The right churn
As a passionate Stoke City fan, it's no surprise Dairy Crest chief executive Mark Allen holds the club's manager Tony Pulis in high regard.
He says he was being tongue-in-cheek when he claimed Pulis was a business leader he admired, but there are clearly similarities.
Before being embroiled in a relegation battle this season, Pulis had transformed Stoke from inconsistent lower-league side into a well-drilled, effective and efficient outfit.
Allen, on the other hand, has further consolidated Dairy Crest into a brand-focused plc by rigorously pursuing efficiencies ̶ including closing factories ̶ investing in technology and by constantly seeking to add value.
Like watching Stoke City, it hasn't always been a pretty spectacle, but most commentators agree it is starting to pay dividends.
Speaking at his firm's Surrey headquarters, Allen does not shy away from discussing some of the "tough decisions" he has taken since becoming chief executive in 2007.
Since then factories at Aintree, Liverpool, and Fenstanton, Cambridgeshire, have closed, with Crudgington, Shropshire, due to shut down in the near future ̶ decisions that Allen says had to be taken to put the firm on a "normalised base".
In food terms, Dairy Crest will be left with one cheese factory, a spreads factory and two packing sites, in addition to three liquid dairies that look after retailer milk contracts, a glass dairy and a creams facility.
"For me personally, it is very difficult because I have been in the business for 22 years, so in most of these factories I know some, or a lot, of the employees," Allen admits.
"However, you have to do the right thing for the company to make sure it goes from strength to strength and look after the people who are left."
To understand the rationale, you have to understand the "journey" that Dairy Crest has been on from a supply-driven business, to a demand-centred one, says Allen, and how he "has accelerated it" during his period at the helm.
Tough targets
25 years ago, as part of the milk marketing board, it processed surplus milk through a large number of factories, "without always knowing where it was going to be sold".
Even in 2005, Allen believes the business was still too disparate, especially in cheese, "where we were in commodities, we were in brands, we were in everything".
Since then he has relentlessly focused on food brands ̶ and it's not hard to see why.
Despite two thirds of the firm's turnover being in dairy and the other third in foods, 90% of its profit comes from foods.
Today, there are tough targets in places across both divisions. Allen says he will achieve 3% operating margins in dairy by 2015 by shaving £20M off costs each year, while in foods he drives innovation and seeks to strengthen brands by aiming for 10% of sales from products developed over the past three years ̶ a figure that is "always there or thereabouts".
"Now we make high-quality dairy products that are aimed at a particular set of consumers," says Allen, name-checking Clover, Frijj milkshakes and Cathedral City. It is the latter, however, that has been the runaway success story.
A recent YouGov survey on the UK's most recognised brands placed it eighth ̶ the only food item in the top 10 and alongside the likes of iPlayer and Apple.
According to Allen, this isn't something that has happened by accident.
"Cathedral City had an £8M turnover when it was bought in the mid-90s. Today, it's a £250M- plus brand and it is ranked eighth in a survey like this. In my view it will be a business school case study and the only way you can do it is to put your money where your mouth is."
Allen, it's fair to say, hasn't been scared of splashing the cash to make sure Cathedral City stays at the top of the UK Cheddar table.
He estimates that £100M has been spent on factories in the supply chain, including a £50M cheese manufacturing site in Cornwall and a £30M packing facility in Nuneaton ̶ "which, to my knowledge, is the only fully-automated packing plant in the world."
Virtuous circle
While he's prepared to dig deep in some cases, Allen's biggest buzzword is "efficiencies", arguing that investment and cost savings are the twin strategies for Cathedral City's ̶ and other brands' ̶ success.
"We never say we have had an efficiency initiative this year, so we don't need one next year. It is part of our DNA. We will keep doing it all the time so consumers get great value and we get this virtuous circle where everyone shares a bit of the cake, be it our staff, shareholders, the consumer or the farmer."
And it has been farmers' desire to get a bigger slice of that cake that has been on the top of his in-tray in recent months.
He terms last year's dairy protests as the "summer of mistrust"and acknowledges the producer ̶ farmer relationship had been a win ̶ lose deal for too long.
"The events of 12 months ago were a watershed. You can't have an industry that feels it needs to protest to move things forward. You've got to have an industry that is based on trust. That trust was broken," he admits. "That's why we were the first company to sign up to the voluntary code for dairy practice."
But what else has Allen and Dairy Crest done to try and repair the damage?
While acknowledging that "years of emotion around price" won't be forgotten overnight, he points to the firm's new formulaic approach to pricing as evidence that the company "gets it".
The system takes into accounts the 'three fs' for farmers ̶ fuel, fertiliser and feed ̶ alongside the price of cream and retail milk from a processor's perspective to come up with a price for milk.
Although it only applies to non-aligned farmers ̶ those who aren't on fixed contracts for its cheese or retail milk contracts ̶ 178 farmers have signed up, covering around one-third of the firm's 2bn-litre milk purchases.
It is a number Allen wants to see rise further in the coming years.
"I think collectively we have done a lot of work over the past 12 months to improve matters, but we have still got more to do to move from confrontation to partnership," adds Allen.
"Farmers can certainly help us by providing the right types of milk and we can help them by selling the products we make into the best possible avenues, while also helping them with some of the infrastructure support they need."
So with the farmer ̶ producer relationship seemingly on a more stable footing at Dairy Crest, what can we expect from the firm in the year ahead?
In the cheese sector, it has had success by moving into the children's' market with bite-sized Chedds and it is fair to assume there will be greater focus on the adult snacking market across all brands following the recent launch of its Cathedral City Selections packs.
Looking slightly further to the future, expect milkshake brand Frijj to try and tap into the UHT market too. At the moment the fresh milkshake is largely restricted to the major multiples because of their superior chilled sections. A UHT version would open up access to convenience stores and petrol forecourts ̶ thereby doubling its reach.
Allen is also likely to pursue opportunities in whey. While it has traditionally been involved in whey powder, investments will open up opportunities to supply demineralised whey powder to the infant formula market and whey protein concentrate for body building products.
While he is more likely to partner with existing outfits than set up rival brands, the development will "effectively be a new revenue stream".
Open to acquisitions
Allen also has an open mind about acquisitions, with the sale of the St Hubert spreads business for £344M last year providing funds for any potential purchases. However, nothing as yet has tempted his fancy, either because the price was too high or the brands did not provide enough opportunity to add value.
"We don't need to acquire, we're not in a mad rush to. I don't feel like I've got a lot of cash burning a hole in my pocket," Allen maintains.
For a man so focused on efficiencies, cost savings and adding value, it's no surprise that Allen isn't running headlong to acquire. That said, don't be surprised to see Dairy Crest snap up a number of smaller outfits over the next couple of years as it seeks to build-up its portfolio.
After all, Allen has form when it comes to shrewd investments his ̶ greyhound won three out four races at Wimbledon in February.
"It was named bitch of the month," he laughs.
He might claim it is only "a bit of fun", but Allen clearly thrives on backing a winner, be it in dairy or on the dogs.
Watch Mark Allen explain why an ongoing efficiency drive has been key to Dairy Crest's success, in this exclusive video.
