Not so long ago, mid-market milk processor Freshways was being pilloried over its treatment of its dairy farmers and living with a series of annual losses, exacerbated by the impact of the first Covid lockdown.
With more than half of its customers in the out-of-home sector forced to close at this time, Freshways moved to slash its milk price in March 2020.
The business then announced a delay in payments as it grappled with cashflow problems, incensing dairy farmers, who were forced to pour their milk down the drain in one of the highest profile food industry stories of the pandemic’s early days.
Freshways’ business practices then came under the Daily Mail’s spotlight in April 2020. In a highly critical piece positioning the processor as the dairy sector’s pariah, the Mail took aim at “fat cat” MD Bali Nijjar and his predilection for exotic holidays, gold watches and fast cars.
Fast forward almost three years, however, and the dairy sector was yesterday digesting the shock acquisition by Freshways of Müller’s Milk & More doorstep delivery service – a media darling which has been largely credited with reviving the quintessentially British tradition of a milkman for 21st century audiences.
As The Grocer reported in the Dairymen 2023, Müller has poured millions into turning around a business that was on its last legs when it was acquired from Dairy Crest it in 2015.
Milk & More is now a modern, tech-focused DTC delivery operation, with a strong customer base of more than 300,000 regulars a week and 200,000 more who “dip in and out”, with a diverse product range likened by its CEO Patrick Müller as a “farm shop on wheels”.
So why is it selling it, and given its recent history, why is Freshways (of all businesses) the buyer?
Why did Freshways buy Milk & More?
In Müller’s jolting announcement yesterday, the dairy giant stressed its decision to offload Milk & More had followed a strategic review – which concluded the business and its DTC focus no longer aligned with the dairy giant’s core as a B2B supplier of fresh milk, yoghurt and other dairy products.
Patrick Müller (no relation to the German dairy giant) then stressed the deal would enable Milk & More to accelerate its sustainability mission, telling The Grocer Freshways’ recent investments in recyclable milk cartons offered it the chance to add this more affordable packaging solution to its existing (and more expensive) offering of glass bottles.
And in fairness to Freshways, this is now a very different business to the one portrayed by the Mail in 2020.
It merged with rival Medina in 2021 and, in contrast to its actions at the start of the pandemic, was a key driver in soaring farmgate prices throughout last year – being the first to offer dairy farmers a record 50p per litre price in September 2022.
After many years of sluggish growth and losses, the processor’s recovery was further bolstered in September when its latest accounts revealed a “dramatic” swing back into profitability last year, with the business posting a 38% increase in sales to £347m and operating profit of £2.9m, rising from a loss of £4.6m in 2021.
The key reason Freshways is buying and Müller is selling, however, is simple economics.
Müller doesn’t report the financials of Milk & More. But despite the fact it has transformed the business (and perhaps because of the significant investment made into the business), it is still loss-making, according to Nijjar.
That’s a position reinforced by a senior City source, who today told The Grocer the business was sold at a very competitive price and was “draining cash” from Müller – which, let’s not forget, has experienced its own financial headwinds in recent years.
As a privately-owned business that often hails its entrepreneurial nature, Milk & More has arguably been given far more leeway from its owners than it would have if owned by a rival such as Danone, Lactalis, Arla or Saputo.
But the dairy giant was quite frank in admitting it was time to let someone else have a go at making Milk & More profitable yesterday, with Patrick Müller saying Freshways had “synergies” with the business, and the “means to further develop its proposition for customers”, not to mention its own supply of milk.
Milk & More will become more competitive, it is claimed
This all brings us back to Freshways and its plans for the business. Nijjar was keen to stress “there was nothing wrong with the range” offered by Milk & More. But he also admitted to The Grocer yesterday that costs would need to be cut in order for it to become finally profitable.
He was also quick to stress the business was “very well run”, yet it was hampered by the corporate structure of Müller, while decisions would be made far quicker under his watch.
Freshways will take on all 31 of Milk & More’s distribution centres and is already eyeing capacity on some of them to piggyback its own deliveries.
And Nijjar thinks he can make the business more competitive – not just by introducing the company’s recyclable carton offering – but by also looking at cheaper options for glass bottles.
A crucial omission in the deal announced yesterday was Müller’s Hanworth glass bottling plant, which supplies 90% of its output to Milk & More and was saved by the company’s switch to milk bottles, but again faces an uncertain future.
While Hanworth is “available to us”, Nijjar says there are cheaper sources of glass bottles around the UK.
His next step is to get in there and “understand the business more in depth” ahead of the 1 January completion date, but from what he’s said already, there is a clear desire to make Milk & More a more competitive business.
Whether any cuts will impact on the service customers have become accustomed to and dilute its premium offering could be the biggest challenge of Freshways’ ownership.
But if it makes a success out of the deal, the change in perception of Freshways as a now major player in dairy will arguably be complete.