PARMALAT

Parmalat is one of the major players in the South African dairy industry, with a reputation for innovation and quality, and a strategy in place for further aggressive growth.
Award-winning cheeses under the Parmalat, Simonsberg and Melrose brands, and iconic flavoured milks like Steri Stumpie are part of its portfolio. So too a range of yoghurts and long-life milks, butter, ice cream, cream and fruit juice
But as can happen to its primary commodity, Parmalat SA has seen its fortunes turn abruptly sour, curdle, and – following a recent change of ownership – rise cream-like to the top of its sector.
Arriving in South Africa in 1998 as an arm of the giant Italian multination corporation and global leader in UHT milk production, Parmalat SA achieved rapid and impressive growth. But in 2003, five thousand miles away, the cream suddenly hit the fan with the exposure of a $14 billion black hole in Parmalat finances.
Dubbed ‘Europe’s Enron’ – the scandal engulfed Parmalat senior executives, blue-chip European and American banks, accountancy firms, politicians and 130,000 helpless small shareholders and triggered an eight year marathon of court cases in Europe and America.
Riaan Van Greuning, now Parmalat SA’s group manager for manufacturing recalls the moment.
“South Africa was very profitable but we found ourselves caught up in this international debacle and embarrassment. The Group was technically insolvent and although we were strong, Parmalat South Africa was under great pressure – a huge setback for a profitable unit.” He had joined Parmalat the previous year and was plant manager at Port Elizabeth at the time. “We all felt this massive uncertainty: would we be sold, did we have a future?”
But the biggest milk shake of all time was to have a happy reception. Parmalat went into administration and in the ensuing turn-around strategy South Africa emerged among the core operations.
“From that point on we grew from strength to strength and we remain very strong.” Last year Parmalat became a subsidiary of the French group Lactalis, and Van Greuning is bullish. “Just a few months down the track it’s extremely exciting. We are now exposed to international product specialists, and there’s a lot of focus on Parmalat and the growth in Africa. We are fortunate to be part of the new Lactalis Group and the knowledge base within. It’s all very positive.”
But with South Africa’s per capita consumption of dairy products far lower than Europe, Australia or North America, marketing for growth is a big challenge.  “There are different schools of thought about this. Cheese is a major part of our business, and in general this is on the upper LSM” – the market research tool that groups people according to their living standards using criteria such as degree of urbanisation and ownership of cars and major appliances.” Cheese consumption in still very low in the lower LSM and we are developing these markets.”
“Moving to milk, the per capita consumption remains low, and I think we have not succeeded in communicating to the public all the benefits of milk. We are now constantly engaging with South African companies on this point. The mistake is on our side, and we need to convince the consumer of the benefits of drinking milk every day in higher volumes.”
Strategies here include customer surveys, new marketing techniques and a major focus on flavoured milk and the yogurt market. “Recently we launched Presto – a squeezable yoghurt tub – and overall we are looking to new innovations and creating new energy around yoghurt, milk, and flavoured milk consumption.”
“This is very competitive business, and we respect our major rivals. We see volume impacts when they launch specific strategies, but this means we improve our own strategies, analysing the future and how we move around it.”
The 24/7 operational management of a complex chain involving many dairy farmers, eight factories, warehousing, distribution, and a 63 raw milk tanker and 280 delivery truck fleet is at the core of the Parmalat SA operation. Excellent supplier/customer relationships are another key with a dedicated staff focused on farmers and another on major clients such as Shoprite, Checkers, Pick ‘n Pay and Woolworths.
But in a buoyant market input costs are now a serious inhibitor. “Labour costs are going up 8-9% each year, raw materials are costing more and energy is going up 15-20%. The problem is our input costs continue to rise, and since we cannot increase prices we have to take cost out of the business.”
In the period between the corporate scandal and Lactalis arrival last year, a major challenge was employee engagement. “There are many tools available and some are simply buzz words. But in 2010 we started using a global benchmarking system called ’20 Keys’  to engage and train our employees and speak a common language throughout the business – and I strongly believe this been a component in our subsequent success.”
Key 2 – Goal Alignment – for example sees Van Greuning the Key ‘Champion’, responsible for the goals of each mini business within the company aligning with those of the next level, the company and its CEO.
“Some of this may sound basic. But if you want to implement something at a shop floor level where for example literacy and numeracy is a problem, these tools are extremely important since they use pictures but also world class practices. I see huge improvement in many of the keys and we are sharing these successes with other companies.”
Aligned with this and against the national backdrop of major skills shortages, Parmalat has created a large, well structured development programme for its 2,000 employees.
“We are extremely proud about this. In each factory we have human capital development people, focussing on a plan for every department on how to develop individuals. We are spending a lot on apprentice and graduate programmes. And we are succeeding. Whereas in the past we had to battle to get technical staff – and paying huge premiums to find them in the marketplace – we are now developing many of them in-house. Some will be our future managers, with a general worker able to follow a specific route up to a managerial role. And yes, I believe other companies can learn from us.”
The SA operation already exports though its agents to other African countries from Lesotho to Ghana, with some products reaching out to the Far East including China. And innovation, driven in part by the R&D department, will continue to push Parmalat forward.
“We have a very aggressive growth plan. To achieve this we will continue to innovate – new pack formats for example – and new products in different LSM markets. At the upper SLM we believe the public perception of Parmalat is one of superior quality products.
“Parmalat SA is a strong team. Although we remain humble we have to continue to develop a culture of winning – a ‘Passion for winning’ in everything we do.”

By Ben Walker
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Category: Business Profiles