Nut case

Tak­ing macadamia prod­ucts world­wide – from ice-cream to ocean lin­ers

Finweek English Edition - - PEOPLE - AN­DRÉ JANSE VAN VU­UREN an­drej@fin24.com

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.”

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