When it comes down to it, running a business is about profit – most companies will want to do this whilst also promoting good values and ensuring safety – but without making money, there is no business.
Expanding your business is a natural way to increase profit, whether that’s through product diversification or new markets (both in segment as well as geographically).
In a recent free webinar (watch here) we brought together four experts, including two manufacturers who discussed the ways they have expanded for profitable growth, alongside tech provider Infor and the Institute of Export and International Trade to look at the solutions available to navigate pressures and hurdles placed on today’s ambiguous food and beverage producers.
Watch a short snippet from the hour session below.
Getting financially set for international trade
When pricing goods for export, Kevin Shakespeare, the Institute of Export and International Trade’s director of strategic projects said the strategy must be different to that of the domestic market.
An export needs to factor in areas such as market convention and competitors in the overseas market, their own exporting pricing strategy, their sales route to market strategy, costs of due diligence, as well as payment terms and Incoterms (international commercial) impacting pricing.
Exporting pricing strategy
In his address, Shakespeare described a few ways to approach export pricing; one method is the ‘cost, plus’ protocol. In other words, the exporter applies their domestic production costs and then adds administration, R&D (if applicable), additional overheads (e.g. product modification), freight costs, distributor margins or agent fees (if needed), intermediary support fees (e.g. food business operator EU), customs clearance and trade documentation, profit margin costs.
However, he warned that this pricing approach may result in the export price increasing to an uncompetitive level once all the costs have been added.
Another tactic he suggested was ‘marginal cost pricing’ – a more competitive approach.
“Export price is based in the variable costs of producing the product and not the total costs. Variable costs vary according to the level of output and include raw materials, purchases and supplies, wages and electricity,” he illuminated.
Payment terms and currency risk
When it comes to payment terms, there are several options for consideration for exporters.
Being competitive will increase your chances of winning the export sale, but as Shakespeare cautioned, additional risks will arise the more generous you are with those terms. So due diligence such as credit reference cheques and a good training history are advisable.
For Shakespeare, when it comes to managing currency risk, one of the most important things you can do is “recognise there is actually a currency risk when you are buying or selling in another currency”.
If you are operating in one other currency, it may be possible to open up an account in that currency, for example. You could also consider forward foreign exchange contracts.
“Be sensible with understanding currency risk. You don’t want a situation where the profit margins you’re making on the export sale are impacted dramatically by negative movements in the foreign currency against the pound,” pointed out Shakespeare.
Understanding your new market
While Shakespeare’s presentation offered a good steer around financials as well as regulations and trade barriers, Luker Chocolate’s Cristian Chu, who acts as the company’s business lead, overseeing new opportunities and product development, spoke from the perspective of an organisation exporting into the UK.
Based out of Colombia, Luker Chocolate has been creating chocolate since 1906.
Colombia has been embroiled in 50 years of conflict with rural communities being the worst impacted. According to the chocolate brand, this has led to 63% living in extreme poverty, 45% of young people being unemployed and 86% with unmet basic needs such as access to clean drinking water.
Luker Chocolate has been working hard to use its products as a “tool for change”, committed to delivering a strong ESG strategy within its territories through responsible sourcing and by working with partners to fund and carry out projects such as, building classrooms and creating access to safe drinking water in villages.
Since its inception, it has expanded significantly, with three cocoa farms in Colombia, alongside a manufacturing facility there, as well as in Slovakia, and a 3PL warehouse in Chicago, US. It also has commercial offices in Colombia, Slovakia, the US, UK and Belgium. Today, it boasts 2,000 employees, with more than 40 countries using its chocolate.
Luker Chocolate’s supply chain operates differently to a lot of chocolate manufacturers. Chu explained that most start with beans imported from the North Hemisphere with production in elsewhere e.g. Europe or the States. Whereas Luker begins at source and then exports to these regions. This has advantages in terms of production definition, Chu clarified, but it’s not without its challenges.
“We have the advantage of direct sourcing, meaning we’re close to the farmers and have more access to different cocoa beans. So we can specialise our R&D capabilities to configure chocolate and that gives way to more flexibility in our manufacturing and supply warranty. However, exporting around the world is more challenging,” he said.
Chu explained that understanding its customers’ differing needs is a crucial aspect for success. This includes cultural understanding – for example flavours and ingredients – and even impacts order quantities.
The second hurdle is navigating regulation and certifications.
“Being a liable supplier to our customers is very important especially when it comes to a ‘risky’ country like Colombia,” he said, referencing its conflict.
“We understand that we need to be an authorised economic operator, giving reliability to our customers.”
The business has also recognised the importance of safety and transparency; as such it is a part of the Business Alliance for Secure Commerce and has worked hard to become a B Corp to offer further reassurances.
Expanding into new areas
Of course, exporting isn’t the only type of way to grow, entering new segments within your product application is also worthy of consideration.
Last year, Tom Lindley was working for Quorn Foods which was looking to accelerate its growth by expanding into new markets – Marlow Ingredients was the answer.
Now working as Marlow Ingredients’ head of strategy and marketing, Lindley explained the reasoning behind this sister division.
Against a backdrop of health and climate challenges, with an ever-growing population, Quorn saw the opportunity to expand into segments where it does not operate, such as dairy and beverages.
“We're already in 17 countries, we’re serving over a billion. We want to get to eight billion,” stated Lindley.
Mycoprotein – which Quorn is made from – touts a range of benefits, he explained, including being low in saturated fat, containing amino acids, and using less water, land and CO2.
By expanding its market through a more diverse portfolio and into a new market, both in terms of category and customers (i.e. b2b rather than b2c), the company believes it can help to address some of today’s toughest challenges whilst also accelerating its growth.
With the launch of Marlow Ingredients earlier this year, other businesses can now use Quorn’s bespoke mycoprotein – allowing both the expansion of this alternative protein and the business.
“We want to make it available to the world. So we're going to partner with other winning brands both within meat alternatives and outside of meat alternatives, into new markets. And one of the great possibilities that creates for us is that the new partners are experts in their local needs and their local trends. Partnering with markets and companies that are already successful in those markets allows us more chance of winning with our mycoprotein,” he explained.
Helping to make expansion and growth more manageable
Tools to help enable a more effortless expansion are available that can help address some of the challenges manufacturers are seeing and which the speakers raised.
While everyone will be keen to increase profitability and develop new revenues, it’s important to first manage your foundations – i.e. your costs and safety standards.
Companies will be at different points of their financial journey and, as a result of Covid, many will be trying to find their footing again.
The key to managing these aspects, as Andrew Dalziel, vice president of industry & solution strategy at Infor noted, is better forecasting, planning and management.
Once you have control of your costs, you’ll be able to start driving your plans for growth, but it’s vital this organised way of thinking doesn’t fall to the wayside.
The crux is that support is needed – planning and management doesn’t stop at finances and safety, it continues deep into your supply chain, encompassing many of these attributes as well as introducing new levels of compliance and organisation. And companies need the resource and capability to make a success of it.
Looking at some of the existing and more traditional tools, Dalziel said: “In many cases legacy IT solutions aren’t helping. They’re slowing businesses down and, in the past, they’ve been difficult to replace.”
He explained that most traditional systems will require frequency updating which can result in companies missing out on growth opportunities, whilst limited processing capacity won’t allow for peaks and demands in the market.
Infor’s solution is built for competitive advantage, with food and beverage “baked in”. It’s an industry-specific, cloud system that is purpose build for F&B by people with knowledge of that area.
Due to its micro vertical segment capabilities, it doesn’t require customisation either. The tools needed to develop and manufacture products and sell them to existing and new markets, managing inventory and financials are all built in. This includes translations and localisations for financial taxes and reporting across the globe, alleviating the risk of fines and non compliance.
Being a cloud native platform, it also allows companies to innovate and outpace competition, and avoids the need to buy separate servers.
“We deliver capabilities in an automated fashion, so you’re always up to date,” he said, meaning agonising upgrades are avoided.
“It's an architecture for innovation, which means that you can adapt to change faster and with greater agility to meet the changing market needs and compliance.”
Interested in finding out more and hearing their insights first-hand? Then watch our free webinar ‘Expanding into new markets for profitable growth’, available on-demand here.