The ‘Place’ of Cheese

Pia Beukes (215355582)(pbeukdeak)

Bega Cheese has been in the news recently after losing the 5 year contract to supply their own brand cheese to Coles to their competitor Murray Goulburn . This requires finding a market for $60m worth of cheese. However, this is not necessarily a bad thing as this milk can be redirected to their Bellamy’s infant formula which commands a higher profit margin.

These numbers belie the humble beginnings of Bega Cheese and how it came to be where it is today, as well as the significant part place and distribution played in this growth.

Humble beginnings

Bega Cheese was a farmer-owned dairy co-operative that up until 1992 produced one product (20kg cheddar cheese blocks), and needed to sustain its farmer shareholders and the Bega Valley dairy industry. It was heavily dependent on how much milk was available, since most was sold into the liquid milk market, and on third-party manufacturing and retail, pushing products to market when they were available.

How to grow and branch out?

The obvious answer for marketers is firstly get to know your customers, company strategy and strengths, environment (context), competitors and collaborators (the 5Cs) to see what is required. Then, through market segmentation, targeting and product positioning (STP) with a marketing mix  (4Ps: product, price, place and promotion) to suit, these products are advertised and the brand name built up to generate purchases and customer loyalty. The less obvious part of this answer is: develop your distribution channels (‘place’). Marketing grows demand and logistics (distribution channel) satisfies that demand (Blaik 2001), ultimately affecting the sales turnover and profit margins of the organisation (Yeboah et al 2013). Distribution channels are the organisations that ‘participate in the flow of goods and services from the manufacturer to the final user or consumer’ (Coyle, Bardi and Langley 2003) at the lowest cost (Weiss and Gershon 2002).

Taking control

As the farmers started to produce more milk, Bega Cheese was able to install their own cheese cutting, packaging and processing plant and thus through forward integration, increased the tonnes per annum to market and acquired greater control over manufacturing and retailing. Bega Cheese could now forecast demand, deal directly with retailers and package the product, enabling it to strengthen its market position and grow its brand.

Bega Cheese production (Photo by: Orlando Chiodo)

Bega Cheese production (Photo by: Orlando Chiodo)

Visibility of information on their goods also affected the logistics. Planning and decision tools were thus established which used data from an Enterprise Resource Planning (ERP) tool. Since cheese can take up to 24 months to mature, demand forecasting and planning needed to be accurate and responsive to the market (pull strategy). This was easiest done by identifying how much inventory was required at different locations in the supply chain by looking at the target market needs and working backwards.

Bigger…or faster?

Increased demand and product lines brought increased inventory and storage requirements, and increased transport issues in getting it there. Transport and warehousing costs significantly affect supply chain cost efficiency, both up and downstream, and thus product price.

Bega Cheese thus partnered with suppliers and third party logistics providers to reduce warehousing and transport requirements. Transport is organised as round trips as far as possible. For those warehouses they do own, robotic palletising, conveyor systems and laser guided packing vehicles increase pallet utilisation, and increase inventory and stock turnover, thus reducing space required. Real-time stock transactional systems provide accurate stock information, and annual stock takes are no longer required.

Partnerships and acquisitions

Bega Cheese franchised out their marketing function to Fonterra Brands Australia in 2001. They acquired Tatura Milk Industries to increase raw milk sourcing and allow diversification into a broader range of products (milk powder, infant formula and neutraceuticals), and also Coburg cheddar and manufacturing capabilities. It is now a public company listed on the ASX.

Bega Cheese promoted by Fonterra

Bega Cheese promoted by Fonterra Brands

Instrumental to this phenomenal growth and success is their distribution channels, logistics, and supplier relationships and partnerships, which are integrated with their strategic marketing and business plans.

References

Blaik, P (2001), Logistics: The concept of integrated management, PWE, Warsaw.

Coyle, JC, Bardi, EJ and Langley, CJ (2003), The Management of Business Logistics: A Supply Chain Perspective, South-Western, Thomson Learning, p 106.

Weiss, HJ and Gershon, ME (2002), Production and Operation Management, Allyn and Bacon

Yeboah, A, Owusu, A, Boakye, S and Owusu-Mensah, S (2013), Effective distribution management, a pre-requisite for retail operations: A case of Poku Trading, European Journal of Business and Innovation Research, Vol 1 No 3 September 2013, p28-44

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