Lewis Road Creamery eyes China as potential export market

Lewis Road Creamery will make a final decision this year whether to export fresh organic milk into China's Shanghai.

The premium dairy brand company is also planning to release a number of product extensions and has already moved beyond dairy products into baked goods.

Lewis Road had 340% growth in retail sales to $40 million of its butter, cream, organic milk, and flavoured milk products during 2015 – the year founder Peter Cullinane calls "the chocolate milk frenzy."

His big decisions this year include whether to get serious about exporting and how far to extend the product range beyond dairy. For the past couple of months the company has been trialling sales of Lewis Road Bakery premium kibbled grain bread in 12 Auckland retail outlets.

Mr Cullinane says the company is exporting small amounts of butter to Australia and has been investigating a wider move, in particular fresh organic milk to Shanghai. Other markets under consideration include Australia, the UK, and the US, though he thinks the latter may be beyond the company's current reach.

One of the advantages of being a small operator under a majority owner is the company he founded in 2011 can make decisions more quickly than some of its larger rivals, Mr Cullinane says. "When we do [export], we will do it quickly."

But he thinks New Zealand companies are too focused on export, forgetting the local market.

"We will export when we are doing New Zealand really well," he says.

The company's phenomenal growth in chocolate milk sales, which on launch in 2014 saw queues in supermarkets and security guards overseeing allocation, has abated from 48% between the last quarter of 2014 and the first quarter of 2015 to more normal levels.

"It was a once-in-a-blue-moon phenomenon," he says. "But it was an extraordinary boost to the business."

Two million litres of chocolate milk were sold last year, with retail sales still a respectable $5.5 million in the fourth quarter of 2015. Discounted bottles have been spotted on sale of late, which Mr Cullinane attributes to an ordering glitch.

Vanilla and coffee flavours were introduced when it extended flavoured milk into the South Island in October and he says other flavours will be added this year: think strawberry with real fruit.

Other dairy brand extensions are planned in coming months, which Mr Cullinane prefers to keep under wraps for now but the cream range will have sour cream and crème fraiche added at some point.

The company's organic milk sales continue to grow despite increased competition, with Goodman Fielder releasing its own range of three premium organic milks under the Puhoi Valley brand last year and Fonterra launching Anchor Organic last May.

At the time, Mr Cullinane labelled Goodman's move "pathetic plagiarism" but has now mellowed to "all competition is good."

"The impact it will have is more a slowing down of growth," he says. "It took us a long while to get well-established and others will struggle to catch up. We have a good head start."

Lewis Road holds half of the domestic organic dairy market, which has seen significant growth in the past two years, providing the bulk of increases in fresh milk sales.

Problems with lack of supply during the dry season mid-2014 were avoided last year following the setting up of the Organic Dairy Hub farmer collective, which has long-term supply contracts at a premium price with the brand's processor, Green Valley Dairies.

Mr Cullinane says two key things he was mulling this year were "bringing the farmers market to the supermarket" with fresh premium products such as bread and honey, and meeting "customer demand for products that have more and better ingredients put back in."

He received a staff gift this Christmas – a bell that will sit on his desk. It's an idea originating from the Guinness brewery company where staff ring the bell when things start going off track, he says.

"Some products we will get wrong...that's the price of experimentation, you just have to do it and hopefully nothing will be too wrong." 

(BusinessDesk)