DISRUPTION

Disruption to milk market not a bad thing

Sometimes, The a2 Milk Company has a target on its back. That’s fine, according to CEO Jayne Hrdlicka. Here’s why, explains Mike Wheeler.

A2 milk had a rocky start when New Zealand businessman Howard Paterson and research scientist Dr Corran McLachlan founded the A2 Corporation in 2000. The milk, which claims to help reduce the risks of digestive problems, diabetes and heart disease because it is said to contain only A2 beta-casein, seemed to hit a nerve with people who were sceptical of its health benefits. Three years after the founding of the company, both men died, which left the company in a state of flux. It went through several highs and lows – including going into administration in late 2003 – before becoming The a2 Milk Company, which now is based in Australia. It is run by Jayne Hrdlicka, who started at the company just over 12 months ago. Hrdlicka was the CEO of Qantas subsidiary Jetstar before joining the milk company, and has held positions at Ernst and Young, Bain & Co, and was a director of Woolworths between 2010-2016. At the Global Food Forum held in Sydney, Hrdlicka spoke about where A2 milk is headed, why it is seen as a premium brand in China, and the science behind the milk’s claims.

It’s a risky strategy to base your whole business model on one product – more so when some are a little uncertain of what makes it different from similar products. It’s share price has fluctuated over the past 12 months, but it does help when news gets out that discerning Chinese consumers think the milk is a premium brand. It has entered two of the most lucrative markets in the world – the US being the other – and Hrdlicka sees nothing but growth in the company’s near future.

“We’re not talking specific numbers, but we’re playing in the two biggest consumer markets in the world,” she said. “We’re building a deep franchise with those consumers and we’re really excited about what the possibilities bring to the

A2 milk powder is popular in parts of Southeast Asia.

brand and shareholders.”

When it comes to the science behind A2 milk, Hrdlicka makes no apologies about its brand strategy and indicates that it is the disruption that A2 milk is bringing to the marketplace that is causing the issue. Most of the noise about the benefits, or lack thereof, of the milk, is coming from those who have a vested interest in the milk not being commercially successful. The irony being that this is also keeping the brand in the spotlight, which is not a bad thing if you are Hrdlicka.

“We are quite comfortable with the company getting beaten up by big legacy players who feel uncomfortable because we are doing something different,” she said. “It happened in Australia, it happened in New Zealand. We expect it to happen everywhere we go and that is what happens when a disruptive approach to a category that has been around for a long time unfolds.

“It happened in aviation, and it is happening across all consumer

products, not just milk. We expect that it is part of the process. The crazy part of it is that it draws consumer attention to the choices, including ours. It causes consumers to do their research and we’re the beneficiary. It is part of the process of evolving the category.”

Hrdlicka said the company worked hard in the early stages to ensure there was enough science for consumers to educate themselves. She said there are a number of studies that have been completed by independent research markets that came to similar conclusions that the founders of the company did.

“What is fantastic for us at the end of the day, is the impact it has on the consumers,” she said. “And consumers are telling us they are enjoying a functional benefit and they can enjoy fresh white milk again where they weren’t able to in the past. Or, they were fearful of the impacts of dairy products, and this has given them new confidence to re-enter the new category.”

What is helping the brand, and something not lost on investors, is its foray into the Chinese market.

Cows are the main source of A2 milk, although goats can also produce it.

"Consumers are telling us they are enjoying a functional benefit and they can enjoy fresh white milk again where they weren’t able to in the past. Or, they were fearful of the impacts of dairy products, and this has given them new confidence to re-enter the new category."

With milk powder a hot commodity, it seems the affluent middle class in the Middle Kingdom can’t get enough. Hrdlicka knows how important the market is, so much so that she spent her first week working for the a2 Milk Company in Sydney, then the second week in China. She goes up there every six weeks or so, not just to be seen, but also to meet with their partners, listening and learning on the ground and making sure the company’s strategy in the area is sound.

“We are doing some really exciting things in China,” she said. “We spent the first half of the financial year really understanding consumers, talking to mothers, talking to parents, talking to grandparents – really trying to

understand the decisions they are making and how they we making them – where they like to shop. That gave us a lot of clarity on how to constructively build the brand and how to leverage our multichannel strategy.”

And what about the US? Retail giant Costco started selling the milk in parts of the US at the end of the 2018, but Hrdlicka isn’t getting carried away just yet.

“We were deeply appreciative of Costco’s support in the US,” she said. “The success story for a2 milk in the US is in its early stages, but the signs are impressive. A2 milk is sold in 12,400 outlets across the country today and Costco is part of that story. It is taking the product to consumers who are interested in different pack sizes and are value driven, but they are a big and important format in the eyes of consumers and play a meaningful role in the repertoire. They are important players in the natural channel and they have helped us build our brand.”

Finally, there is the online presence of A2 milk. Hrdlicka knows that part of the company’s future success lies in the less tangible online marketplace.

“Alibaba is a really important trading partner of ours as is Amazon via its Whole Foods portal,” she said. “I will say, as a matter of course, that we are multichannel company – ecommerce is a really critical channel for us as a business today and will be going forward. And if you listen to your consumers, it plays a really powerful role for them in their day-to-day lives. You don’t quite have the same choices in leveraging direct deliveries in Australia that you do in China and the US, but it is a changing canvas and digital players are changing the world for consumers at a very fast pace.” F