan. But Irvin says Bega had been won­der­ing for some time how it could launch its own retail brand of in­fant for­mula, given the ris­ing de­mand.

That de­mand hit a record and made head­lines late last year as Chi­nese con­sumers – in the long wake of the 2008 baby for­mula scan­dal – put Aus­tralian prod­ucts top of their list of pre­ferred brands, leav­ing Aus­tralian su­per­mar­ket shelves bare.

Holgate points to re­search done in China, which she says high­lights that there could be a 50 per cent in­crease in the birth rate in China by 2020, five years af­ter the re­lax­ation of the coun­try’s con­tro­ver­sial one-child pol­icy.

“That is a mas­sive in­crease in a mar­ket that is fore­cast to be $20 bil­lion in value at this mo­ment in time,” she says.

“Black­mores has a team on the ground (in China), we’ve in­vested a lot in that mar­ket and we’ve proved the de­mand for our prod­ucts and the Black­mores brand in that mar­ket. Clearly it’s an op­por­tu­nity.”

The op­por­tu­nity was more than clear with the launch of the new Black­mores-Tatura prod­uct in Jan­uary. Irvin says the orig­i­nal plan was to launch with 10,000 in­fant for­mula cans, but the re­sponse even be­fore the prod­uct hit the mar­ket was so great, they launched with 120,000. “We aren’t re­veal­ing what we think that num­ber will go to. On launch it was 10 times big­ger than orig­i­nally thought … we’ll grow from there,” he says.

Con­scious of the back­lash in Aus­tralia about the dif­fi­culty ac­cess­ing in­fant for­mula be­cause of the in­creas­ing Chi­nese de­mand, the com­pa­nies put 80 per cent of their new prod­uct into the do­mes­tic mar­ket.

“[Our] suc­cess be­gins out of the loy­alty Aus­tralian cus­tomers have given both com­pa­nies and you should never for­get that her­itage,” Irvin says, adding that the aim is to build the part­ner­ship into an Aus­tralian-in­ter­na­tional brand.

The in­fant for­mula was the fastest prod­uct to mar­ket that the vet­eran busi­ness­man has ever known. The joint ven­ture was an­nounced in Oc­to­ber and the prod­uct hit shelves in Jan­uary. Irvin says that nor­mally his team would ask for 12 months to launch a nu­tri­tional prod­uct – and that at some point along the way they would ask for longer.

Both teams had orig­i­nally tar­geted a June launch, then am­bi­tiously de­cided on March. Holgate, the mas­ter­ful mar­keter then pitched launch­ing it on Aus­tralia Day – she liked the idea of two iconic Aus­tralian com­pa­nies com­ing to­gether and launch­ing an Aus­tralian prod­uct on that an­nual hol­i­day.

Irvin says his team thought they were mad but kicked their ef­forts into top gear, which was just as well as they then brought

Those softer dis­cus­sions led to us then talk­ing about peo­ple, staff, lead­er­ship ... By dessert it got to ‘we should talk about busi­ness’.

the launch date for­ward again to Jan­uary 16, so that the Chi­nese ten­nis leg­end and Black­mores am­bas­sador Li Na could launch the prod­uct.

The rapid pace re­quired some of the spe­cialised in­gre­di­ents to be air-freighted into Aus­tralia, and Bega put pres­sure on the com­pany that makes the tin plate for the con­tainer. “We know you nor­mally need six months’ no­tice but next week would be good,” is how Irvin says the con­ver­sa­tion went.

“It was an amaz­ing ef­fort. In a very short pe­riod of time groups of peo­ple from both sides bonded, which was the only way they were go­ing to get it done,” he says. “It was about get­ting tech­ni­cal teams to put in that ex­tra dis­cre­tionary ef­fort.”

Irvin says the part­ner­ship with Black­mores started on com­mon val­ues. He told his board and team that if ever there was an ex­am­ple of a “val­ues-based deal”, its part­ner­ship with Black­mores was it. “A good idea was eas­ily ex­e­cuted be­cause all those com­mon val­ues meant we could have fast con­ver­sa­tions, and it did not take us long to align ... Rather than rely on lawyers and ad­vis­ers, we did it our­selves,” he says.

Bega’s chair­man says it was clear which skills each or­gan­i­sa­tion brought to the part­ner­ship: Black­mores is suc­cess­ful in build­ing a brand and un­der­stand­ing tar­get mar­kets, while Bega, he says, is ob­sessed with mak­ing the per­fect prod­uct: “We might not be great at sell­ing it but we’re good at mak­ing it.”

He says the part­ner­ship il­lus­trated the ben­e­fit of step­ping out­side Bega’s tra­di­tional mar­kets. It is a first for the com­pany to be en­ter­ing the health space rather than the food seg­ment.

“You can be­come an ex­pert at what you do but it’s hard to break out of the cir­cles that you know,” he says. “One of the re­ally en­er­gis­ing things is we are now deal­ing with some­body who looks through things with a dif­fer­ent lens. Black­mores looks at speed to mar­ket in a dif­fer­ent way, they look at cus­tomer re­quire­ments in a dif­fer­ent way and they bring that en­ergy into our world.”

Holgate says the part­ner­ship is the be­gin­ning of a very ex­cit­ing mar­riage, adding that there was al­ready ev­i­dence the prod­ucts they had launched, to­gether with the fu­ture ones planned, would be­come a sus­tain­able busi­ness on their own.

“There are few com­pa­nies where I think they have a one-eyed com­mit­ment to qual­ity just like Black­mores and we think Bega do,” she says. “They have deep ex­pe­ri­ence in the food space and we’ve got deep ex­pe­ri­ence in nutri­tion, un­der­stand­ing con­sumers and work­ing with health care pro­fes­sion­als. It’s a pow­er­ful com­bi­na­tion to do more than in­fant for­mula.”

The Black­mores chief, who has over­seen a rapid rise of her com­pany’s stock price, which has soared past $100, says it is sig­nif­i­cant that the vi­ta­min pro­ducer was not launch­ing this prod­uct with an in­ter­na­tional part­ner, but rather two Aus­tralian com­pa­nies be­ing stronger to­gether.

She says it has been one of the eas­i­est things she has led at Black­mores, be­ing an easy sell to ev­ery­one from the top of the or­gan­i­sa­tion down.

“Barry and I feel hon­oured that we are lead­ing her­itage Aus­tralian brands and both or­gan­i­sa­tions have gone through sig­nif­i­cant change,” she says.

In­fant for­mula kicked off the part­ner­ship but the teams are al­ready turn­ing their at­ten­tion to other prod­ucts. Holgate says there is an op­por­tu­nity in for­mu­las for the age­ing pop­u­la­tion.

“On hol­i­day re­cently at Pearl Beach I was walk­ing down the road and a 70-year-old lady stopped me and said she loved what I was do­ing with Bega, but when was I bring­ing out the adult for­mu­las?” she says.

“Thirty per cent of peo­ple are fore­cast to be over the age of 65 in China by 2020. In Aus­tralia we are a rapidly age­ing pop­u­la­tion and over the past three years one mil­lion peo­ple turned 50. Look­ing at dif­fer­ent ways to sup­port an age­ing pop­u­la­tion is go­ing to be im­por­tant.”

Irvin says there is “won­der­ful” sci­ence around dairy show­ing the pos­i­tive at­tributes it has in as­sist­ing the el­derly.

“We see this as a life stage nu­tri­tional part­ner­ship with Black­mores,” he says. “We look at our part­ner and they are al­ready across life stage, they are giv­ing a va­ri­ety of peo­ple a va­ri­ety of sup­ple­ments. I see the part­ner­ship as our en­try into a dif­fer­ent seg­ment of the mar­ket. You’re not go­ing to find our tra­di­tional prod­ucts on the chemist shelf.”

He says all mar­kets are mov­ing with the “food as medicine” trend, but that the strong­est move­ment is in Asia.

“It will not be a sur­prise to see the next prod­uct tar­geted at the age­ing mar­ket and tar­get­ing mar­kets not just in Aus­tralia but par­tic­u­lar parts of Asia,” he says. “We want this part­ner­ship to be seen as a life stage nu­tri­tional part­ner­ship in a rea­son­able time frame. If we aren’t mov­ing in rea­son­able bursts, peo­ple will say it’s just about in­fant for­mula and it’s not. We see the op­por­tu­nity and need as far greater than that.”

Barry Irvin and Chris­tine Holgate

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