Innovation: pivotal role for growth at DMV, affirms MD

Related tags Ingredients Economic growth New product development

Over the next year Dutch dairy ingredients firm DMV International
will pour in excess of €60 million into innovation through new
R&D facilities and ingredients processing plants - and all this
against the backdrop of an intended merger with Denmark's Arla

DMV's managing director Alexander Wessels​ explains to Lindsey Partos​ how innovation will form an integral, even pivotal, role in the firm's strategy to stay competitive in a food chain increasingly marked by consolidation and price pressures.

Part of Dutch co-operative Campina group, DMV's market focus is to supply speciality ingredients in three areas: food, pharmaceuticals and nutrition.

Along the length of the food chain, profits for players are currently knocked by squeezed margins: both from raw material prices at one end, and a fiercely competitive retail climate at the other.

Ingredients companies hoping to not only compete, but improve their returns, have had to react sharply to this increasingly hostile environment.

"In order to drive growth we need to constantly top up our portfolio with new products,"​ explains Alexander Wessels.

But financial returns through new product development demand a serious investment in R&D.

Without disclosing the exact percentage of sales DMV dedicates to R&D, Wessels placed spending (on sales of €0.5bn) in the "middle" of the industry average. Industry observers estimate R&D spending for the ingredients industry broadly falling from a low of about 2.5 per cent to a high of over 12 per cent.

A slice of this spending will go towards a new innovation centre for food and nutrition to open in December 2005.

Located in the heart of The Netherlands' 'food valley' Wageningen region, the centre will reach fruition through an €8 million investment from life sciences venture firm BioPartner, and a further €2 million coming from DMV itself.

Wessels believes the new centre, with its primary focus on innovation, will give DMV the right leverage to face growing competition and consolidation: "Answering the needs of the industry, and the rate at which we develop new products, is key to competing in today's market,"​ he says.

The accuracy and speed that the firm's 100 odd R&D staff respond to market demands should lead to financial gains from the higher value ingredients they will formulate.

In recent years DMV, along with a growing number of ingredients companies, has identified high-value, low volume products (such as its award winning cysteine peptide health ingredient) as a profitable way to surf the tide of squeezed margins and increasing competitiveness.

'High-value' products, for instance whey derivatives, are enjoying double digit growth against a background dogged by low single digit growth.

While the ingredients industry as a whole is bobbing along at about 4 per cent growth, the global whey derivatives market, by contrast, is achieving an average of 10 per cent global growth.

But in order to enjoy the bounty of high margin ingredients, the initial investment has to be ploughed into development work.

Not only this, the firm that designs the new ingredients will only be as competitive, and successful, as its supplies.

And with consolidation increasingly prevalent in the food industry, 'keeping-up' is a question constantly posed by their customers: the food manufacturers.

DMV's managing director believes consolidation over the next five years will continue to shape the landscape of the ingredients industry.

He is also confident that DMV can match the pace.

"We have increased the number employees over the last couple of years, and placed heavy investments in R&D."

And crucial for supplies, last week DMV signed away an investment of nearly €60 million in new whey processing and food ingredient facilities in Veghel, The Netherlands.

The upgraded processing operations will produce new whey based ingredients: with the first batch of commercial products due to be rolled out in the third quarter of 2006.

Acquisitions to build the necessary critical mass, and economies of scale, are also inevitable for any ingredients firm facing this era of consolidation.

With largeness comes sufficient leverage for a firm, such as DMV, to accept growing pressures - and challenges - from its international customers - be they price, logistics, NPD, transport et al - as they themselves consolidate and build new markets.

Largeness, of course, for DMV will come about if the merger with Arla Foods goes through. Combined the two leading European dairy co-operatives with 27,000 employees, will have annual revenues of €10 billion.

The ingredients division - represented by Campina's DMV and Arla Food Ingredients - would contribute about a tenth of this figure, some €1.38 billion, rolling over 665 000 tonnes of ingredients.

Merger - or not - the pursuit of innovative ingredients, carried through to a guaranteed supply stream, have been singled out by DMV as the backbone to any real growth in the near future.

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