As Australia gets its head around the opportunity of supplying the Chinese market with “soft” commodities and edible products – instead of just shipping off rocks – there will be the inevitable mis-steps. You only have to think of the rhetoric of late last century, when Australia was mooted as the “food bowl of Asia,” as if the nation could grow massive amounts of bulk food to supply burgeoning Asian populations.
These days, Australia is far more likely to be spoken of as the “delicatessen of Asia,” supplying the swelling ranks of high-end Asian consumers with premium food and beverages, trading on the country’s real natural advantage – which is that it produces some of the highest-quality agricultural products in the world, in a clean and “green” manner, with an impeccable record of safety and traceability. The emerging consumers in Asia want traceable, repetitively deliverable high-quality product: Australia has that, and has excellent logistics to export that produce.
A more recent mis-step was seen in April, when implementation of new food and product laws in China hit the share prices of several high-profile exporters to the Middle Kingdom, such as vitamins and nutritional supplements maker Blackmores, organic food and infant formula producer Bellamy’s Australia, health food manufacturer Freedom Foods and dairy processor Murray Goulburn. But for these companies and many others, selling premium Australian products into China will be a source of huge opportunities in the years to come.
That is the business proposition that juice and health food company Food Revolution Group Limited (FOD) brought to the Australian Securities Exchange (ASX) in February. Food Revolution – formerly known as LangTech International Pty. Ltd. – listed through a reverse takeover of West Australian minerals explorer Crest Minerals. The company manufactures fruit juices, fibres and infused fruits, and ‘functional foods,’ which are foods and beverages containing ingredients that provide a health benefit beyond basic nutrition.
LangTech was established in the 1990s by Tim Lang, who developed the Counter Current Extraction (CCE) food processing technology, initially through a partnership with CSIRO, to process grapes to increase yields for the wine industry. Later, together with US agricultural co-operative Ocean Spray, the technology was used to process cranberries into both cranberry juice and infused cranberries.
In May 2005, Lang Technologies Pty. Ltd. was incorporated and commenced the LangTech business in its current form, focusing on the extraction of juice from fruit and vegetables through the CCE process (excluding cranberries and grapefruit). In February 2011, LangTech was incorporated to acquire the business. The company raised venture capital from Generation Investment Management – the investment house founded by former US Vice-President Al Gore – and also from CleanTech Ventures, which it used to help fund a joint venture with the famed Australian brand Golden Circle (now owned by US food giant Kraft Heinz).
In 2014 the company merged with marketing and development company Thirsty Brothers to commercialise their products and technologies, and took over the Heinz bottling factory at Mill Park. Since then LangTech has been making the Golden Circle and Original Juice Black Label juice brands for Kraft Heinz at Mill Park.
The company was rebadged as Food Revolution Group earlier this year in order to mount the reverse takeover of Crest. Food Revolution now makes a range of juices, fibres, infused fruits, fruit waters and bioactives for sale – as branded products and/or ingredients – to the functional food and beverage and ‘nutraceutical’ (food with health benefits) markets. The patented CCE process allows Food Revolution to use 100 per cent of a piece of fruit – for example, extracting and selling the oil, juice, pulp and peel of an orange – compared to the 40 per cent that is commonly used in the food industry, with the rest dumped.
Not only does this maximise the yield from the raw materials, it is the “waste” material – the skin, fibre, pulp and oil – that is used in the high-value bioactive and functional food by-products.
Food Revolution also has a manufacturing plant in Roxdale, New Zealand, which has ample capacity to support future growth in Australia and overseas. The New Zealand plant is certified to produce organic fruit and vegetable juices: Food Revolution is looking to leverage its organic capabilities where the opportunity presents.
The company’s CCE technology is used in in all of Ocean Spray plants worldwide, and Food Revolution continues to look for opportunities to apply this technology. But the company is transitioning from a technology-based ingredients company to more of a vertically integrated food and juice manufacturer and brand owner. In so doing, Food Revolution is looking to be a “disruptor” in the food business.
At present, the company supplies its Hi-Fi high-fibre fruit-based dietary supplement drink – which is focused on gut (intestinal) health – and its Juice Lab chilled pressed fruit, vegetable and non-milk smoothies range to Coles. Woolworths also stocks Juice Lab. In April, the company said it had signed “significant distribution deals” with Woolworths and Coles to take its new products, Badu infused fruit water and Mixologist lightly carbonated juices, beginning that month. Smaller distribution partners, including Conga Foods, Procal Dairies, Norco and PFD Fresh to Go, have also been signed to distribute the products to independent outlets, cafes and convenience stores. These deals saw the Food Revolution range hit the shelves in April at more than 2,000 retail outlets, including BP service stations and Melbourne Airport.
The company says the deals should generate more than $15 million in annual sales on top of the $17 million it generated in FY15. Australia makes up 95 per cent of the Melbourne-based company’s revenue (nearly all of it coming from the Golden Circle contract), with China and Thailand its other two markets. But it is Asian expansion – based mainly on China and South Korea – that looms as the really big story for Food Revolution’s growth.
LangTech already had a number of key strategic relationships with Chinese partners with existing channels to market in China, with its foothold based on hypermarkets, supermarkets, and convenience stores, as well as online channels. Food Revolution director Hong Wang and his associates took about 9.8 per cent of the stock ahead of the February listing. Food Revolution has developed a range of new branded functional food and beverage products, including dairy-based beverage and food products, for the Chinese market.
These products will be sold under the “Australia’s Garden” brand, and sold – in conjunction with the company’s other brands – through its Chinese partners’ existing channels to market, together with new ones that Food Revolution expects to establish. In March, Food Revolution announced that it had appointed four new strategic retailers/distributors based in China, and received first orders from two of these. These orders will see FOD products distributed in more than 1,000 stores across four Chinese provinces.
Any way you look at it, there is huge potential for Food Revolution in China. The company says it expects half of its revenue to come from the China market over the next three years – compared to less than 5 per cent at present.
At present, albeit with only a fraction of its revenue coming from there, Food Revolution makes a loss – it lost $3.8 million in the 2014-15 financial year.
In the half-year to December 2015, its loss worsened from $224,000 in the December 2014 half to $1.14 million, but there was almost $1 million of non-recurring associated with that, booked from writing down the former entity’s exploration assets, R&D aspects and costs associated with the reverse takeover.
It’s fair to say that the market has not yet got its head around Food Revolution. When it listed in February, Food Revolution shares closed at 20 cents, which represented a three-cent, or 17.7 per cent, premium above Crest’s last trading price. The shares have traded as high as 27.5 cents, in early April, but have slid in line with the much-bigger China food and vitamins exporters, in arguably a huge over-reaction. At 19.5 cents (which capitalises the company at $44 million), Food Revolution is trading at less than its first-day close – despite some impressive achievements in its few short months on the ASX.