Pet lovers are known to make sacrifices for their animals; but as Alan Swaby discovers, it is not always necessary to choose the product with the highest price tag.
Recessions invariably cause managers to consider just how vulnerable their businesses are, and the shape of the markets they are in. Hannes van Jaarsveld, CEO of Montego Feeds in South Africa, hasn’t had to worry too much about that. Instead, his concern has been focused on how to satisfy the demand from new customers bailing out from the higher priced products they used to buy.
Montego makes dog and cat food that occupies the middle ground on price but is towards the top end on quality. “We have a different strategy to most,” van Jaarsveld explains. “We don’t sell through supermarkets, so we aren’t chasing volumes or at the whim of price chasing buyers. Instead, we aim for discerning buyers who remain loyal to a product once they can see that their pets are flourishing on that food.”
Rather than going through a wholesaler who would want a 20 per cent slice, Montego sells its products through pet shops, vets and farmers’ cooperatives and holds a healthy 12 per cent of the £250 million market. The result is a high quality product sold at an affordable price—in other words, exactly what buyers are looking for in these cash-strapped times.
It wasn’t always so with the Montego brand. Van Jaarsveld got into the business almost by accident. His training and background is in auditing but seeking a change of scene, he started working as a financial consultant to Montego—at that time, a general miller and maker of animal feeds—only to discover that the business was technically insolvent. With his help, the company struggled on for a couple of years until the owner decided that enough was enough and applied to go into voluntary liquidation. Montego’s major creditor only agreed to play ball on the condition that van Jaarsveld stayed on to keep the dog food side of the business afloat.
The first decision he took was to improve the quality of the product, aiming for better margins from a more discerning purchaser. “We were also extremely lucky to have a number of loyal outlets,” he says, “who were willing to pay in advance for the goods they wanted.”
Credit management still remains a key focus for the business. In an industry where 45-day credit is normal (or 90 to 120 days if dealing with supermarkets), Montego has a strict 24-day collection period. But it’s a policy that works both ways—not having to finance customers actually enables Montego to keep prices down and give better value for money.
Montego only makes dried food based on a mix of cereals and meat-based protein, with added vitamins and minerals. The protein comes from meat and bone meal produced from abattoirs processing meat for human consumption. Although most of this meal is imported, 10 per cent is sourced locally as a bi-product of the ostrich meat industry.
Some cheaper brands of dog food also use bird bi-products—but this time in the form of chicken feathers! Apparently the blood they contain is particularly high in protein but extremely low in digestibility. Go even cheaper and the protein might not contain any vital meat material whatsoever. A couple of years ago, maize/wheat protein from China, contaminated with melamine, caused a number of pet deaths in the US and Europe, as well as in South Africa.
In fact, digestibility is a key requirement of good dog food. Nothing loses a customer quicker than upsetting a loved one’s digestive system. At Montego, one-ton batches of ingredients are weighed and then thoroughly mixed before being cooked at 95°C—the optimum temperature for gelatinizing maize in order to break it down and render it absorbable. Once cooked, the mixture is extruded into bite sized pieces, coated in fat for flavour and then bagged. Preferring not to use artificial flavours, the quality of the fat component has to be particularly good.
Thanks to a £1 million investment four years ago, production at the company was largely automated and effectively tripled to around 35,000 tons per annum. But this output is now no longer sufficient to satisfy demand. Even working three shifts a day, it’s got to the point where further expansion is needed. Contracts are being drawn up for the supply of yet another production line that will come on stream in the autumn and once again triple output to 90,000 tons a year.
“We won’t change our policy of not selling through supermarkets,” says van Jaarsveld, “but we may agree to manufacture own-brand dog food for a supermarket chain that’s approached us. This way, we could immediately use some of the extra capacity which will help pay off the £1.5 million investment we are making without putting us in the financial trap supermarkets like to spring. Because they are asking us, we can dictate the terms of the contract—not the other way around.”
The one downside to the business is its location. Graaff-Reinet is in the middle of the Karoo desert—miles from all major conurbations. But it could be worse. It’s no more than 250 kilometres from its source of maize and 250 kilometres from Port Elizabeth, through which it imports 600 tons a month of meat andbone meal from Italy. So while the transportation side of matters incurs some extra costs, they are offset by the generally lower costs of labour and land.
“We’re now celebrating 10 years of business since taking over control,” says van Jaarsveld. “The first five were difficult; but now that I have my three sons helping in the firm, the fifteen-hour days are a thing of the past. The business is buoyant and we’re now able to put something back into the community.”
