Tip top back under Kiwi ownership

By PHILIPPA STEVENSON

For the first time in four years, New Zealanders can enjoy a dash of patriotism with their favourite ice cream.

Tip Top, made in the Mt Wellington factory which has become an Auckland landmark, is once again New Zealand-owned, thanks to a $100 million investment in a West Australian dairy company by an ambitious company barely out of the Taranaki back blocks.

Kiwi Dairies is its name. Domination of the global food business is its game.

The deal for Peters and Brownes - Australia's fourth largest consumer dairy company and ideally placed to serve the burgeoning Southeast Asian market - lifts Kiwi's revenue to $3.5 billion, making it one of the five largest companies in this country by turnover.

Chief executive Craig Norgate, the 35-year-old who joined the company when its annual turnover was only $300 million and has headed it for six years, spelled out his ambition for Kiwi, and the entire industry, to Taranaki shareholders at the company's recent annual meeting.

"I believe that as owners of this industry, you have the ability to own a significant share of one of the few global food companies that will exist in 20 years."

He told Weekend Business that dairy product distributors were in front of supermarkets daily - more than any other food category.

"That means you have a velocity of distribution. You can out-service your competitors."

He says the spread of internet shopping will reduce the importance of drygoods in supermarkets, "but dairy will be one of the last and one of the strongest products to be there."

Because of this and because the industry strategy had identified that Kiwi could succeed in the global dairy market, "I believe the 20-year goal is achievable."

Kiwi is the country's second biggest dairy manufacturer, owned and supplied by 5700 farmers from Northland to Southland. It also owns Mainland, the largest domestic consumer food business, which has familiar brand names such as Tararua, Ferndale, Huttons, Kiwi Bacon, Top Hat, Meadow Fresh, and Galaxy.

And just as it quietly stole a march on the rest of the dairy industry to establish the first transtasman dairy company, Kiwi has also shed its Taranaki origins and slipped right into the heart of our biggest city.

In January, it moved its corporate offices from Hawera slap bang into the middle of Queen St. There they are renting, but as soon as its own offices near Auckland Airport are completed, the Kiwi name will fly higher.

The move to Auckland was significant for a farmer-owned co-operative that 10 years ago was a small one-factory provincial operation among many churning out commodity products and reaping the benefit of low-cost production.

A dozen takeovers later, Mr Norgate knew it was time to find a more convenient home for the management team. Auckland to Australia could be a return day trip instead of the two-day trek from Hawera.

"We had dined out on the culture of small town, tucked away out of sight and keeping your head down, getting on with the job sort of thing," he said. It was time to change, he said.

Some Taranaki shareholders were not enthusiastic about losing the head office, but Kiwi's founders now make up less than half the company's shareholders.

"Outside of Taranaki, people are very positive about it," Mr Norgate said.

The move has already brought benefits, including easier communication with other businesses, which Mr Norgate described as "the banking community, lawyers and accountants and everybody else who makes money off the farmers."

"A third of the population, most of the business and three of the top five companies are in Auckland, so there has been a bit of benefit bringing the country to town."

The company would "touch the region lightly" and slowly become familiar, even to the many small to medium-sized Auckland businesses which Mr Norgate has found have no idea about the $8 billion dairy industry, the country's single biggest export earner.

There is some satisfaction in changing that.

"I think you have [awareness] in Wellington because the producer boards have been based there for political reasons, and you've got it elsewhere around the country because of the reliance to a greater or lesser extent on rural business.

"But Auckland has tended to exist in isolation. While we are small, we will slowly spread the tentacles around."

The move from the provinces was also something of a trial run for this month's leap across the Tasman and a 53 per cent share - expected to go to 75 per cent - in Peters and Brownes, the company which beat Nestle to the Tip Top brand when Heinz Wattie sold it in 1996.

The move brought the innovative Australian company back on the radar for Kiwi which was also interested in Tip Top but could ill afford it while it was busy establishing Mainland out of a raft of smaller companies.

Mr Norgate first spotted the Australian company about 12 years ago, but only much more recently built a relationship with major shareholder and managing director Graham Laitt.

Mr Laitt will continue to manage the company, which will be backed into Mainland.

"We're darlings [in Western Australia] at the moment," Mr Norgate said.

"They have welcomed us with open arms. But Australia is a big place. We'll keep our heads down but enjoy the moment. The last thing we want to be is tall poppies."

But with his global aspirations, a tall poppy is just what Norgate believes the New Zealand dairy industry can be on a global scale.

The Taranaki lad never intended joining the dairy industry, but 10 years ago he horrified his mother by following in his late father's footsteps to become one of two general managers of Kiwi.

He has developed a passion for the industry matched only by his fervour for rugby, to which he devotes his spare time outside family commitments as a NZ Rugby Football Union director. He replaced Saatchi and Saatchi head Kevin Roberts, describing his own style as "more grassroots."

Last year, Norgate was widely picked as the industry executive most likely to head the mega co-op - the industry's grand scheme for integrating its manufacturing co-operatives and their producer board marketing arm to create a $30 billion worldbeater within a decade.

The plan foundered in March on a cornerstone merger between Kiwi and the bigger New Zealand Dairy Group, but hope lives on among farmers and their leaders that somehow the deal can still be brokered.

Meanwhile, the Dairy Board has pursued the overseas mergers and acquisitions strategy underpinning the mega co-op concept, and Kiwi's Australian deal also fits the bill.

It may not hurt, either, that it has increased Kiwi's worth relative to Dairy Group.

Norgate agrees that the two rivals may not be getting any closer, but neither, he says, are they moving any further apart.

Some in the industry regard a recent agreement between the two co-ops and the Dairy Board to form a vehicle for overseas investment as significant progress.

One of the industry tensions is that Norgate and Kiwi also believe a giant New Zealand global company can remain in farmer ownership with shareholder returns still linked to milk supply.

Others believe that is impossible and that farmers need to be given the option of investing separately in marketing businesses while invitations are also extended to other investors.

Norgate admits the industry bickering gets it a bad press but he dismisses those who doubt it will ultimately deliver.

"We are one of the few New Zealand businesses that can hold its own in the world," he says "and we see a model that keeps farmer ownership of it in the long term."