By Andrew Patterson
Ask most kiwis what food product they couldn’t do without and, after milk, they’d probably say ice cream.
In fact, per head of population, we’re considered to be the world’s second biggest consumer of ice cream behind the United States chomping our way through an average of 24 litres per person annually ... or 500mls per week.
It gets better.
According to the NZ Ice Cream Manufacturers Association website almost universally, the top three ice cream flavours around the world are vanilla, chocolate and strawberry, except in NZ. Here, second place goes to the infamous hokey pokey variety which has become something of a national icon. Chocolate and strawberry are relegated to third and fourth place respectively.
While Tip Top, owned by global dairy giant Fonterra, dominates the category, Kohu Road became the disruptive entrant in 2007 when it established its fledgling business in the Auckland suburb of New Lynn.
From humble beginnings it now boasts a thriving domestic business pitched at the premium end of the market along with a growing export market to Australia.
So how does someone get started in the ice cream business?
Spend some time with Greg Hall, Kohu Road’s founder and ice cream maker – according to his official title - and you quickly realise this is a man who was almost born to make ice cream.
“As a kid I was a serious ice cream eater. I’ve always had a sweet tooth and a love for ice cream, chocolate and cakes so I suppose it’s not really that surprising that I’ve ended up where I have. People always tell me I have so much energy and passion for what I do and these days it’s almost a cliché saying that you’re passionate about what you do, but for me it’s something I really believe in.”
Starting out in 2007 making ice cream by hand off his own kitchen bench and experimenting with different techniques, the novice ice cream maker quickly realised there was an opportunity to develop a premium brand that would remain handmade; in the great tradition of artisan food producers. That founding principle remains core to Kohu Road’s philosophy to this day and it’s what really sets it apart from its competitors.
“It certainly is a very competitive space and there were already a number of established ice cream makers in the market when we started, but when we launched there hadn’t really been a new entrant in the category for quite a long time so it was definitely ripe for a bit of a shake-up."
“I’d just come back from overseas and was looking around for some ideas and I just thought there was a chance to do something different in the ice cream space so I just dived in."
“What was interesting was that we quickly discovered that not only was there a big hole at the premium end of the market where we had positioned ourselves but that there was no real excitement or buzz within the category so it gave us a chance to really be quite innovative.”
“I suppose you could say we were fairly disruptive in our approach and I think there was probably a bit of tut-tutting going on behind the scenes amongst our competitors regarding our approach and our branding, but particularly our price pointing.
Kohu Road has unashamedly positioned itself at the top end of the market appealing to those willing to pay extra for ice cream with a taste sensation that has made many of its customers both raving and loyal fans.
“In the end, the price really set itself. We have a set of costs that are vastly higher than any of our major competitors because of the way we produce the product so getting the price point correct was obviously important. So we talked to a set of retailers and said to them that if we had this particular retail price what would you want to buy it for from us for?”
“I don’t mind admitting I was pretty naïve when it came to retail pricing margins and structures so it took a bit of reverse thinking about how much they needed to make in terms of a margin and what we needed to make to recover our costs, but that’s how we arrived at the price point.”
However, as any food manufacturer will tell you, producing the product is one thing getting it on the shelf, or in this case into the freezer, of a major supermarket chain is quite another. For Kohu Road, it came down to some good old fashioned pleading.
“There are lots of different strategies to getting your product stocked, and funnily enough for us the first supermarket that took us I was literally on my knees begging to be given a chance. But the guy was like, nobody is going to buy ice cream at this price. I think he thought I was completely off my rocker!”
“But the real difficulty we had with supermarkets is that it’s often the freezer manager who ends up making that decision, rather than the owner, and because they wouldn’t ever pay $20 for a litre of ice cream, then they don’t expect anybody else would either. It was almost beyond their wildest imagination that anyone would pay that much for ice cream and yet we know that there is a segment of the market that doesn’t mind paying for quality.”
“Perhaps the most fascinating aspect of the food manufacturing business which people don’t realise is that you effectively have to sell your product twice. Firstly to the buyer and then to the consumer and when you’re at the premium end of the market and the shop or supermarket has limited freezer space it’s a much tougher selling proposition for us.”
Marketing in the fast moving consumer goods space is an obvious necessity, except when you’re a small manufacturer like Kohu Road with limited budgets.
“We don’t have a full time marketing manager so we end up almost having to go out and get the customers ourselves. Clearly if you’re seeing the brand on TV and in print and hearing it on the radio you connect with it when you’re shopping in the supermarket which, of course, helps build both trust and loyalty."
“What we have to do is a lot of point of sale tasting sessions where people actually taste the product and they literally go oh my god, that’s amazing and then it’s very easy for them to pick up a tub and drop it into their shopping trolley.”
“That’s really why we’re still here because there is that quality and taste factor that makes all the difference. It’s about giving people a choice between the high quality artisan offering and the mass produced and mass marketed product and those are very divergent markets."
“What interesting for us is that as soon as people taste our product and go wow, this is really value for money, then it stops being expensive.”
What is surprising is how quickly Kohu Road has grown despite tough economic times and its high price point. Greg Hall believes Australia offers huge potential for the company and remains largely untapped, if you can make your way into supermarket freezers.
“We’ve certainly grown much faster than I originally envisaged. We really just wanted to be this small, little cottage business still chipping away after five years but the business has really taken on a life of its own. Australia has the potential to be a huge market for us which is largely untapped by NZ ice cream companies and that’s probably because it’s very hard to break into. Because it’s a frozen product another limiting factor of course is transport."
“However, we do have global aspirations and eventually we’d like to be able to take the product to both the UK and the US where I think there’s an opportunity to use our techniques and IP to deliver a high quality ice cream experience.”
As a country, when it comes to ice cream, we’re definitely 100% pure which means Kohu Road may yet become the next brand to make us world famous.
|Sector:||Dairy products (FMCG)|
|Annual growth rate:||45%|
|Fastest growing market:||Australia|
|Domestic : export:||90 : 10|
|Likely to IPO:||Possibly|