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Resilience Series Part 6: Emmi
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So far in this Resilience series, we’ve covered:
French barrel-maker, TFF Group
Biscoff famous, Lotus Bakeries
Faroe Island fisheries, Bakkafrost
Swiss plastic creator, EMS-Chemie
French plant extractor, Robertet
Now let’s talk about Emmi Group. The company’s roots go back to 1907, when 62 dairy farms came together to create a cooperative (co-op) called the Central Switzerland Milk Association. The advantage of a co-op is a sharing of resources and learnings. Rather than have 62 individual farms selling milk, they can band together and pool their resources to get better distribution, prices and input costs. This co-op lasted all the way until 1993, when the group decided to separate out its association and commercial activities. The commercial entity was Emmi Group. Today, the company stands as the largest dairy producer in Switzerland. About 40% of the company’s $4.6 billion in sales come from Switzerland, and the rest is spread among the rest of Europe and the Americas.
Here are how the revenue segments break down:
Cheese (natural and fresh): 36%
Dairy (milk, butter and cream): 29%
Fresh products (like Caffe Latte): 26%
Other (plant-based products): 5%
Powder and concentrates: 4%
The cheese and dairy segments, which you can see make up 65% of total revenue, are distributed to grocery stores and restaurants (Emmi calls these industrial and food services). On the other hand, the fresh products are almost solely sold in grocery stores.
Interestingly, 60% of outstanding shares are owned by a few entities, the largest shareholder being ZMP Invest AG. This is the investment arm of the Central Switzerland Milk Association. In other words, the co-op still owns 60% after spinning off the commercial entity 30 years ago. So there is definitely a long-term mindset here. The milk producers always want a source of demand and Emmi does that through creating new products and brands.
For example, in 2004, the company launched the Caffe Latte, which has been its most popular brand. Using Swiss milk mixed with coffee, the premade drink is quite popular in Europe. In fact, fresh products, where the Caffe Latte is included, account for 50% of European revenues and only 21% in Switzerland and the Americas. To be clear, I do know that Switzerland is in Europe but the company breaks out Switzerland and the rest of Europe since the former is the largest geography. One last interesting thing from the revenue segments is that 80% of the company’s butter is sold to Switzerland despite the country accounting for 40% of the business.
A Cheesy Detour
The history of Emmi is pretty fascinating but the history of cheese in Switzerland is arguably more interesting. By this point, you’re probably wondering why I haven’t mentioned the words “Swiss” and “cheese” together. Well, it’s time. In the US, we call cheese that has holes, swiss cheese. But in Switzerland, the official name is Emmentaler. The name comes from the Emmen region of Switzerland, where Emmi’s name originated. Emmen is a village in Lucerne, which is in central Switzerland, sort of between Bern and Zurich. Emmental cheese gets the holes from a specific bacteria that is used in the vats where the cheese is made. Cheesemakers apparently refer to the holes as “eyes” and if a batch doesn’t have many holes, it’s considered a “blind” batch. It’s said that cheese was being produced in this region in the 1400’s so the culture (pun intended) of cheese making has a long and storied history. And Emmi is an important part of that.
But Emmi isn’t resting on its laurels and taking its heritage for granted. The company, similar to Lotus Bakeries, will buy stakes in growing brands and then if they do well, acquire the company completely. Most of these brands fall under the fresh products revenue segment, which will likely be the growth driver for the foreseeable future. I could list off all the investments Emmi has made but that probably wouldn’t be that interesting or fruitful. So I’ll just mention the most important brands:
Caffe Latte (ready-to-drink coffee)
Gerber fondue (the Swiss absolutely love fondue)
Energy Milk (another way to say Protein drink)
Aktifit (probiotic drink)
Pierrot (ice cream)
Kaltbach (cheese made in a cave)
Luzerner (Emmi’s most popular cheese brand)
These last two brands obviously fall under the cheese revenue segment but it goes to show that some of the strongest brands are still in the nascent fresh products business line (#1-6).
The company has 33 milk production sites (25 in Switzerland) and they recently completed a $55 million plant near Lucerne. In our series so far, Emmi Group is most similar to Lotus Bakeries. These companies have strong brand loyalty after decades of delivering on their promises. They both continue to build more production capacity and invest in brands, with the option to acquire them completely. Emmi is owned by its original co-op rather than a specific family, which may make large decisions more difficult, but the company hasn’t seemed to suffer from this dynamic. Both companies are also looking to stay relevant with the times. Lotus’s Natural Foods business was a growth driver and Emmi’s fresh products segment is becoming more important.
For Emmi, dairy free products are a disruptive change but the company is well aware. The company’s two new plant-based brands, Beleaf for vegan desserts and Begetal for yogurt, are examples of Emmi staying relevant. These two brands fall under the “Other” revenue segment actually and they grew 30% YoY. I use the word disruptive to describe plant-based milk alternatives because, by nearly all accounts, they taste worse but taste isn’t the primary vector consumers are worried about. It’s usually lactose intolerance or veganism. What’s interesting is that milk volumes are flat at 3.8 million tons in Switzerland over the past 30 years yet the company’s revenues are between 4-5x higher. So it’s not like there’s been a tailwind. Emmi Group continues to grow through nurturing new brands and staying relevant with consumer preferences. I don’t doubt that the company will adapt to plant-based alternatives but it certainly is something to think deeply about when assessing the terminal value of the company. On the other hand, milk volumes in the US have grown from 59 million tons to 100 million tons over the past three decades. So it may very well be the case that plant-based volumes aren’t so much taking share as adding to the overall market opportunity. The calcium that comes from milk is fairly hard to replace in natural foods so it’s hard for me to see cow milk going away anytime soon.
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