Over the past 18 months, our largest mānuka honey producer, Comvita, had to make some tough calls to turn around the business. But a hard-won strategy to control the whole supply chain – from hive to home – could end up being its secret weapon.
It all started in 1916 with a six-year-old boy called Claude Stratford keeping bees and making honey on his parents’ small South Island farm. He left school at 11, and started putting his bike on the Cook Strait ferry to take his honey to sell in Wellington.
He maybe didn’t know it, but he was running a one-kid, end-to-end supply chain management system.
Half a century later, in 1974, Stratford, then in his mid-60s, teamed up with Alan Bougen, a self-confessed hippy 40 years younger than himself. The pair founded a company, Comvita, based on selling natural health food products, mostly related to bees. There was mānuka honey, of course, but also bee pollen, honey vinegar, lozenges, and an elixir to help with coughs and sore throats.
Stratford and Bougen tended their own hives, extracted the honey and made their own products in a manufacturing facility originally in the basement of Stratford’s home.
Just shy of its 50th birthday, Comvita is now the biggest UMF (unique mānuka factor) honey brand in the world, and the number one brand in China, the world’s biggest honey market.
And in a structure which reflects its boy-with-a-bike roots, Comvita still controls the whole of its supply chain, from its own mānuka cultivars and mānuka forests, to hives, beekeepers, extraction and production facilities, an independently-accredited testing laboratory and more than 550 staff worldwide, including almost 350 on the ground in seven markets outside New Zealand.
The company says this end-to-end approach gives it a big competitive advantage with customers who increasingly want to know exactly where their food comes from, and how the companies producing that food thinks about its stakeholders and the environment.
And this connection across its supply chain will be critical in helping Comvita meet its ambitious environmental goal to be carbon positive by 2030.
But it hasn’t been easy.
Slow, complex and disconnected
David Banfield joined Comvita as chief executive in January 2020, with a remit to turn around performance at the company.
Comvita had lost close to $27 million in the year to June 2019, and another $13 million in the six months to December that year. It had way too many products, Banfield says, and staffing levels geared to revenue targets the company had never made. It was focused more on supply than on customers, profitability at its beekeeping operations was very weather-dependent, and there was $94 million of debt.
The share price had been on a largely downwards trajectory since 2016.
“We became slow, we became complicated and we became disconnected,” Banfield says. “The organisation lacked clarity about roles and responsibilities, we had forgotten how to act like market leaders, and had a cost structure it couldn’t afford.”
The founding story was compelling but Banfield says high quality implementation and a strong performance culture was lacking. Meanwhile high debt and poor results and business model meant the company was unable to invest in its brand.
“We had this amazing supply side story - our own cultivars that grow into these incredibly productive plants, our own forests, which give us a whole ecological view that consumers around the world demand. We repair waterways, we bring back natural habitats, we have our own extraction facilities, our own laboratory, unparalleled quality control.
“But our old business model never really allowed us to tell that story. Our margins were under pressure, our costs were too high, and therefore brand investment became a luxury, rather than a necessity.”
Turnaround in a pandemic
The new CEO had a good idea what he was getting into when he started work at Comvita’s HQ in the small Bay of Plenty town of Paengaroa, just down the road from where Stratford and Bougen had made honey lozenges in the basement.
What he didn’t know was the world was about to go into lockdown.
“I started on the 20th of January, and went to China on the 21st. I spent that first week in China and the second one in Australia. I think the fourth week I was in the US, and then the world started shutting down.”
It was fortunate a lot of the work Comvita needed to do could be done from Paengaroa. The company cut the number of products by 30 percent in the first year, and is set to cut another 20 percent this year.
It redefined its apiary and beekeeping model to ensure it broke even in bad weather years (that is, zero contribution to group profits), and made a contribution of $2 million-$3 million in good weather years. And it pulled out of any beekeeping operations that couldn’t break even when the weather was bad.
It also raised $50 million from shareholders and focused on business fundamentals like cash generation. In 18 months, net debt went down from $94 million to around $5 million.
Renewed customer focus
Meanwhile, as part of a renewed focus on the customer side of the business, Comvita removed a layer of regional management in Australia and Hong Kong and used the savings to employ senior people in China and attract a high quality leadership team in New Zealand.
The company also changed the way it referred to its head office, calling it instead a ”market support centre” to emphasise the need to empower the internationally-based teams.
"If you have a global head office that... doesn’t empower people to think, then it’s a dangerous place." David Banfield
Comvita’s 350 or so staff working in the company’s global markets, included approximately 190 in China and 75 in Hong Kong, but a centralised structure meant the company wasn’t making the most of the competitive advantage that produced, Banfield says.
“People on the ground get us closer to the customer and make us more relevant to people in that marketplace. But if you have a global head office that constrains that, or doesn’t actually empower people to think, then it’s a dangerous place.
“You can’t bring quality people into an organisation and not allow them to act because ‘head office’ says what they can and can’t do.”
“This is going to sting a little”
It’s been a tough 18 months. The 2020 annual report started with a bee-related pun which many in the company would have related to: “This is going to sting a little.”
But the medicine is working.
Although revenue hasn’t changed much - up 1.5 percent between 2020 and 2021, if you adjust for unfavourable currency movements - an $8.8 million ebitda loss in the first half of the 2020 year (July-December 2019) became a $13 million profit in the second half, and then rose to $25.5 million for the full 2021 year.
The company’s net profit before tax went from a $10.3 million loss in 2020 to a $13.4 million profit in 2021.
Sales in China grew 31 percent in local currency terms, year on year, and they were up 23 percent in North America. Revenue from Comvita’s core mānuka products was up 10 percent.
Meanwhile the dramatic move to digital during lockdowns has helped increase Comvita’s sales direct to consumers.
In the same way Covid fast-tracked customers’ to buy much more online, so it forced Comvita to rethink its digital needs and capability, Banfield says.
“On one level, we had to make sure that we were able to connect to digital channels, and on another level, we had to reframe what retail looks like.”
The company’s new interactive wellness lab allows virtual customers to explore the company’s forests and beekeeping operations, as well as buy Comvita products.
(Once tourism starts up again, they will be able to visit the Auckland-based ‘experiential store’ in person too.)
Digital share of total revenue increased from 24 percent in the 2020 financial year to 34 percent this year and total digital sales were up 17 percent, or $9.5 million. In particular the company’s online sales in China were up 41 percent, and digital sales now make up 57 percent of the total.
In the US, the company’s second focus market, online sales were up 37 percent.
Telling the story
As stakeholders become as important as shareholders, and customers are increasingly environmentally and socially conscious, Comvita’s story will become increasingly powerful, Banfield says.
The company is New Zealand’s largest private sector manager of native forests by tree count, he says, with almost 10 million trees planted over the past 10 years - both mānuka and other natives.
It has also been building up its own mānuka breeding programme, developing specific cultivars that will deliver the best quality UMF honey.
Beekeepers recently found breeding kiwi pairs in one of Comvita’s forests, and the company is working with the Department of Conservation and charitable trusts to support restoration and protection of wilderness areas and reintroduction of indigenous species.
There are plans for Comvita to be carbon neutral by 2025 and carbon positive by 2030, and in 2022 Comvita will start working towards B Corp status - a certification programme for companies wanting to prove they are balancing commercial success with positive social and environmental impacts.
(See Newsroom’s story: The tough road to becoming a B Corp)
One of the ironies of the five-year, future-focused, transformation process Comvita is going through, is that a big part involves reconnecting to what founders Alan Bougen and Claude Stratford were passionate about all those years ago - food being the best medicine and nature having the answers to many of the world’s problems.
“We must work in harmony with nature for the benefit of all,” Banfield says.
“We made some tough, tough calls, but we believe they were imperative to allow us to realise the true potential of Comvita." David Banfield
Even further back, Comvita’s new direction also points back to the boy selling his honey off the back of his bike.
“Telling the history of Comvita, of a company based on incredible founding principles, is fundamental to our long-term success,” Banfield says.
“We want to share our amazing story to discerning consumers around the world in modern and compelling ways backed by unrivalled scientific understanding. Our goal is for the whole team to be able to puff their chests out and be proud of what we have achieved together.
“We made some tough, tough calls, but we believe they were imperative to allow us to realise the true potential of Comvita, and in the process share the amazing healing properties of the hive.
“Ultimately we are looking to further strengthen our foundations and global leadership and in the process set ourselves up for the next 50 years.”
This is the first story in a content series with Comvita
