It takes time and effort to build new products and services, and to position for new business – all without a guarantee of return. So when times are good and the work is flowing in, it’s tempting to push this down the list of priorities. But fortunes can change quickly. And when they do, having a solid backup plan can mean the difference between hope and devastation.
During the week, the business press announced that supermarket giant Coles was replacing Bega, its current private label supplier for cheese, with a new supplier, Murray Goulburn, in a five year deal worth $130 million.
Loss of a contract this size isn’t great news for any company, especially a publicly listed one. However, Bega's CEO Aidan Coleman was on the front foot quickly with an explanation to the market about how Bega planned to replace the loss of revenue.
Supermarket private label contracts typically have low margins, although the contracts may be longer than usual (five or ten years).
In announcing the change, Coleman explained that Bega had been preparing for the loss of the Coles business, and was driving its brand towards higher margin and higher value added products.
For example, in late October, Bega announced a joint venture with Blackmores to produce infant formula. If you've been following the news recently, you will have seen that retailers have had to ration the sale of infant formula in Australian stores due to high demand from people buying to export back to China, following health scares in China with locally-produced formula.
Infant formula generates substantially higher margins and value add than private-label cheese products. Bega thinks it will be able to divert about $60 million worth of cheese inventory into the infant formula business, potentially compensating for the loss of the Coles contract. And although losses always hurt, at the same time, you can feel how excited Coleman is about the future of his business entering into this new market.
Only work you love and want more of is going to grow your margins.
Good, solid bread and butter work – although I’m sure you appreciate it – probably doesn’t fire your imagination any more.
And “marginal” work, like this private-label example, often doesn’t generate a good enough return compared to the productive capacity that is expended in delivering it.
We can’t control everything in business, but we can chart a course for where we want to go.
|Robyn Haydon is a business development consultant specialising in business that is won through competitive bids and tenders. Her clients have won and retained hundreds of millions of dollars worth of business with many of Australia’s largest corporate and government buyers.|
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