For many years, Peter Cullinane’s standard office lunch consisted of a baguette with ham and butter. As a man of means and fine (but relatively simple) tastes, he swore by Danish butter brand Lurpak, but as he strolled around the supermarket one Sunday afternoon a few years back, he asked himself a very simple question: in one of the world’s dairy capitals, why was he not putting a locally-made product in his basket?
“It was absurd. I thought ‘why was there not a New Zealand butter that’s as good [as Lurpak]?’ And without question, it was not as good, largely because it’s treated here as a commodity. No-one’s ever thought of it as being a brand or something of added value. It’s just not where the dairy industry is focusing. We’re set up to do milk powder by the metric tonne. So that’s where it started. I went back home and got on YouTube and looked up how to make butter.”
Butter is one of those boring, staple products that just seems to have always been there and to have always been the same—until someone looks at it slightly differently.
“People don’t know what they want until they get it. And that’s particularly true with something like butter when you don’t know you want something until you taste it and say, ‘actually, what I’ve been eating forever doesn’t really stack up’.”
So initially Cullinane set out to create a hand-made, single-herd artisan butter, had some suitably premium-looking foil packaging designed so it would stand out and then found a machine that could wrap it.
“It was like wrapping glue. It was a complete impossibility. We produced pretty good butter but it was a complete failure in terms of producing something we could sell, which was something of a problem. It’s moments like those when you encounter one of those real crossroads and ask yourself ‘how serious am I going to be about doing this?’”
Very serious, it turns out. After deciding to continue his churning journey, he got the approval of restrauteurs Ben Bayly and Sean Connolly, who believed in his vision. But Cullinane didn’t want to self-limit the business to just appearing in a handful of restaurants or tiny, high-end delis. He wanted to get a decent chunk of the $120 million butter market. So he rang Jason Witihera, the owner of New World Victoria Park in Auckland, and asked him whether he thought it was worth a crack and, if so, how to go about getting it on the shelves. He was incredibly supportive, Cullinane says, and he said “if you can produce it, I’ll give you a chance to sell it.”
“It took me a year from that conversation to then actually getting the first product.” And a few years, plenty of experimentation, a really bad financial advisor and a fair bit of serendipity later and Lewis Road Creamery has gone from a ‘what if?’ and a little Agee jar to a ‘mass premium’ business that’s on target to turnover $10 million this year. And it’s growing like a bacterial culture.
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.”
After butter, the next cow off the rank was milk and cream. The advice he had from many people was that “you won’t crack it because it’s bought on auto-pilot and people won’t talk about milk”. But, working with bottler Green Valley Dairy, it launched a range of traceable, whole milk and cream products (with no permeate included and no palm kernel expeller fed to the cows). Then, just as it did with its distinctive butter packaging, it put them in beautiful nostalgic looking recyclable plastic bottles.
“The best tasting milk is milk that hasn’t been buggered around with. But the system is set up to maximise the value of every molecule, which means the milk is broken into its constituent parts and reformulated. The more you cut and dice it, the more it’s not milk.”
You can have confidence in drinking our certified organic milk, protected by Oritain’s world-leading technology that fingerprints our milk to source. A small mark makes a big difference.
Posted by Lewis Road Creamery on Thursday, 8 October 2015
Around the same time, Anchor launched its very expensive triple-layer lightproof milk bottle, which got more than a few customers and environmentalists riled up for solving a problem they felt didn’t need to be solved. And he believes it’s another example of the wrong-headed economic focus of Fonterra and New Zealand as a whole.
“If they had their time again I don’t think they would’ve done it. No-one has followed suit. And it’s a pain in the ass. Again, it just goes back to the technology thing. We’re besotted by technology. We focus on something that keeps milk fresher for a day or two longer, rather than making better milk. Just drink it faster! … Why try to do bulk volume when China can do that better? Focus on the best of the best and charge for that accordingly.”
That’s working out pretty well for Cullinane, because he says Lewis Road now has around two percent share of the $410 million milk market —and it’s as high as ten percent in some high-end supermarkets.
Soon after the milk and cream hit the chillers, Cullinane started discussions with the powers that be at Whittaker’s, a client of Assignment Group’s, about a co-branded, high-quality chocolate milk.
“I just hate seeing those two litre bottles of candy called milk. That’s exactly what we shouldn’t be doing. So we decided to do it properly. The chocolate milk category is big but it could be much bigger if there was a decent contender.”
Michelle Preston, who came from Kohu Road ice cream and started as general manager of Lewis Road Creamery in April, says the smallest batch it could do was 1,000 litres and they were unsure if they would be able to sell it all. But since its launch in late September, it’s basically been the Kiwi equivalent of the Cronut, with stockists selling out almost instantly, many fans desperately searching for it and social media lighting up with customers showing off their rare prize. She says it quickly became apparent that it couldn’t supply nearly enough to fulfil demand, and two weeks later, it was making 24,000 litres a week (and going through 3,000 kgs of five roll refined chocolate). Despite the high price, that’s been selling out, too. And she says at this rate annualised sales would hit $10 million, a 35 percent value share of a category that’s currently worth about $25 million, according to Nielsen.
“We never dreamed we would have sold that much,” she says, adding that it’s done it all with just two full-time and three part-time staff.
While Preston says it’s not ideal that it can’t meet demand, it’s respondingly honestly to the many questions it’s received about this seemingly magical elixir on its Facebook page and explaining that it’s a small company with limited resources. And scarcity seems to be a powerful driver of demand, because as one commentor said: “I’m yet to find, capture and devour any of this mythical chocolate milk, despite my best endeavours. But this only increases my desire and my admiration for a company that makes something so glorious that it’s the lucky and/or skilled who manage to get hold of it. One day, one day …”
While the business appears to be in orbit now, getting to that point meant making a great product, attending food shows, getting PR coverage (which turned out to be pretty easy to do because the media loves good food stories—and bad food stories, of course) and then spreading the word even further through its Facebook community, which Cullinane says is a great window into the brand. And when there’s that much love for the products, things tend to happen very quickly.
“If we did this ten years ago, I think we’d be in real strife. Facebook equals the game a bit. And I reckon we’re getting our heads around how to do that really well now.”
Products vs. brands
Brands give consumers assurance. And Lewis Road has already shown its potential to extend into other areas.
“My thing is that Fonterra often talks about brands, but I think they’re the names they give products. They’re not brands in the sense of having deep emotional connections. Anchor is a name that goes on a whole lot of products … To the best of my knowledge we’ve got a unique view of a dairy brand, as opposed to a product-driven brand.”
Steve Jobs famously despised the terms branding and marketing, with Allison Johnson, vice president of worldwide marketing at Apple from 2005 to 2011 telling Business Insider: “We understood deeply what was important about the product, what the team’s motivations were in the product, what they hoped that product would achieve, what role they wanted it to have in people’s lives … The most important thing was people’s relationship to the product. So any time we said ‘brand’ it was a dirty word.”
Cullinane is “100 percent with Jobs” on that and says “a strong brand is built through good products”.
“What’s happened with branding in the last 30 years is the product and the brand became quite untethered. Marketing teams were focusing entirely on the brand and they were living in alternative universes. The product and the brand are one and the same thing. The package is only as good as the weaker of the two. It’s a really important thing.”
Lewis Road’s rise—and the rise of many other smaller, artisan food companies, many of them in the dairy sector—is part of what Cullinane says is “a real swing towards authenticity as an antidote to modern life”. And it certainly makes the most of that trend with its evocative brand name and nostalgic packaging. Many consumers assume the brand is named after a real place. And it is, in a way, as Lewis Road in rural Bay of Plenty was where the first artisan butter was made (it’s also where the Antipodes bottling factory is located). Cullinane and production manager Andrew Railton even kitted out a container replete with suitably bucolic imagery on the outside to make the first batches, but it soon outgrew that and at this stage, although he gets plenty of requests for tours, there is no official creamery for customers to visit (his dream is to eventually create an artisan centre where everything sold there will be made by hand).
There’s no doubt the brand has got off to a cracking start in New Zealand, and Cullinane firmly believes it has international potential.
“Why shouldn’t it be the best in the world? Our ambition is as big as you want it to be and I have to be very careful not to overcook the ambition. It’s a tricky old thing. You can over-reach and over-step so you’ve got to be pretty good at what you’re doing first, but there’s no reason why this should be a New Zealand-only business.”
It’s currently dipping its toe in the water in terms of exports to Australia. And he thinks there’s a real opportunity there.
Thanks for having us, Sydney! Craving more of that buttery goodness, Roadies? Check out a full list of our Sydney stockists here: bit.ly/1EuDOBJ
Posted by Lewis Road Creamery on Tuesday, 17 March 2015
“Butter is a big worldwide export product. We’ve got a real chance to enter that market with a reasonably priced competitor product because New Zealand has a very good reputation for dairy in Australia. So we’re just putting the pieces of that puzzle together.”
And while insights might help solve that puzzle, they don’t mean much if you haven’t got the courage to open the box and start putting it together in the first place.