Separate enterprises help to raise profits
Milk processing and new products could add value to milk. Jessica Buss talks to a Cheshire producer who has ventured into milk processing, and finds out where producers can get help with product development
WHEN Mike Allwood decided to expand his interests away from the farm, he chose milk processing.
He did not, he says, go into it as an expansion of his existing business.
Now, five years later, both businesses are still kept separate and have different focuses. In fact Mr Allwood divides his own time between two different offices, with two different phone lines. Yet both are in the same farm yard at Burland farm, Nantwich, Cheshire.
"The dairy herd is run as profitably as I can, maximising the wholesale milk price," he says. "The aim of the Farm Produce Marketing business is to develop new dairy products, bring them to the market and make a profit. They overlap, but do not merge together."
But he warns that processing milk is a much less stable business than selling to a buyer who takes all that is produced. There are no guarantees, and you must go out and market your milk, he adds.
He admits that Farm Produce Marketing made losses in its first two years, but in the second two the business has been profitable and it now processes 300,000-400,000 litres of milk a year. It was started in 1992, with two other key partners, one with business management experience and the other a marketing manager. Mr Allwood recognised their skills were vital to the new business.
He adds he has had to be prepared to pay for other skills and for training. That can be expensive. And, although market research can cost £10,000, that is small compared with the cost of getting the product or packaging wrong, he says.
His initial aim was to compete with imported products on supermarket shelves. But first he had to find a unique product with good market potential. He began with the idea of frozen yogurt, a low fat alternative to ice-cream that was popular in the US.
"The equipment needed was expensive. But the potential for return on capital is higher than dairying, although it is also riskier."
The product was developed in the dairy technology labs of Reaseheath College while students were on holiday. Product samples were tested using market researchers.
Although that research was expensive, it showed the packaging and name they had given the frozen yogurt did not work for the consumer. After a change to small tubs with four sold in a tube, and the new name, Orchard Maid, Safeway agreed to sell some.
That was in May 1993. But in its first summer Orchard Maid failed to take off. "Its packaging was colourful and novel, but customers could not tell what it was," explains Mr Allwood. "We should have returned to the market researchers before putting the product on supermarket shelves."
When Safeway decided not to continue selling Orchard Maid a year later, Mr Allwood began to produce the frozen yogurt in more conventional 0.5-litre tubs. In 1995 more supermarkets agreed to take the product and some airlines started to buy it for in-flight catering. Orchard Maid is now the UKs market leading brand, he claims.
The airline contacts opened up the market for fresh milk packed in small containers for cereals on in-flight breakfast trays. But the milk needed a long shelf life and that is where Mr Allwood, who is a Milk Marque member, found the co-ops Cheshire-based product development centre useful.
Milk Marque already had a process with a patent for extending the shelf life of milk to 30 days in refrigerated storage. It also had a machine to fill and seal small pots. Now this process is used to pack Mr Allwoods in a slightly larger 125ml carton, and it is served as Cheshire Milk on flights. A UHT version is also processed.
New product development at Burland Farm has not stopped. The 175-cow herd can supply more milk to the processing business and yet more could be bought.
Cheshire milk producer Mike Allwood runs two separate businesses at Burland Farm. the 175-cow dairy is run as profitably as possible, while the aim of Farm Produce Marketing, which produces frozen yogurt and fresh milk for in-flight breakfast trays, is to develop and market new dairy products profitably.