Creamer to stir things up for a2
MARCH 24, 2019
The a2 Milk Company is set to make its biggest strategic move in the world’s largest dairy sector, launching a range of products into the burgeoning $US2.2 billion ($3.1bn) coffee creamer market in America.
The company released its new natural dairy creamers at the Natural Products Expo West in Anaheim, the world’s largest natural and organic products event, and will continue negotiations with retailers to carry the products in US supermarkets.
The company’s US chief executive, Blake Waltrip, said a number of retailers had already agreed to take on the product.
“We were really pleased with the step change in awareness around the a2 proposition at Expo West,” Mr Waltrip said.
He said a2 was preparing the product to ship to the retail trade by the end of June.North America dominates the global coffee creamer market in revenue terms. While more non-dairy creamer products have been released in recent years, led by Nestle’s Coffee Mate brand, consumers are returning to refrigerated liquid creamers.
The move into the creamer category comes after a2’s fresh milk sales in the US doubled over the six months to December 31.
The success of the fresh milk product in the Australian market has led a2 to move into new market segments, including the infant milk formula business.
That business is now growing strongly in the Chinese market.
The company’s Chinese revenue rose to $164m in the six months to December 31, up 50.1 per cent, with earnings before interest, tax, depreciation and amortisation up 41.6 per cent.
Chief executive Jayne Hrdlicka revealed at The Australian’s Global Food Forum last week that a2 would hold its inaugural strategy day for investors in China later this year.
Mr Waltrip said an infant formula product was on the agenda for a2 in the US.
“There will be a right time to launch the infant formula category in the US.“It is a very different category than it is in China.“It is a $US4-$US5bn category in the US. There are two big players in the space that provide product at reduced prices for people in need,’’ he said.
“We want to be sure we have built enough awareness around the a2 proposition prior to launching infant formula in the US. But we do see it as part of the future here.”
The company continues to extend the geographic reach of its US distribution network and its products are now available in almost all 50 states and across more than 13,000 retail stores.
“The stores we are in the longest are showing the highest velocities (rate at which products come off the shelf),’’ Mr Waltrip said.
All a2’s products in the US are extended shelf life offerings.“We get north of 70 days coming off the line. It is ultra pasteurised, but it doesn’t affect the flavour of the milk,’’ he said.
Four family-owned dairy farms and a processor in at Syracuse near New York supply a2. It also has farms and a processor in Nebraska and California.
The company’s US business is still to break even and after its recent half year results broker Citi noted the break-even target in the US appeared unchanged, despite a planned 22 per cent increase in investment to $US27m.
“We are investing ahead of the curve in the US and we wouldn’t be doing that if we had not proven a strong potential for the business here,’’ Mr Waltrip said.
After a2’s half-year results, one long-time investor in the stock — Ophir Asset Management‘s senior portfolio manager Andrew Mitchell — said the US milk market was worth in excess of $US13bn per year.
The a2 shares closed 7 cents higher at $13.41 on Friday.Earlier this month they rose above $14 for the first time.
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