Dairy Crest reveals its investment plans

By Nicholas Robinson

- Last updated on GMT

Related tags Milk Dairy crest

Severnside's Frijj line has benefitted from a £14M investment to double its output
Severnside's Frijj line has benefitted from a £14M investment to double its output
Capital investment is sexy and Dairy Crest has just come to the end of a four-year investment plan, which saw £75M spent across the company’s dairy operations.

Key points

The Severnside site, here in Gloucester, got about half of that between 2011 and 2013.

The company has 10 sites in all and we’re the biggest at 11,736m², with a turnover of £300M. We’re seen as the flagship site because we’re the largest in every metric, plus there are three main factories processing three products including white milk, powdered milk and FRijj, which is our milkshake brand.

We’ve had three factories on this site processing three products since the start of 2000. We’re soon to take on butter following the recent closure of the Crudgington site, where Country Life was made. As a result, we will be making butter to meet the needs of the whole group.

To cope with the additional output, we’ve had to invest a significant chunk of money refurbishing our butter capabilities, which included renewing all of our kit and equipment.

Along with investing in the butter plant, we’ve spent a lot of money renewing our effluent plant to give it some longevity. This was much needed since the site is 35 years-old and lots of the facilities and infrastructure are of that era. It will cost us £10M, but it will ensure we’re fit for the future.

The FRijj line is also an old area of the business that hasn’t seen much investment since its installation 20 years ago. But we’ve just pumped £14M into it last year. It’s been due for a good overhaul and it’s completely different when you compare some of the new kit to the old kit.

Investment (Return to top)

This site is the only place to produce FRijj in the company. The investment includes a new processing plant, a new filling line and end of line flexibility, such as palletising. It’s not going to bring new jobs, but it will safeguard existing jobs.

Investing has allowed us to double our efficiency of FRijj production. The old line used to produce 170 bottles a minute, but the new one can produce 400 a minute. It also operates on a linear filling format, whereas the old one was a rotary operation. Bottles can also be foil-capped, which extends shelf-life and cuts down on waste.

Smaller 250ml and 220ml bottles can be filled on the new line, which means we can move between the current size, which is 500ml, to one for the convenience and snacking sector. This is allowing us to break into new category areas and fixtures within supermarkets, which is important for the brand to grow.

Currently the milkshake market is growing by 10 to 15% a year, so it’s a significant area.

FRijj is a long-standing brand and somewhat dominates the market, so we’ve got a good footing to go on. We’ve launched three new coffee flavours in 220ml bottles to sit on the ‘food-to-go’ shelves in supermarkets and convenience stores. The flavours are coffee caramel latte, coffee mocha and coffee latte.

New products (Return to top)

We can leverage coffee to our advantage to compete with the likes of Starbucks and the other brands with coffee drinks on the food-to-go shelves. Although we’ve brought our new products in after the category started to grow, I think we’ve caught the rise in time with the three new coffee flavours.

We’re the biggest part of the milkshake category in branded and we operate in a large part of the own-label market too, which comes from our Chadwell Heath site. So across the area, we’ve got considerable presence, but we’ve still got to compete with the likes of Starbucks and other brands pushing in there, including new functional niche brands such as Upbeat and For Goodness Shakes, which are expanding the market further.

Once we’re comfortable with the coffee products, we’re going to work on more new flavours and look at functional beverages. Afterwards, we’re going to expand into the international market, where we’re not currently operating. Although steps to get into the international market have been taken, we’re not going to talk about it too much until the plans are finalised.

There has been a lot of investment and new product development activity in FRijj, but that makes up only a small part of our business. About 35M litres of the half a billion litres of milk we deal with here a year goes through the FRijj line. White milk is the biggest part of the business. Broadly, 80% of the volume of milk going through this site goes into white milk, so it’s a massive part.

Around 60,000 cows supply this site and we have up to 70 tankers delivering milk each day. The white milk business here services customers such as Waitrose, Sainsbury, Morrisons, Lidl and our milk brand Country Life.

Dealing with that much milk meant we had to upgrade our white milk bottling lines. We recently replaced one of our big bottle fillers in the dairy with a high speed bottle filler, which has the capability to do 250 full pints a minute, which is a lot of milk.

‘Cut-throat industry’ (Return to top)

Milk is a difficult area at the moment, though. It’s an horrendously cut-throat industry. We’re in a world where Tesco is selling four pints for a pound, with some other retailers following.

Communication between retailers, processors and farmers isn’t as good as it should be.

We have 1,600 farms to deal with, and they have to have a fair price for their milk. Processing costs and wholesale margin then have to be taken into account, but the supermarkets are selling milk too cheaply for there to be a healthy profit for everyone.

And fundamentally, as consumers, we’re not paying enough for our milk, and that’s what it really comes down to.

If you look at our white milk operation, we’ve got just shy of a £1bn business, which is turning over just shy of £10M in profit.

Not financially sustainable (Return to top)

Now, that’s not sustainable in financial terms on a long-term return on investment basis. None of the processors are making money, it’s not a healthy business to be in and the farmers are making little money too.

The retailers have got a leading role to play in the solution, as they have the ability to set the price. How much they absorb themselves or how much they try to push onto the supply chain, we will have to wait and see. There’s also a role for consumers, because milk is cheaper than bottled water, which is just surreal when you think of what it's got to go through to get it to the supermarket.

My career in the food industry has spanned 20 years, eight of which I spent with Northern Foods in various senior positions. But in my two and a half years at Dairy Crest, milk prices are something that’s made me take a bit of a step back.

A lot of work needs to be done so everyone in the supply chain can make a fair and reasonable amount of margin. However, while there will continue to be problems in the wider dairy sector, I think the future of Dairy Crest’s Severnside site is quite positive.

We’re in a good location, we have a good balance of products in our portfolio and we’re going to continue to make those sexy capital investments in the years to come.

Watch our video to see Wood talk about how the supermarket price war is threatening the future​ of the UK dairy industry. 

Factory facts (Return to top)

Location: Dairy Crest, Oldens Lane, Stonehouse, Gloucester, GL10 2DG

Staff: 700

Products: White milk, cheese, milkshakes, powdered milk and butter

CUSTOMERS: Waitrose, Sainsbury, Morrisons, Lidl for white milk and many other outlets for FRijj



NAME: Richard Wood AGE: 43

JOB TITLE: Site director Dairy Crest Severnside

Domestics: I’m married with a son aged nine and a daughter aged seven

OUTSIDE WORK: I coach my kid’s rugby team

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