Inventory, packaging innovation and NPD: Blackmores CEO sets out stall for next financial year – Exclusive
Alastair Symington, Group CEO and managing director, spoke to us following the release of its annual financial report.
In its financial year ending on 30 June, the Australian Securities Exchange-listed company announced that group revenue was up 12.8 per cent yoy to A$649.5m, driven by strong growth South East Asian markets such as Thailand and Indonesia.
Underlying gross margin was up 1.1 ppts to 53.4 per cent by configurating its price and product mix, as well as managing to save A$10m from its cost-cutting program covering the supply chain.
Underlying Net Profit After Tax (NPAT) was up 22.6 per cent yoy to A$31.1m and underlying gross profit up 15.1 per cent to A$346.6m.
For the first time in the last four years, growth was reported across all markets and product brands, namely Blackmores, practitioner-only brand BioCeuticals, and pet nutrition brand PAW.
Symington analysed the factors driving the firm’s success for the past year and strategies for the upcoming year.
One of the factors driving strong growth was the availability of ample product inventory, according to Symington, which was especially the case in Thailand.
Revenue was up 33.3 per cent in Thailand and 36.7 per cent in Indonesia – two of the firm’s most outstanding markets.
Overall, revenue from its international markets – referring to markets outside of China and ANZ – was up 31.7 per cent.
According to Symington, the Blackmores brand has been present in Thailand for almost 40 years and currently enjoys a market share of about 34 per cent as a market leader.
This has cushioned the firm from logistics and supply chain challenges brought by COVID-19 and hence, able to grow its market share.
“In the past 12 months, a key strategy for Thailand in a period of volatility and supply chain challenges is being able to increase our finished goods inventory and ship those to Thailand, to make sure we have enough inventory to service our customers.
“Because we have been able to increase sales levels in Thailand, it means that we have been able to grow our market share and customers satisfaction in Thailand has improved,” he said.
The upcoming plan for Thailand is to provide products in smaller packs, especially when they are sold in convenience stores such as 7-Eleven.
Going forward, we have a look at our channel and customer mix, where we see opportunities for us to enter into new channels where we might have a different format than what we currently have in traditional pharmacies.
We will be looking at different packaging formats for some of those high frequency stores in Thailand, which we see as being really important part of our channel strategy.
Some of the new formats would include blister packs.
“For the retailers that we see in Thailand, there are very limited product ranges in those stores and for the bottles and larger sizes that we see in the traditional vitamin channels, we don’t necessarily believe that they would be the right formats for say 7-11 as an example.
“We are looking at blister packs and smaller pack count is something that we would take a look at…There is still some way to go but there are opportunities for us to have more everyday product use available in 7-11 in Thailand in particular, in some of those smaller retail stores.”
Elsewhere in Indonesia, the firm has expanded its distribution to 2,000 new independent pharmacies throughout the country through its partnership with Kalbe Farma.
“We have been in Indonesia for five years and we are already in the top three brands in Indonesia.
“For us, the partnership we have with Kalbe Farma and a JV with Kalbe Nutritionals has allowed us to reach more than 5,500 independent pharmacies. Distribution has been a really important part of our strategy in Indonesia.”
More than two-third of the product range sold in Indonesia has the halal logo and more than 99 per cent of the range come with halal certification.
Similarly, the firm is planning to introduce smaller pack size and lower-priced products in Indonesia.
The key for some of the international markets is to make sure that you are recognising the fact that consumers cash out late and the amount that they are wiling to pay for the products may be a little bit lower than China or the ANZ markets.
We know that with certain pack formats, we can deliver a price point in Indonesia at around 100k rupiah, in Thailand, it might be around 20 to 25 baht.
“So, you want to provide products that will give consumers enough such that they will be able to meet the recommended daily intake across the month, but if they are not looking at something very big and expensive to cash out, getting that balance right, having the right format and right pricing and of course, the right products is really key in places like South East Asia.
“Of course, these are also important in China and ANZ, but to a lesser extent…I think as we move forward with more pressure coming on health budget, it is more important that we have a clear value position in the international markets.
Further afield in India, the firm has expanded distribution in 10 e-commerce platforms and have its products available in over 100 stores in four cities.
In Australia and New Zealand, revenue growth was up 2.7 per cent to A$288.8m and the growth was largely driven by the sales of BioCeuticals and PAW.
China: Keep products accessible
In China, the firm hit its highest revenue in five years at A$145.6m – which was 10.6 per cent higher than the last financial year – however, keeping products accessible to consumers remains a challenge that the firm needs to address amid renewed COVID-19 lockdowns.
For the past year, growth in China was driven by cross border e-commerce (CBEC) sales during major shopping festivals such as the 618 and Single’s Day, as well as digital marketing efforts and product offerings.
For instance, the firm said its Gross Merchandise Value (GMV) was up by more than 83 per cent during this year’s 618 festival.
However, aside from these shopping festivals, online purchases have been negatively affected by renewed lockdowns and supply chain difficulties in China in the past few months.
The challenge we saw in Shanghai during the lockdown was that of product availability to the shoppers. This is because the Chinese consumers have been very used to getting delivery within two hours or same day delivery when they placed an order on the platform.
During lockdowns, they were also prioritising more essential goods and so some of the other purchases like vitamins and maybe more discretionary spending…Those deliveries were taking a little bit longer.
So, there was a reluctance for shoppers to purchase if they wouldn’t able to get the products in the timeframe that they expect. That was more about the availability of the products from the platforms than from Blackmores, but that did have a good impact on consumption during the lockdowns and so CBEC sales came down slightly at a category level in the back half of 2022.
With some of the lockdowns lifted, Symington noticed that sales have started to improve.
Nonetheless, given that sea freight would take about six weeks and air freight would be a costlier and less environmentally friendly option, the company will therefore work towards increasing its inventory in China during the second half of the year as well.
“We have 13 markets and having inventory in each market is important,” Symington emphasised.
As for new product innovation, the company is focusing on eye health products for the China market. Existing products include Fish Oil Omega Mini Double Concentrate, Vision Care + Energy, and Superkids Bright Eye Protect.
Annual price adjustment
Similar to the past years, the company will be introducing annual price increase in end September and early October across the group’s products and all markets.
However, the percentage increase will be higher this year.
“We have been talking to our retailers in China and the international markets about pricing. Those new prices are going through in September and then Australia from the end of September and early October.
“We estimate that due to cost inflation, the cost of our goods sold in our range will be higher at around 5 to 6 per cent, that’s the cost that we are trying to recover.
“The pricing of some product lines might be higher, some might be lower, but the average is somewhere around five to six per cent across the group,” said Symington.
Last year, the company took a three per cent pricing in Australia and that was without the impact of inflation.
Another area to improve margin is in the area of new product innovation, where new launches would have to be priced at or higher than the company’s average gross margin.
“We are launching new innovation all the time. In the past 12 months, we have launched more than 50m worth in sales of new product innovation and every time when we launched a new product, it has to be at or at higher than the company’s average gross margin.
“Most of our new products entering the markets are at about 60 per cent of the gross margin, which means that most of our innovation which goes to the market are of higher gross margin than they have been in the past.”
To streamline its strategy, the company is therefore also investing more in portfolios that generate higher margins.
“When we take a look at our portfolio, if there are other channels or segments where we see growth, which are able to generate high gross margins, then we will prioritise investments in these areas.”
Seeking growth in Vietnam
At the same time, the firm will look to grow its presence in Vietnam, with the aim of becoming one of the top three brands, said Symington.
As such, for the upcoming months, the company will be growing the distribution of its supplement products.
