Kiwi cereal maker Smartfoods accelerates expansion plans on trend to healthy eating

Kiwi cereal maker Smartfoods is about to shift into a new factory that will treble production capacity as part of a five-year plan to boost revenue to $50 million from $15.7 million by jumping on a trend towards healthier eating.

Smartfoods, which has around 50 staff, has grown at a compounded annual growth rate of 36.5 percent since its first full year of trading in 2005/06 and exports account for more than a third of revenue. The Auckland-based company’s current St Johns factory is nearing capacity and Smartfoods is shifting to a 5,600 square metre Mt Wellington site, costing $2.5 million to fit out, which should accommodate growth for at least the next five years.

The company has the licence to manufacture Vogel’s-branded cereals in New Zealand and China, makes a Hillary-branded cereal range where royalties go to the Ed Hillary Charitable Trust, and will launch its own branded cereals in the next two months.

Chief executive Justin Hall started Smartfoods in the kitchen of his Parnell, Auckland home in 2003. He gained the licence to manufacture Vogel’s cereals, beating out Goodman Fielder, which makes Vogel’s bread. Kellogg’s acquired the licence for Vogel’s cereal and snacks in Australia where Smartfoods sells private label cereals to supermarkets. Hall’s wife, Vicky Taylor, joined the company a few years later when it reached sufficient scale to take the manufacturing from contract to in-house.

While the company can apply to extend its Vogel’s licence to other countries, it had an unsuccessful foray into the US market with a gluten-free cereal. Hall said the five-year strategy focuses on three markets, New Zealand, Australia, and China, rather than being distracted by the many opportunities in front of them.

“One thing that evolved as part of our strategy was finding the right market opportunities to chase. There’s a lot of good ones, and then some great ones and we have to be clear about those because we only have so many resources to focus on a few key areas,” Hall said.

Julian Davidson, former CEO of Independent Liquor, joined the board last month as an independent director, and Taylor said he’s a good sounding board as the company rapidly grows.

“What has got us to here, is not what’s needed to keep expanding the business to that next stage. When you first start out you have to disregard what people tell you or you’ll never do it, you have to believe in yourself. At some point you reach the next stage of growth where you have to start listening to other people and be prepared to take advice. It’s a pivot point where you say ‘what do we need to be doing differently?’.”

Hall said they’ll continue the same funding path for growth – out of cash flow, bank debt, and a number of angel investors, and he has no plans at this stage for a sharemarket listing of the private company which he and Taylor majority own.

The pair say Smartfoods is riding the wave of consumer sentiment away from processed to healthy foods with natural ingredients. Their premium products include gluten free, lower sugar, and even a cereal for those with irritable bowel syndrome who find digestion difficult.

It launched nine new consumer products this month including toppers, a pack of raw nuts and seeds that can be spread over cereal or yoghurt and add protein to any meal. This financial year around half of its revenue is expected to come from new products launched in the past two years which is particularly high in the fast moving consumer goods sector.

Hall prides himself on the company having had a culture of innovation from the outset. For example, it was the first worldwide, as far as he knows, to introduce the natural sweetener stevia to breakfast cereals three years ago.

Most sales into China over the past two years have been online through local distributors and Taylor said that’s provided a lot of useful consumer feedback because the Chinese are avid online commentators about what they like and dislike on products.  Smartfoods is about to start producing cereals tailored specifically for the Chinese market rather than just the existing range while seeking additional distributors.

Until now the innovation has been mainly iterative – introducing new types of cereal. But Taylor said the new strategy aims to do less “similar stuff and more different stuff” and they’ll take a fresh approach in future to ensure that transformational innovation happens rather than sits as ideas within the team. Hall said the new factory provides a lot more production line flexibility to “zig and zag” based on market trends.

The pair are keeping quiet on their own branded product being launched soon, apart from saying it will offer something new to the market that didn’t suit sitting under the parameters of the Vogel’s brand.

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