A perfect match for Blackmores and Bega
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