Alpina escapes Latin America’s Risks by Focusing on its U.S. Operations

Bloomberg Línea Ideas — In early December, Alpina announced a majority investment in Clover Sonoma, a value-added dairy company that is a leader in California, the most populous state in the U.S. With the acquisition, the Colombian company – founded in 1945 — took another step forward in its internationalization strategy, which includes exports to 19 countries and plants in Ecuador and Venezuela, in addition to those it owns in the country.

In addition to collecting more than 1 million liters of milk per day and acquiring close to 870,000 kilos of fresh fruit in 2020 in Colombia, Alpina is committed to sustainable practices throughout the supply, production and distribution chain. This is the message received by the more than 4,300 employees working in the Andean region, which needs to be transmitted to the U.S. West Coast in the near future.

On this and other topics, Bloomberg Línea spoke with Ernesto Fajardo, president of Alpina. This is an edited version of that conversation.

Internationalization strategy

For years we have had a strategy of diversification and growth. Part of this has been achieved by exporting products that we manufacture in Colombia. However, in some places, some barriers prevent us from selling part of our portfolio because of its dairy content. In response, and to cite one case, in Spain, we have a maquila operation that allows us to have a presence in Europe. On the other hand, we have plants in Venezuela and Ecuador, where we are the second largest player in our segment. However, the risks in the region are of the same order, as in the economic field, obviously depending on individual realities. That is why we are interested in returning to the U.S, where we had a plant that we ended up leaving.

Acquisition of Clover Sonoma

We had been looking for a while for something that would fit our capabilities until in early 2021, we came across a company located in Northern California that was looking to expand. We started talking and the first thing that caught our attention was that we had many things in common: family origins, a history of many decades, value-added, organic-oriented products, emphasis on quality and long-term relationships with cattle ranchers, our fleet of trucks, similar personnel management philosophy, good social and environmental practices, among other elements. So, the dialogue was based on this proximity without having a clear final objective. In the process, we concluded that joining forces made sense to grow and project the Clover brand, which is very well positioned. We are very attracted to the fact that there is a clear emphasis not only on how it is consumed but also on how it is produced, as well as having the support of Marcus Benedetti, a member of the founding family and third generation, who is a recognized figure in the community.

The opportunity

In California alone, we have great room to grow because we are strong in an area that is home to about 10 million people, but we aspire to reach the places where 30 million more Californians live. It is key that the state’s large organic milk production center is where we operate, near the city of Petaluma, which gives us a great competitive advantage. Then we also find an opportunity for portfolio expansion that can include some cheeses or a broader line for children, and there we can share innovations that we have developed. That gives us great potential and helps us to offset the risk with a great ally. Clover’s sales are close to $220 million per year and it collects some 370,000 liters of milk per day.

Lessons learned from experience

We continue to export oatmeal, Bon Yurt and arequipe from Colombia, products with which we have a presence on the East Coast of the U.S. I think we can continue to grow there. What we learned from a past experience (a plant located in Batavia, in the state of New York) when we wanted to enter the North American market with a broad and full portfolio, was that we needed a series of capabilities such as positioning a brand – which is time-consuming and costly — in a highly competitive environment. To achieve volumes and use the installed capacity, we ended up dedicating the plant more to maquila for others than producing our own brands. So, we decided to leave and look for capabilities. We examined very interesting ventures, but Clover had the characteristics that we were looking for: market presence, experience, team, consumer recognition, and the possibility of incorporating our products and brands such as Bonyurt or Finesse.

Revenue composition

This company should bring us revenue growth of about 42% or so. We expect that by 2022 we will be approaching total sales of close to 3 trillion Colombian pesos and one-third of that will be in the U.S.

Next steps in internationalization

We are open to continuing to review other markets where we can find similar opportunities. Operations that have a brand or a position in those markets from which we can grow together. It is not very easy. It depends on what we find, although for now we will be dedicated to consolidating this alliance and achieving the objectives we have set for ourselves.

Colombian market performance

2021 was a year of ups and downs, at least during the first half of the year. Milk was a product that held as part of home consumption, but we have portfolios that are more value-added and that depend on sectors such as hotels or restaurants, as well as students’ lunch boxes. Even so, we were able to grow sales in segments such as cream cheese, parmesan cheese, and cheese preparations. May was difficult due to the damages in Cali and Cauca. The Caloto plant was closed. But in the second half of the year, we noticed a recovery, and this was seen in volumes. In the last quarter, we even grew compared to 2019. We are optimistic about the reactivation.

The milk market

During 2020 the market grew, but in 2021 companies like ours reduced volumes. We did indeed have problems in stockpiling, especially in the last few months. Available information shows a reduction of 1.6 million liters in the country. This could be related to an increase in costs, especially for concentrates, which depend on imports.

Acknowledging this problem and seeking to encourage milk production, we made two readjustments in milk production last year and we hope this will lead to an increase in supply, although January is difficult due to the weather and the availability of pasture.

Consumer prices and demand

When costs go up, what companies try to do is to improve productivity to have the least impact on the market. To the extent that this is not possible, we have to decide on the size of the adjustment, understanding that there are more than 50 dairy processors in the country and there are many competitors. Every time this happens, we look at the different baskets to evaluate how we can absorb the costs to have less impact on volume. However, there are inevitable increases and not only in this industry. Bringing in a container now means higher freight rates or delays in the arrival of raw materials. We have had to adjust, something that has happened a lot in this post-pandemic period.

Evolving consumer tastes

Our purpose in helping build a more sustainable world remains the most important thing. When you think about a country like Colombia, the responsibility is clear and it is also about delivering the food we make to all parts of the country. So we have to make sure that we have the logistics, which is part of what we do well. On the other hand, tastes not only change, but people want to consume according to what they like. A person who is an athlete demands more protein, less sugar, but others love dessert. I, for example, eat a wafer every day, which I love, and then I have to exercise to maintain myself. That is why the challenge is to have a broad portfolio of products that meet the needs of each consumer.

Innovation

Some people do not want to consume any dairy products and in response, there are imports of products with an almond base. We have tried and found (marañón) cashews, which began to be produced in Vichada, from which we have produced beverages with good acceptance. We are also developing the high-protein Greek category, with the inclusion of more fruits. We have just launched snacks, which are products with dehydrated cheese. We are in the middle of a very successful campaign in the market. This is a sign of the need to adapt to the number and proliferation of tastes, making it clear how things are produced, something that is increasingly important for many consumers. The change we made to our logo and brand, with 18 commitments around being sustainable and having good practices, shows the priorities not only with what we do but how we do it.

Expanding the portfolio

We have been diversifying in order to add value. In La Cabaña, which are our experience stores, we offer new options to measure customer reaction. But we have also entered other segments, as happened with Don Maíz, focused on arepas, where we also expanded options such as the use of yucca, to cite one case. Likewise, we entered into a company that provides supplies for restaurants, which is very important in categories such as sushi. We also bought Boydorr, a food supplement company with a medical and nutritional sense that has been growing significantly and shows that we are committed to nutrition, oriented to a better quality of life. This is a channel with great potential not only in Colombia but also in other countries through exports. In short, we make investments where we see the greatest possibilities, within a framework of sustainability and responsibility with the environment.

The Alpina of the future

I see it within the same purpose of providing sustainable nutrition, with attention to the social impact either with farmers or our employees. All in a company that will operate in a good number of countries, with a portfolio that includes dairy products, as well as other items, with the right offer of flavors and with the most demanding quality standards.