03.01.04
Case Study: Clover Corporation
Business Description: An Australian, publicly traded company that provides high DHA oils to the nutrition industry with specific focus on the food, beverage and infant formula industries. Its key brand is HiDHA™, which is derived from tuna oil and sourced through a long-term relationship with the H.J. Heinz company; utilizes a high quality microencapsulation technology.
Theme: Clover has done a fantastic job of bringing DHA into foods in its local market, but it is seeking global expansion and has created an innovative Joint Venture, called Nu-Mega, to enter new markets.
Background: Through technical innovation, strategic partnering and intensive educational marketing, Clover Corporation grew from a small R&D firm to developing technology that allowed omega-3’s entry into a wide variety of matrices, supplied the ingredient and know-how for Australia’s first omega-3 functional foods and developed global supply and manufacturing relationships. Yet, with this success, the company was still missing out on the global market and saw that its ability to do it alone was limited. In 2002, Clover formed a joint venture with the Food Spectrum Group, forming Nu-Mega Ingredients Pty. Limited, of which, Clover retained 70% ownership. Food Spectrum manages Nu-Mega Ingredients and provides marketing, R&D and food application technology expertise, while Clover leases its manufacturing plant, equipment and intellectual property to the joint venture.
Situation Assessment: Nu-Mega’s success will be staked to its international growth, where it’s targeting 80% of its revenue from Europe and North America within the next few years. The company is well positioned to meet this objective—it has innovative, leading-edge technology, arguably the most experience of getting DHA oil into foods and beverages, a unique supply chain, and a new organization. Also, it established a local relationship with George Weston, a global baking company that could be leveraged as a foundation of business on a global basis. Nu-Mega’s HiDHA™ can now be found in muffins, white & brown bread, processed meats, eggs, juice, fish fingers (in the breading to replenish stripped oils) and infant formula. Additional product launches in late 2003 included fortified, drinkable yogurts. Additionally, it recently announced new products using soy in beverages. A focus for Nu-Mega Ingredients is also the development of second generation versions of the existing microencapsulation technology.
Opportunities: The new entity is relatively unknown and needs to build credibility with a relatively narrow list of new customers and in new markets, where considerable competition exists. Nu-Mega’s strategy is focused on the high end of the omega-3 market, a market where it can bring added value and leverage its uniqueness. There are several critical factors that need to be addressed to achieve its objectives: (1) it’s focusing on DHA and not the broader omega-3, or even the fish oil market, (2) the company is leaving the more “commodity” like markets to other players, where its microencapsulation technology is not valued or necessarily needed, (3) the sales cycles for foods and infant formula are long and it will take a long-term perspective to thrive, (4) competition is robust as there exists many players that may be coming to the market differently, but have been working in these regions for a substantial amount of time and (5) synergies need to be realized in the joint venture for the principals to continue their participation, particularly looking into complementary markets.
Lessons Learned: This case illustrates some excellent educational value: (1) it is critical to recognize when a partner is needed. Clover dominates its market and was significantly dependent upon the charisma of its founder and chairman, Hamish Drummond, but his persona would not necessarily carry throughout the globe; (2) don’t compromise your value for the “faster” markets. Nu-Mega is focusing where customers will value its investments and technologies, and it is not actively marketing to dietary supplement markets, where many less expensive oils can be used; (3) set lofty, but obtainable goals. Without understanding the market, it would not appear realistic for Nu-Mega to expect reaching 80% of their revenue in new markets, but based on its current size and technology, this could be obtained with grabbing only a modest market share, and (4) a narrow strategy requires strong execution. Nu-Mega has a relatively small list of customers and it needs to capitalize on the opportunity early in the relationship, as second chances may not come.