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It is a familiar story: a small town, a big factory, overseas owners and job cuts, resulting in another tear in the social fabric of an English community. Except in Kendal, on the edge of the Lake District, the ending has been rewritten.
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Heinz was about to shut the powdered baby milk plant that had sustained hundreds of Kendal’s working families as well as infants worldwide for 50 years. An Irish entrepreneur bought it, invested millions, hired extra staff and created new brands. As a result Kendamil has joined Kendal Mint cake on shop shelves.
Ross McMahon, 52, a food scientist, had worked in Asia and spotted a thirst for infant formula. Contaminated milk made almost 300,000 babies ill in China in 2008, killing several. The country switched to imports and British-made products are among the most highly trusted.
Mr McMahon could not believe his luck. After months of negotiations he persuaded Heinz to sell to him in 2015. He will not disclose the price but admits it was cheap; it would have cost the US multinational £6m to close it. Heinz bought the facility from Boots in 1998 for £94m, he says. It was built by GlaxoSmithKline to make its Farley’s range in 1962.
There were 88 workers left when Mr McMahon bought the plant, after Heinz laid off 170 people in four rounds of redundancies in the previous years.
Mr McMahon’s biggest coup was to gain Chinese accreditation for Kendamil. The factory is one of only 75 in the world allowed to export products there.
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China now accounts for about a third of the business. “Kendamil is more famous there than it is here,” he says. “We are in 2,000 stores.” Nutricare, the new name for the business, also retained contracts to make infant cereals such as porridge for Heinz, providing a third of its turnover, and sells to north Africa and Southeast Asia.
However, the UK market has proved harder to crack. Kendamil has the highest AA quality rating from the British Retail Consortium but shelf space is dominated by Cow and Gate and Aptamil, owned by Danone of France, and Nestle’s SMA. Only Booths, a small independent in north-west England, and 50 kosher shops in London stock Kendamil, though it is sold online. Other companies can spend millions on marketing, and most customers stick with known brands.
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As the only domestic manufacturer, Mr McMahon wants the government to force packaging to declare in which country the formula is made. He also claims it is better quality because he has switched from skimmed to whole milk, so it contains less vegetable oil than other brands.
The milk comes from 220 farms in northern England, Scotland and Northern Ireland.
The factory employs 120 but remains at about one-fifth capacity. However, it is breaking even, Mr McMahon says. Turnover should rise from £8.5m in the year after the takeover to £12m this year. Mr McMahon used the proceeds of property investment in London to buy the business and relies on just a small overdraft. He said he had invested £1.3m and the plant was breaking even. Staff have had a 2 per cent pay rise, although he does not draw a salary.
Nutricare has an in-house product team and is now entering the lucrative adult protein food market with Kendalife, a whey-based nutrition drink with fruit flavours. An organic infant formula will follow next year.
The government has been supportive. The company has been on trade missions with the Department for International Trade and received £590,000 from the Regional Growth Fund for expansion. It wants to hit £31m turnover by 2020.
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John Whittaker, 56, the factory manager, has worked at the plant for 37 years under three different owners. He says the sales process lasted 18 months, as Heinz disposed of noncore assets ahead of its merger with Kraft.
“There were times I thought there was a 80-90 per cent chance of it closing,” he says. Although many workers, who have average service of 20 years, would have received generous redundancy payouts, “they want to keep it going”.
“They care for the town and for the young ones,” Mr Whittaker says.
The town of 28,000 does not have an unemployment problem, it has a wage problem. Matt Williams, an official with South Lakeland district council, said the unemployment rate was 0.6 per cent but many work in low-paid tourism and agricultural work. The average salary is £24,000 but the average house price is £210,000, driven up by wealthy pensioners and demand for second homes.
“It is a concern in terms of families being able to stay in the area,” he says. “One hundred plus jobs is significant for a place like Kendal. They are not just in production but R&D. The fact we are in the name is unbelievably good publicity for the town.”
Mr McMahon says he is committed for the long haul. “The value in this business is the Chinese registration. A Chinese investor would buy this in a heartbeat. But I want to keep it for the people of the town and grow it. What you cannot buy is the years of expertise here.”
Source: FinancialTimes
Link: https://www.ft.com/content/70cbf2a6-c08b-11e6-81c2-f57d90f6741a
