Churn, baby churn
Despite the huge number of dairy products now on offer, Cullinane believes there has only been a small amount of dairy innovation in the last few decades and pretty much none in the butter category. But as he was developing the artisan butter, he met with Ross McCullum, a founder of Kapiti Cheese, who put him onto Canary Foods, which had apparently arrived at a recipe for butter that was in his view better than Lurpak. That was an enormous breakthrough, Cullinane says, and it heralded the beginning of a two-tiered business strategy: artisan and premium products.
“The premium butter you see in the supermarkets now is a blend of Fonterra export butters. All the butters they produce in New Zealand come out of one factory, and the export butters come out of another, which is a classic story. They produce all sorts of different butters for the tastes of different markets. And what we have is a blend of two parts this and three parts of that. That’s what gives us the flavour … What everyone thinks—and it can’t be right because not everyone is that old—is ‘that’s the way butter used to taste’. There’s a degree of truth in it because the way it used to be made is completely different in flavour. We’ve just gone back and produced a decent bloody butter.”
And his hunch that people would pay more for better, well-packaged butter was right: Lewis Road’s premium product gained national distribution in record time and was soon available in over 230 stores.
Hi Lewis Roadies, if you'd like to know what makes our butter so delicious listen to this Radio Live interview with Helen Jackson, author of Helen Jackson's Kitchen. Have you tried some for yourself?
Posted by Lewis Road Creamery on Tuesday, 31 July 2012
Chaos, cows and challenger brands
Humans—and particularly humans in the media—love a good origin story. And, in the business world, they’re often exaggerated to make them seem more appealing. No-one wants to hear that a successful business was moulded and shaped over many years through trial, error, expensive consultants, analytics tools and rigorous research, even though that’s generally the reality. They want to hear about Eureka moments and over-night successes. Lewis Road Creamery offers that romantic origin story, that light bulb moment, that commercial pay off. But even so, he says it has been “a truly chaotic process” and the physical manifestations of his own ideas have been forced to change regularly due to circumstance.
“You start here. You talk to someone else. And they add another idea to your thousand other ideas. I use the analogy of spinning plates, which I think is part of our training in agencies. You get really good at keeping lots of things going at the same time. You’re understanding the supply and retail and pricing issues, manufacturing and all these things that you’ve never had to think about before, they’ve all got to come together.”
In hindsight, successes like this often seem so obvious. But when you look at it rationally, Cullinane could be seen as completely mad to take on New Zealand’s biggest company at its own game when he had no idea how to make dairy products and no idea how to get those products on the shelf at the supermarket. Of course, as an ex-Saatchi & Saatchi worldwide chief operating officer, co-founder of Assignment Group, a previous shareholder in successful restaurant-only water brand Antipodes and a board member of SkyCity, NZME and STW Group, Cullinane has a heap of business experience and plenty of contacts to call on. Also in his favour was the fact that he was his own target market, he had a deep understanding of the power of brands, global demand for high quality food products was on the rise, changing views on nutrition have seen butter come back into fashion (in the US, sales of butter overtook margarine in 2010 for the first time since the late 1950s and it is set to do the same here soon) and he felt that Fonterra, which turned over $22.3 billion in 2014, has an Achilles heel because it is too big and is looking at dairy the wrong way. He also believes that ‘the biggest impediment to success is the fear of looking foolish’ and abides by Winston Churchill’s quote: “Fear nothing, live life as it comes, all will be well.” So he figured out how much money he was prepared to lose and decided to give it a crack.
“New Zealand producers focus too much on commodities, technology and small margins. I’m like a stuck record on this, but it started with The Dunedin. In 1882, New Zealand didn’t really have a home market, farms were still being broken in, and then we made an extraordinary technological leap when slabs of mutton were frozen and shipped to the London markets where they were sold for less than fresh meat. And fundamentally I don’t think we’ve changed. We use technology to make milk powder, we do things with it, we sell it cheaply and then other people add all the value. And that’s where we see an opportunity … Fonterra is operating at scale. That gives us quite a lot of room to move. It must have thought about this a million times and had McKinseys all over it, but basically, there are two core businesses: value added and commodities. And they’re very different mindsets.”
In a study of 25,453 companies over 44 years, the Harvard Business Review wrote about the ‘Three rules for making a company truly great.’ “1) Better before cheaper—in other words, compete on differentiators other than price. 2) Revenue before cost—that is, prioritise increasing revenue over reducing costs. 3) There are no other rules, so change anything you must to follow rules 1 and 2.” And you can add another formula to Cullinane’s plan: Stan Shih’s Smiling Curve, a graph that shows most of the value in a business comes from concept, branding, design, sales, marketing and distribution and most of the cost comes from manufacturing.
“It costs tens of millions to get started, which is why no-one does this stuff. But there’s so much stainless steel in this country you can get someone else to do it. It’s about figuring out what you want to achieve.”