F&N DAIRIES (M) Bhd has been improving its operational efficiency in anticipation of stiffer competition and further product diversification.
Edward Liew, who became F&N Dairies (M) Bhd general manager in March, said the company aimed to be a leading player in both dairy products and solid foods, and therefore needed to have world-class capabilities.
Liew said that with the Asean Free Trade Area entering the final stage of implementation and China’s ascension into the World Trade Organisation, there were more opportunities to look at.
“The F&N group, in the last two years, has been strengthening itself by looking at the total value chain so it can survive and be ready to compete with global markets where it chooses to compete. We must be cost-efficient and effective in our total value chain,” he told StarBiz.
Since last year, F&N Dairies has strived to eliminate duplication in product handling. In 2000 the company operates warehouses in almost every state, but now it has warehouses are only in Kota Baru and the Klang Valley for condensed milk, while for ice-cream, it has a warehouse in Bukit Air Itam and logistics centre in Petaling Jaya.
“My logistics costs would have been reduced by 15% to 20% under the new system. We have taken the costs out of the supply chain and are using the savings for brand-building,” Liew said.
He said F&N Dairies did not have to keep so much raw material anymore and now had great flexibility. “For example, if you have too many branches keeping old stocks, you can’t be fast in launching new promotions. Moreover, my stocks are fresher and that is good for the consumer,” he added.
In May, Fraser & Neave Holdings Bhd announced a RM23.5mil investment in new information technology infrastructure to standardise processes and technology across its soft drinks, dairies and glass operations.
Liew said managers used to spend eight or nine hours to turn data into information, but with the new platform, they could spend their time analysing rather than drilling for information.
F&N Dairies plans to diversify into solid foods. Currently F&N Dairies’ business comes predominantly (80%) from condensed milk.
“We’re ready at any time (to go into food). It’s just a matter of studying the right portfolio of products to enter the market with,” Liew said.
The basic criterion in choosing a new product is the distribution cost. “We should not go into new distribution channels and new infrastructure,” he said.
Would F&N diversify into food products similar to Nestle? Liew said: “I always tell my colleagues that there’s no shame in learning things from others. There’s no need to reinvent the wheel. Look at successful companies and see how to position yourself better.”
F&N, which has been marketing condensed milk since the 1960s, diversified into pasteurised products five years ago, and has made good progress so far. Liew said F&N was now the number one branded juice company via its Sunkist and Fruit Tree brands.
He believed that the Malaysian market was still in its infancy in the pasteurised sector and saw a lot of potential.
“Within the short term, we are looking into new innovations in terms of packaging to provide incremental sales, and we’re bullish about it. We’re looking at a double-digit growth next year for pasteurised products under Sunkist,” he said.
Within the pasteurised milk sector, F&N has three power brands: Magnolia, Farmhouse and Daisy.
“These three brands, according to (market research firm) ACNielsen, have brought F&N into the 2nd position with a 25% share, excluding sales to coffee restaurant chains like Starbucks. I can safely claim that we are the dominant number one in the coffee chain category, with almost 50% share,” he said.
He reckoned that with the coffee sector added in, F&N’s total share in pasteurised milk would be about 30%.
F&N Dairies recently launched Yoplait yoghurt drink, which it manufactures and markets locally under franchise from France-based Yoplait International. Liew is confident of capturing a 35% to 40% share within three years.
Although the total condensed milk market is not growing (in fact, it has shrunk slightly), Liew did not dismiss the possibility of further growth for the F&N brand. He said the market would have contracted more if F&N had not introduced its sweetened vitaminised milk in 2001 and its easy open lid this year.
F&N’s condensed milk sales have continued to grow, but he declined to reveal the percentage. “I’m confident that for the next five years, if we do things right, we can have double-digit growth,” he said, adding that this did not mean cannibalising the competition’s share but growing the total market.
Fraser & Neave Holdings Bhd, in its annual report, said the dairies operation’s profit grew by 71% to RM26.8mil for year ended Sept 30, 2002, although revenue fell 11% due to reduced contract packing activities and export revenues. For first half-year ended March 2003, he said profit was up 48%.
While F&N Dairies is looking at product extension and new products for the domestic market, it also keeps an eye out for regional opportunities.
“In the condensed milk business, we are already exporting to the Philippines, Hong Kong, Indochina and South Africa, but we have not really explored the whole market potential yet. At the moment, a mere 5% of our sales (excluding internal sales to its sister company in Singapore) come from exports,” he said.
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