Clover milk

Clover’s transformation from klutzy dairy co-op to brand-savvy beast

When CEO Johann Vorster took the helm at Clover in 2006 he asked 100 staff members who among them would advise friends and family to join the Clover workforce. No one put up a hand. Today the company gets 20 plus CVs a week from people wanting to join – including from branded competitors.

Last year Clover was voted one of the best companies in the country to work for. In the same year Vorster was judged winner of the E&Y Southern Africa Entrepreneur of the Year Award and later this year will compete in the global event.

In ten years Clover has transformed from a sleepy dairy business into a competitive branded business that is more defensive and less cyclical than most investors realise.

While investors are still coming to grips with the fact that margins were not severely affected by the drought or last year’s milk surplus, it is about to transform once again.

Currently 55% of earnings (65% of turnover) are derived from dairy products and 45% (35% of turnover) from branded products like Iced Tea, Nestlé bottled water and Just Juice. The goal is to diversify the product mix such that 70% of earnings are derived from adjacent products.

Johann Vorster CloverSo what has Vorster (left) done right so far? What has he got up his sleeve? And what does this all mean for a share that is currently looking rather inexpensive?

Once known as the National Co-Operative Dairies (NCD), Vorster’s first success lay in persuading reluctant and suspicious shareholders (the farmers) that the business needed a new structure. In 2010 Clover was listed and has been transformed into a decentralised operation with little red tape and an entrepreneurial and transparent culture.

Vorster then succeeded in persuading those same farmers that the commercial milk supply arrangement – on which the company was built – was not in its best interests. While Competition Commission rules require that Clover collect all the milk produced by its suppliers, in future it would only pay for the milk it required, rather than the quantity that was produced.

This new arrangement shielded Clover in 2014/15 when milk production was 7.3% higher than the previous year, resulting in an oversupply of raw milk in the country. Clover did, however, feel the impact of lower retail selling prices.

Vorster then focused on building and strengthening the Clover brand and optimising the company’s chilled distribution network – the largest in South Africa.

Today the Clover brand is the fifth most recognised food brand in the country, after Koo, Coke, Shoprite and KFC. This gives it pricing power over its competitors. More than that, consumers trust the brand. This lends itself to Clover’s next growth vector – moving more aggressively into adjacent food categories, such as baby food, protein shakes and the like.

“The dairy industry in South Africa grows at the same pace as GDP, currently less than 1%. To grow faster than that you have to out-think your competitors,” says Vorster. “Dairy will tick along and grow with the market. Our focus is on increasing ROE through the addition of other value added products.” 

Clover’s distribution network is key to these growth plans. Project “Cielo Blu”, a R340-million project that addressed inefficiencies in the supply chain network and resulted in a cumulative R100 million of production and distribution savings in the business, has created the capacity to support its ambitions.

“Acquisition targets would benefit from a wider distribution platform resulting in higher revenues and lower distribution costs – given Clover’s significant scale,” says Dirk van Vlaanderen, investment analyst at Kagiso Asset Management.

Its flexibility and reach is visible in the latest project to enhance Clover’s reach into the township areas in order to deliver product to “mom and pop”-sized spaza stores which typically don’t have the means to collect from a wholesaler. The project is in its infancy – it has only been rolled out in three areas – but has turned over R100-million to date….. Read the full article