Covid-19 challenges bring new impetus for dairy industry
In the first of a series of articles looking at Eastern Cape industry, Ray Hartle talks to East London’s Sundale CEO Pierre van Rensburg
The corporate maxim “think global and act local” has been a tried and tested business principle of East London’s Sundale Dairy, but the challenges unleashed by Covid-19 may well have created a fresh understanding of the interplay among local, national and global.
The dairy processing firm’s MD, Pierre van Rensburg, attributes to the coronavirus the final impetus for bedding down a R70m joint venture (JV) investment with global processed cheese slice supplier Schreiber.
Until now, about 70% of SA’s market in processed cheese slices — known in the trade as “slice-on-slice ”— has been imported.
Sundale participated in the import programme as a conduit for Schreiber to supply fast food outlets Burger King and McDonalds. But local production through the JV will substitute for these imports.
“Covid has challenged us to think. While it has had huge negativity, it’s also challenged people now to consider other ways of doing things,” says Van Rensburg.
“This period has definitely caused us to say ‘now we must go, now we must move with this project’.”
Sundale already has a successful segmented business model, equally serving a local and a national market.
Locally, under the blue-andwhite sun logo, it processes and supplies fresh dairy products including milk, butPteRr and cheese, and the award-winning Amasi Afrika. The amasi is sought after by customers across the regional market and clearly is highly regarded by the company itself.
“We’re quite passionate about amasi — it’s a true heritage product of SA which is consumed in high volumes by the population, and especially in this province,” he says.
While Sundale produces huge volumes of amasi, the dairy commits the entire production run to local consumers, an acknowledgment both of the cultural significance of the product to local customers, and of the local market’s commercial worth.
Nationally, on the back of high quality and safety standards, Sundale is a bulk ingredient supplier of butter, cream, and a wide variety of cheeses, for premier foods produced nationally by SA’s food industry, including the iconic Ina Paarman brand of sauces.
The dairy also supplies product lines to Woolworths, Spar, Checkers and Pick n Pay.
While the novel coronavirus has given the business a firm push into rethinking the mix of local, national and global, and to seize the opportunity for more local production, Sundale’s roots are in a hyperlocal operation.
Formerly Sunningdale, the dairy was started in the late 1980s by Van Rensburg’s parents Neil and Sandi — “small farmers with some cows” in the Kei Road area — whose entrepreneurial spirit saw them supply fresh milk in stainless steel cans to surrounding villages and towns.
The couple nurtured the embryonic business to the point where Sunningdale was a significant supplier in the region and in a position to grow exponentially. “Dairy industry is very capital intensive — you never stop investing; you’re always putting money in and growing. It just got bigger and bigger. And here we are now,” says Pierre.
“Here” and “now” reflect a substantial R140m state-of-theart processing plant built in the East London IDZ in 2010 and employing 560 people today.
The plant included a long-life milk production line and in the past two years, new production lines at a cost of R15m have been added. A R2m cheese factory in Braelyn has also been commissioned.
“We’ve had to grow,” says Van Rensburg.
“Sometimes it would be nice just to stay the same. But growth is one of those things that must happen.
“It’s a tough industry and you have to be able to compete — on efficiency and on quality. We knew we wouldn’t survive if we didn’t ramp up in terms of quality — the focus on food safety means you can only produce if you’re doing it right. But that comes at a cost, so we had to invest.
“We also had to invest in efficiency to make sure that we can compete.
“SA has all the global players operating here — Danone, the biggest yoghurt manufacturer in the world, Lactalis (Parmalat), the biggest dairy in the world.
“While the company does not own any dairy farms itself, it owns every other part of the value chain.
“We pick up milk with our own tankers from the farms, we process the product, we distribute the product with our own trucks and drivers and truck assistants, we put the product on the shelf with our own sales and merchandising staff,” says Van Rensburg.
“It’s across the value chain and it’s not easy — it’s much easier to get a contractor or a merchandising company to give us the stuff we need and then we focus on [factory production].”
The business strategy reflects a commitment to reducing its environmental footprint. It sources milk from 15 contracted dairy farming operations within a 50km radius of its IDZ operations, and sees no sense in overnight trucking of fresh dairy to faraway consumers.
“We don’t like to drive our milk far; we like to get our milk as close as possible to our factories.
“It’s the right way, we’re adding value at the source and we’re managing our carbon footprint,” says Van Rensburg.
He adds the processing factory also recycles a lot of the water used during the production, courtesy of a R8m recycling plant.
Local employment is also a key business principle. Incremental increases in job opportunities in recent years pushed staff headcount from 250 when the IDZ operation started to current figures.
“We don’t outsource anything; we insource everything — we like employing people,” says Van Rensburg.
“Because we’re a smaller player we try to find different value propositions, different ways of doing things. For example, we collect milk here, which all goes into fresh products into the big market we have around East London.
“But we don’t necessarily have enough milk here [for other products], so we buy cheese, we cut and wrap that cheese, mix it with some of the huge volumes of butter and cream we produce, create processed cheese.”
The business has also benefited from joint venture operations, such as its R20m tie-up with Just Milk in Cookhouse.
And then there was this year’s deal with Schreiber.
Van Rensburg suggests local business might be more circumspect about relying on imported supplies in future given global challenges, time differences and the weak rand, and especially if a product imported into SA until now has sufficient scalability to justify local production.
“The world is becoming a little less global and a bit more self-sustaining, more interested in where a product is coming from.
“Purely from an economic point of view, we are seeing the benefits.”
Sundale explored the local production JV opportunity with Schreiber for two years, with Van Rensburg saying: “We felt we needed a global partner who had in-depth knowledge and technical insight.”
The new product line will see a further PR 100 jobs added to the firm’s workforce. And Van Rensburg is hoping that, on the back of the JV, exporting opportunities will arise with Schreiber to access its markets elsewhere.