How I solved my supply issue with a $5 million investment

Aussie Farmers Direct has been one of the fastest-growing Australian start-ups during the past few years.

Its mission to supply consumers with home-delivered Australian-only fruit and vegetables has seen its popularity explode in major cities. Two years ago chief executive Braedon Lord faced a supply issue – international suppliers of milk were eclipsing local operators and keeping true to the company’s mission statement was becoming a problem.

AFD embarked on a $5 million mission to build a new dairy processing plant so it could solve its problem but Lord says success depended on timing.

It’s been a while since SmartCompany last caught up with Aussie Farmers. How are you doing now?

We’re doing very well. We’ve kept up good solid growth and have diversified into a number of different areas. We’ve expanded into new suburbs in the cities, including in Perth, Sydney and Brisbane, moving across to Adelaide.

In 2010 you turned over about $100 million. Can you give an updated figure?

We’re looking at about $150 million, but I think revenue isn’t the main thing, it’s how it’s managed.

So when did you start thinking about this dairy plant?

This became a possibility for the business about two years ago. At that stage it was the classic issue of internal demands within the business. But we also needed to find people who could execute the strategy. If you do this type of thing wrong it can be a disaster.

We actually found someone who was very experienced in this area, had a long dairy background and then two years ago we started floating the idea of having him become involved in the business, at the very minimum as an advisory standpoint to ensure our core product was managed astutely.

What actually prompted this?

The dairy industry has consolidated significantly. Over the past five years we’ve seen milk go from being 30% supplied by international companies to 90% foreign owned.

For our business that presents a little bit of a threat. We are so reliant on Australian manufacturers to serve our customers so we saw the security of supply start to become an issue and we decided to move forward.

So this was an issue of supply?

That’s right. We were being supplied by a network of other dairies and still are. We’ve actually only started supplying from our network within the last month, so in each of the states we have a supplier.

The first option that we looked at was if there any way we could deal with local suppliers.

The second option was to sign longer term agreements and the third way was to do what we did and venture out and build our own dairy.

Did you explore any of those options further?

Our discussions with manufacturers did not really develop any further than nice robust discussions. We were left with looking at longer term supply contracts, which didn’t give us the precaution of ownership. At the end of the day we had the right person, the right level of demand and we built up the business to a point where it made sense to build our own dairy.

What other things did you have to keep in mind while investigating this plan?

The other element was around the security of the quality. It wasn’t just supply, we had to make sure that what we were supplying was a high quality product.

We spent about 12 months waiting to go and the board agreed to start refurbishing a milk plant.

That took another 12 months and as of a month ago we’ve started supplying our own network. The benefit here is that we can ramp up supply as demand increases.

Location must have been important as well.

We needed to look at farms that had a competitive appeal. That’s a fundamental thing here.

The positioning of the dairy plant was a vital element, so we decided on Camperdown.

It’s the site of an old dairy plant right in the heart of one of the most fertile dairy regions in the country. That gave us a range of farmers to work with.

The other side of this whole project was making sure the building of it and so on didn’t put us over budget.

We took our time with all of the right agreements, we had assistance in building the dairy but we needed to make sure the size wasn’t beyond our means.

Did you make any special precautions so the budget stayed intact?

Our CFO was riding shotgun through the whole project, to make sure from a fiscal standpoint and legal view we were well covered. It ensured we had a good level of knowledge within our business and that time lines didn’t stretch out.

You also received some government assistance, is that right?

We did, we received some very welcome government assistance. We’ve employed about 40 people in the area there and we think that will continue to grow.

The dairy plant is a solution to limited supply – do you think other businesses should focus on fixing their own supply problems if they can?

Certainly it can be done. It’s important to measure what the other options are, depending on what your business is looking for.

But we have an understated saying of crawl, then walk, then run. This is an example of us walking.

You need to forget the mantra “build it and they will come”. You need to suit the existing business but at the same time have the ability to manage growth.

Doing this sooner than we had would be a mistake, even within a six-12 month timeframe. When you take care of your supply you need to make sure that the demand is at such a level that it’s something you need to do.