Parmalat South Africa’s operations director Hannes Wagener and marketing executive Cathy Eve talk to Gay Sutton about expanding the market for quality and innovative dairy products and increasing operational efficiency.
South Africa is a country of infinite colour and variety, and in many respects that variety is reflected in the array of foods that are available. Yet the consumption of dairy products is considerably lower here, per head of the population, than in countries in Europe, North America or Australasia. Some might consider this a daunting challenge for any company in the dairy products industry, but it is a challenge Parmalat South Africa relishes.
“In many parts of the world, the focus is on long-term sustainability and profitability, and on retaining market share,” explains marketing executive Cathy Eve. “In South Africa we do have a market share challenge, but it represents a significant opportunity to grow the market, and therefore plays a major part in our day-to-day thinking.”
Parmalat South Africa, a division of the Italian dairy goods company Parmalat, began operating in South Africa just 12 years ago through the strategic acquisition of two major dairy industry players—Bonnita and Towerkop. Today, Parmalat is one of the biggest providers of branded dairy goods in South Africa, and occupies an enviable position at the quality end of the market where it specialises in four core categories: cheese, milk, flavoured milk and yoghurt.
“Our aim,” Eve continues, “is to grow our business in quality, value-added branded goods through innovation. We’re also looking for opportunities to increase consumption of dairy products in South Africa.”
According to Eve, one of the reasons for the low consumption of dairy products is the price barrier, while another is that it’s simply not part of the normal food repertoire. Parmalat South Africa has been tackling both of these issues. “For example, six years ago we launched processed cheese slices as an affordable cheese product for middle income consumers,” she says. “We actively promoted it through informal food service outlets in high density areas, and encouraged its use on all kinds of occasions. And consumption is definitely growing.”
Innovation lies at the heart of Parmalat’s success in South Africa, with new products and new packaging formats continuously introduced across all product categories, and involving all elements of the business.
“The innovation process starts with developing a clear understanding of consumer needs,” Eve continues, “and we have a team in the marketing department that works with selected agencies and partners to do exactly that.” Management of the entire process is driven by a dedicated technical R&D department located at the head office in Stellenbosch. “Once we have an idea based on consumer insights and technology opportunities, the R&D department translates that into a project, which is developed through to production at factory level.” Investments at this stage might include capital investment, brand investment and product reformulation.
From the ongoing operational perspective, milk—the raw material for the majority of Parmalat South Africa’s products—is at the beginning of the production chain. The company works very closely with its select group of approximately 260 milk suppliers to ensure quality and reliability of supply for the 400 million litres it needs per annum. “Milk collection is a specialised function,” explains operations director Hannes Wagener. “We have made the strategic decision to do this ourselves. Parmalat has a fleet of 65 tankers that collect milk every day or second day. Our staff perform rigorous quality checks when they collect the milk, and the milk is then delivered to one of eight factories located in the main milk producing areas.”
The farms supplying milk to Parmalat range in size from small independent outfits to large milk producing companies. But the interaction with the farmer does not end at collection, particularly for the medium and smaller farmers. “We have extension offices in all our milk producing areas and these teams work closely with the farmers to develop good production practices,” Wagener explains. This support includes identifying and improving performance across the wide area of good agricultural practice including quality and hygiene.
At the factory level, the company is continuously reinvesting in new equipment and updating manufacturing processes with the aim of improving quality and productivity, and increasing capacity. Currently, all Parmalat South Africa plants are operating to meticulous ISO 22000 and HACCP Food Safety Management System standards and are managed to a NOSA health and safety level of three stars or above.
Warehousing also plays an important role, not only from the distribution perspective but also for more specialised roles such as the maturation of cheese products. One recent major investment, which will become operational early next year, is the construction of new R55 million warehouses for cheese and powder adjacent to the existing Bonnievale cheese and powder production plant. When commissioned, they will provide space for 15,000 pallets of cheese at various stages of maturation and powder.
The final link in the production chain is the distribution operation. The company currently manages the logistics element of this itself, only outsourcing the management of a few of the distribution centres to regional agents. “This is a subject of ongoing review,” Eve says. “And in a recent extensive analysis, current operational efficiencies were challenged and found to be very effective.”
Looking to the future, the company aims to continue increasing its customer base. It has already expanded with manufacturing into Swaziland, Mozambique, Zambia and Botswana and exports into the rest of Africa, i.e. Angola and Zimbabwe. “We have a very wide footprint in South Africa and we reach most consumers through the supermarkets, wholesalers and retail outlets. But we are also continuously investigating new channels such as informal retailers and garage forecourts, as well as service or industrial opportunities,” Eve reveals.
There is undoubtedly fierce competition in the dairy products industry, and producers are under huge pressure from their customers to reduce costs while maintaining quality. Moreover, with the US supermarket chain Walmart entering South Africa, that pressure is only going to increase.
Parmalat South Africa’s response to this pressure has been to embark on a company-wide continuous improvement initiative to increase productivity and efficiency and further improve the already high quality standard of its products. The company has been implementing the principles of 20 Keys, a global benchmarking system, throughout the organisation for the past year, focusing on one key at a time. “We are now around 50 per cent through the improvement programme and can already see vast housekeeping and manufacturing improvements, increases in efficiency, and cost reductions; these are visible on a wide front,” Wagener comments.
By combining the elements of continuous improvement, innovation and marketing strategy, the company is claiming a larger slice of the market and ensuring that it leads the field in identifying and responding to changing consumer needs.