Norco is a 121-year-old farmer-owned co-operative, with strong ties to the most popular supermarket chains in Australia.
“It’s basically the last of its kind in terms of being a dairy farmer-owned co-operative,” CEO Brett Kelly remarks. Norco and its subsidiary Norco Foods is made up of 230 members, most of whom are based in Northern New South Wales, though the company trades and sells their dairy products throughout Australia and internationally. While specialising mostly in milk and ice cream, Norco Foods also runs store locations geared towards the agricultural sector, where they sell animal feed and similar products to rural customers.
During Brett Kelly’s tenure for the last 8 years, the company has seen huge changes. “When I started, we were around a 300 million dollar business; we’re now about a 600 million dollar business.” Kelly has guided the company through several successful projects, including buying back the Norco licensed marketing rights for 5 million dollars after the company had previously sold them for 63 million dollars.
“That particular license was for the Norco brand, and under the previous owners, it was actually losing about 7-and-a-half million dollars a year. We were able to turn that around into a profitable situation within about 18 months,” Kelly says. “It enabled us to have control of our own license and brands, and what that means in a nutshell is that we can go direct to retailers and sell our own brand.” While in theory selling the licensing rights to a multi-national company was meant to grow and enhance the brand, over time the strategy stagnated and introduced many complications in Norco’s dealings with retailers. Kelly even found himself having to ask permission from the license owner to negotiate contracts with other companies. Having control over their brand again has allowed Norco to run more efficiently and approach potential partnerships directly.
From there, Norco was able to create a strong marketing strategy, one that highlighted their presence as a co-op that directs profits back to the farmers. Unlike other companies that are influenced by shareholders and the need to create profits for them, Norco has no reason to drive the price of milk down to increase their margins. Most of Norco’s profitability instead goes back to the farmers, who receive roughly 58 cents per litre of milk. On average, Norco pays the highest farmgate in Australia to its members. Though the farmgate is most important, Norco also pays dividends to the farmers every year, roughly 6% of their net profits.
Kelly sees this as an important point of difference for the company. “We’re farmer-owned. Whatever we achieve goes back to our farmers, and the consumer really resonates with that.”
Another major success that Norco has experienced under Kelly’s leadership is its relationship with the largest food retailers in Australia. “We negotiated with Coles for two years, and we were able to successfully gain the Queensland Coles generic contract. What that means is that we can’t control the retail price, but we can control what we sell for.” Because of this relationship, Norco has been able to put 3 cents per litre back into their farmgate milk price.
However, Coles is not the only company that Norco works with. “We do Aldi, Woolworths, and Coles, and a few other organizations as well, but [Coles] is the majority,” Kelly says. Norco also exports ice cream into the United States and into Japan, though much of their international effort lately has been concentrated in China.
Two years ago, Norco became the first Australian company to begin exporting fresh milk to China. “The challenge was that to export fresh milk there was a testing requirement from China. In that it requires about 8 days testing in Australia, and probably another 7 days when it got to China. So if you added that together, plus the air freight, you sort of would nearly run out of time for the life of the milk.” To solve this problem, Norco developed a system called “parallel testing,” where they send the milk to China, then simultaneously test samples in Australia and China. This cut down the time it took to export the milk to 6 or 7 days, from the farm to the retail shelf. “Our objective and strategy is to slowly, carefully build a footprint in China and in Asia for the future,” Kelly explains. This is part of a greater diversification strategy.
Thanks to all of this recent success, Kelly believes that the company is in a very strong position financially. “We’re very strong in terms of our profitability, [and] our farmgate. We have low debt. We have a very strong market position,” he says. According to Kelly, the key asset for Norco in the marketplace is that they do not have to compete on price, and that their unique selling points center around the quality of their product and the fact that they are a farmer-owned co-op. “It’s really put us into a position where no one else is.”
Currently, the major project that Norco has been pushing for is entry into the café market in Australia. Kelly considers this a huge market for dairy. “When you buy your coffee, 25% of the cup is coffee, 75% is milk,” he says. “You’ll find that the coffee is marketed in terms of its history, credibility, quality, [and] background, but there’s nothing about the milk, so what we’re doing is joining forces with the major coffee houses and uniting to put a story out there about the Norco farmer-owned co-op.” Kelly predicts that Norco’s unique structure as a co-op and its focus on high quality dairy will resonate well with coffee enthusiasts. Norco has already made good progress in this market, even in just the past several months.
Social media has played a huge part in Norco’s ability to spread the message of how the co-op works, and how it is different from other dairy producers. Kelly finds that recently consumers have been more conscious of brand names, and that they are eager to support companies that distribute profits back to the farmers. “When you go onto the Norco Facebook or you look into Norco, you can see that there’s no external shareholders; you know that whatever dollars you spend, you know exactly where it’s going,” Kelly says. “I think it’s all about the educational process of understanding who Norco is, whether it be up front with our branded milk, or as a contract packer in ice cream.”
Though its primary focus is on dairy, Norco has two different business divisions, one of which is in the agricultural sector. “We have two feed mills, one is in Lismore, one is in mid-Queensland,” Kelly says. In addition, Norco runs about thirty retail stores, which sell farming products of all kinds, and deal with both the public and Norco’s own members. “Right from the hobby farmer through to the serious, full-time, full-on farmer.”
At the moment, Norco’s footprint is largely from Cairns to Melbourne, with a strong presence in Brisbane, but they plan to expand and eventually have a national footprint. According to Kelly, the biggest obstacle to expansion is not so much a matter of logistics or competition, but a matter of profitability. “It’s really important to have a strategy that will enable you to achieve the profitability [that] you need. A lot of the time, when business is tough, people go down the price channel and as you know, anybody can sell two-dollar coins for a dollar, but at the end of the day you go broke,” Kelly explains, “so you’ve really got to come up with a strategy—a point of difference, a competitive edge—that can take you upstream, and that’s what we’re doing.”
This kind of strategy is something that makes Norco very different from other companies, Kelly says. As a co-op, they must be very conservative with their risks and take things “one step at a time,” otherwise they could be compromising the returns for their farmers. They focus instead on building solid long-term contracts with partners. “We’re quite transparent because we are a farmer-owned co-op, and most of our customers really appreciate that because they know exactly what they’re dealing with, and they know that we obviously need to make a certain amount of profit, but our main objective is our farmer-shareholders.”
Their strong presence in the market has won Norco a lot of attention among farmers, and according to Kelly there is a “long list” of farms waiting to join. Norco is careful about adding to their roster, though, as their first priority is always financial sustainability. “We lead from the front,” he says, “and what that means is that we always secure a contract or growth first before we take on new members.” The reason for this is that one of Norco’s rules is that they provide pickup and payment for milk to their farmers no matter what. This means that to be able to pay a fair price to every single one of its farmers, they must first secure lucrative contracts and ensure that a larger volume of milk will be in demand before they take on new members.
“What tends to happen traditionally with co-operatives is that they’re pretty famous for going broke,” Kelly says. Though Norco has faced challenges throughout the years, its commitment to a solid business strategy and good profitability has facilitated its continued existence since 1895. Kelly also credits Norco’s commitment to high standards as an important factor to its long-term success. “The one thing that’s been quite outstanding is the quality, reputation, and credibility of the Norco brand,” he says.
In addition, he believes that four key points have played a large part in the growth of Norco: 1. having the right people in the business, 2. keeping costs low, 3. staying focused on the customer’s needs and the company’s specific niche, 4. and having a winning strategy that will support the company’s niche position in the market place. Following these guidelines, Norco has been able to avoid the trap of competing on price in the retail market.
Kelly is no stranger to the realities of these pitfalls. He has a background in retail, having been CEO of several groups in sectors as diverse as international brand apparel, pharmaceuticals, and discount goods. He has worked with Symbion Health, Canterbury International, and Mountain Designs.
It was 8 years ago when he was approached to take on the CEO position at Norco. At the time, Norco was going through some financial difficulties. “It was what I consider a bit of a challenge—which I really enjoy—and a matter of refocusing the business,” he says. “I always saw Norco as a potentially sleeping giant, when you look at the brand, when you look [at the fact] that it’s farmer-owned, when you look at its heritage and history.”
He sees his background in retail as the asset he brought to the company, since it taught him to focus primarily on what the customer wants. “At the end of the day, the key outcome is what the consumer wants and you have to understand the consumer’s needs, and analyze that and make sure that you’re producing a product that is within that requirement.”
“I think the co-operative model can work. In our case, we’ve proven it to work, but I think that, again, requires discipline from a business point of view, and a focus on profitability.” Kelly stresses that a huge asset of the co-op is support from the Australian public, and their desire to see farmers have financially sustainable businesses.
Another factor that has been key to Norco’s success is the quality of its staff. “I’ve got an exceptional team, [an] exceptional Chief Financial Officer, and general managers for each of the divisions,” Kelly says. “They’re all very focused high achievers.”
Through this focus and teamwork, Norco continues to be an award-winning company. They recently won The Grand Dairy Award in the flavoured dairy category for their Ultimate Chocolate Milk; for the second year in a row. Industry recognition is a regular occurrence for Norco. “We win a lot of awards for the ice cream we produce for retailers,” Kelly remarks. “We’re pretty consistent with the quality, and that forms a very strong part of what the Norco brand is all about.”
Norco’s commitment to both quality products for the end user and fair prices for farmers puts them in a unique position where they are already in compliance with many currently developing reforms and new regulations. Kelly says that the government has been focusing on making sure that farmers receive fair treatment from the corporations that buy from them, but that education is still by far the most important factor.
“The more education, understanding, communication, [and] knowledge that we can give back to the farmers, so that they can make better decisions, and understand the end strategy [and] result with the consumer, the better they’re going to be.” He stresses that no business can be sustainable just focusing on production and ignoring what the consumer ultimately wants. In this sense, Norco is helping to bridge the gap between farmers and customers.
Kelly is very optimistic about where Norco is headed in spite of the challenges of their sector. “The market is quite volatile. For Norco, though, […] we’re ahead on our year-to-date net profits. We’ve been able to pay an extra—what we call a ‘step up” payment—for our farmgate this year, which is exceptional. It means that in our first quarter we performed a lot better over our budgeted profits, so we then pay part of that back to our farmers.” This, combined with low debt, a high market share, and promising development in the café market, has allowed Norco to continue thriving.
Written by Raul Betancourt.