Yowie to break into US market
July 29, 2014 - 12:15AM
Going global: Yowie will be stocked by a US convenience chain from August.
Investors might look at 60 per cent climb of the revamped chocolate manufacturer Yowie and dismiss it as gambling. This is true to some extent, but there are some important differences.
Last week, the company’s mission to re-launch its chocolate ‘‘Kinder Surprise’’ type product into the US market received a massive boost. The US market is the only place in the world where you need a patent to sell an encapsulated toy in chocolate and only one patent has been issued, which is owned by Yowie. It expires in 2018.
As we had envisaged, Yowie announced that it had secured a purchase order from a large US national convenience chain, Valero Corner Stores, which has up to 1900 stores across North America. Starting in August, Yowie will deploy a proprietary display unit in 235 Valero stores to be situated just before the cash register. With successful delivery of this launch, the company would expect the deal to be rolled out throughout the Valero US network.
One of my favourite movies is The Sting, starring Robert Redford and Paul Newman. Having a good story does not differentiate stock gambling from speculation. What does is the fact that gambling involves a binary outcome; you either win or you lose. Speculating on the stock market involves a complete range of outcomes - from a big loss at one end to a massive win at the other.
Also, one of the big insurance factors that investors sometimes have is cash on the balance sheet. It’s certainly one of the factors we look at. There are no guarantees, but it may help to limit losses.
If it wasn’t for its $11 million of cash, we would never have backed the newly revamped chocolate maker last May. Its cash then represented about 17 per cent of its 65 cent share price. Its stock at the time of writing was 83 cents.
Cash equals time and time equals patience; management isn’t forced into making rash decisions or spending their time chasing financing rather than chasing sales. These companies don’t have many resources and their employees’ time is highly valuable.
In Yowie’s case, its executive chairman Wayne Loxton is an unlikely character to take charge of a chocolate manufacturer. His background is in start-up mining projects. He heard about the Yowie opportunity via a colleague with whom he was investigating a Mongolian coal deal.
The big attraction, he says, was that the Yowie brand had already achieved annual sales of $100 million in Australia the mid-1990s when it was owned by Cadbury’s. The brand was pulled by the UK-based Cadbury because it didn’t own the intellectual property - the IP owners wouldn't sell, but Cadbury retained the licence to distribute, and it effectively sat on Yowie in the mid-2000s.
When Cadbury was purchased by the US-based food giant Kraft in early 2010, an opportunity emerged for Yowie’s owners, who approached Kraft to take over distribution of the Yowie brand. Kraft’s policy is not to be involved in children’s confectionery so a deal was eventually signed. In 2012 Yowie purchased the global distribution rights and bought the remaining trademarks back from Kraft.
Now it has been recapitalised by Loxton and his friends and it has manufacturing capacity in the US, the Yowie brand is going for gold. To give you an idea of the size of the market, Europe, which has a similar population to the US, sells about 1.2 billion units a year. Loxton has plans, and the capacity in the US, to sell 500 million Yowie chocolates over the next five years.
It’s still a punt, but we would argue that the odds are better than going to the races.
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