Taking macadamia products worldwide – from ice-cream to ocean liners
FARMERS often complain how their fortunes are dependent on the goodwill of volatile commodity markets. “We’re price takers, not price makers,” they say, pointing to the difficult task of planning when you don’t know whether your income will be R2m or R20m over any full production cycle. Viljee Lombaard, who farms macadamia nuts in the valley between Kaapsche Hoop and Barberton in Mpumalanga, saw prices for the fruit decline from around R70/kg to the R40/ kg level in 2006, mainly due to a worldwide oversupply. When he acquired the business in the early 2000s he based his calculations on an income of around R60/ kg and realised he had to come up with an idea to ensure his farm remained sustainable.
His immediate inclination was to add value to his crop by processing it into secondary food products himself. Few farmers had been doing that and the availability of macadamia confectionary was mainly limited to expensive duty-free shops at international airports. He roped in his brother Pierre, a business consultant living with his family in London, to assist with the venture.
“Back then the deal was and still is: Viljee will deliver a product and I’ll try and sell it,” explains Pierre, who visited South Africa in July to exhibit his macadamia treats at a local trade show.
The brothers have branded their business and product range Maximacs and now manufacture and distribute a range of snack bars, multipacks and gift sets to supermarkets in South Africa, Norway, Canada, the United States, Britain, the Middle East as well as the HMS Queen Victoria luxury liner.
However, initially it proved to be easier said than done for the two siblings to enter a very competitive market with extremely
high barriers to entry. Issues that had to be considered and executed (at a high cost) included the conceptualisation and production of a product range, testing the market’s appetite for such a range, calculating (guessing) what the market would pay, gaining access to sales points, securing production capacity to guarantee a steady supply as well as creating consumer awareness for a relatively unknown product and product category. The added deal-breaker was to secure finance at an acceptable risk level to pay for all of that.
“We were fortunate not to have the additional stress of having to make this work within a set timeframe,” says Pierre. “Viljee and I both had other business interests, so we made a conscious decision not to feverishly try to get products in front of buyers.”
The very first Maximacs experiment was a macadamia paste aimed at the food services industry to be used, for example, by Italian ice-cream producers. “It seemed simple. The product was cheap and easy to manufacture, with high margins and a short stock turnover speed,” says Pierre. Pistachio nut-flavoured ice-cream is popular in markets in Europe and the US – hence Maximacs’ decision to try its luck with a macadamia variety.
The reply from ice-cream makers was positive but came with an impossible precondition. Pierre explains: “They were quite keen to take on the paste but wanted us to spend a huge amount on raising customer awareness about the product. One maker mentioned €50 000. Even if we had the money we wouldn’t have risked it on promoting an untested product.”
The next foray was to crack a market for macadamia treats.
A very clear modus operandi in the way Viljee and Pierre went about their business was not to take on any significant amount of risk prematurely. A strategy they followed to stay clear of risk was to initially outsource most functions, including product development and manufacturing. “There’s no point in investing in equipment to manufacture truffles if you don’t know if your truffles will sell,” says Pierre. “So you get someone else to do it – even if it means paying a middle man will squeeze most of your margin. You have almost no downside risk while experimenting.”
The truffles experiment proved to be a good case in point. Maximacs abandoned the idea to manufacture it when it was discovered the high oil content in macadamia nuts eventually messes up a chocolate coating – shrinking the shelf life of products significantly.
For now, Maximacs have tried and tested snack bars (nut bars with either milk chocolate, dark chocolate, white chocolate or butterscotch brittle) that are also resized and packaged for multipacks and gift boxes.
As a result they’ve invested in their own production facilities on the farm. Financed in part by a R1,2m loan from Nedbank, Pierre says conforming to international safety standards proved to be one of the most expensive aspects of setting up a factory. He says compliance increased the total cost by around 40%. The factory employs around 25 people.
Getting the products on supermarket shelves also proved a challenge. Maximacs initially set out to make personal appointments with supermarket buyers but soon decided to appoint experienced agents to do so on its behalf. “It’s very difficult to get an appointment and sometimes it gets cancelled at short notice,” says Pierre. “We didn’t want to carry on like that and appointed agents who knew the tricks of the trade. I think it’s absolutely crucial to have a good agent. The (retail) industry is all about who knows whom.”
Apart from the R1,2m loan for the factory, the brothers invested around R6m of their own money in the business. Pierre estimates the cost of getting one product line to market – from conceptualisation until it ends up on a supermarket shelf – at R500 000. “Price is probably the industry’s biggest barrier to entry,” he says. “Apart from production you also have legal barriers (for example, safety standards) that cost a lot of money. Pierre also advises other entrants to invest in products that can be transported and exported easily.
Maximacs is continuously busy with new product development, while sales opportunities are also constantly being explored. Pierre sees access to exhibit at trade shows as crucial for any similar business and compliments SA’s Trade & Industry department for taking Maximacs to events in places such as India and Dubai.
Being in business together, Pierre says he and Viljee have to stick to some “golden rules” to manage their relationship. “Have respect for the other one’s expertise and draw some boundaries. Of course, I want to know about everything that’s happening on Viljee’s side of the business – but I’ll never second guess him.”
The current pressure on growing sales is a good case in point. “Viljee will query what I’m doing but he knows I’m doing my best and leave it at that.”