Milking opportunity on the dairy market

Dairy producer Covalact, owned by US investment fund SigmaBleyzer Southeast European Fund, has announced it is investing EUR 1.3 million this year and next, according to its development plan, covering portfolio diversification, an expansion in production and logistics capacity and increasing the quality of its products. Zsolt Kovacs, VP of operations with Covalact, outlines the company’s upcoming plans and strategy to Business Review.

What are Covalact’s current production and logistics capacities?

Through our production units we can process up to 250,000 liters of raw milk every day, which is one of the highest rates in Romania. We have made significant investments in our production units over the past few years, which are currently among the most modern in the country. In terms of logistics, we are currently working on expanding our facilities. As a matter of fact, this is one of the priorities that we have announced for the year and we have included logistics in our EUR 1.3 million investment plan for 2010. At present, we operate a large warehouse at our production unit in Sfantu Gheorghe and a regional storage facility in Bucharest.

How will you finance the investments?

Our company will call on its own resources and loans to sustain the investment plans for 2010. Moreover, in the past, we drew up some projects and completed the investments with funding from the European Union and this is another of the options that we have to complete our current development plans.

What does the portfolio diversification entail?

Our portfolio covers the whole range of dairy products, from yoghurt, sour cream, cottage cheese, cheese, milk, kefir, cream, yellow cheese, powdered milk and products that have innovated the market, such as our goat’s milk range. The key differentiator for all our products is that we keep the ingredients natural; we process them under the safest and best conditions and using traditional recipes from Transylvania.

Moreover, since the beginning of the year we have added several new products to our portfolio, including the Sana and Kefir lines, and we are happy to report that the sales for our new product ranges totaled some 11 percent of the overall sales volumes during the past month. By the end of the year we plan to add a few more products to the yoghurt and cheese segments and we are also preparing to launch dedicated products with some of the major hypermarket and supermarket retailers. We will continue expanding our portfolio in order to accommodate the market demands.

What will you do to expand the distribution?

Expanding the distribution and logistics are an ongoing process and a natural step in the evolution of a growing company. We have announced plans related to such activities for this year and they were integrated in the EUR 1.3 million investment budget for 2010-2011. Most of the distribution and logistics will be organized on the existing routes and capabilities so that we will achieve this important milestone at relatively minimum extra cost. By the end of the year we will add some more hubs to our current network. In terms of distribution, our strategy is to deliver on a certain market the products they are used to, without trying to change their consumption habits dramatically.

What are you collection capacities?

Covalact has positioned itself as a traditional producer, which puts very high value on the quality of the ingredients. In order to be able to have natural products we must organize very rapid collection and delivery for the milk, and for the time being we have established very good collaboration with the producers from our county and across all Transylvania. We respect the traditional Transylvanian way of farming, and we support the development of our suppliers, as our joint effort creates better and tastier products. At present, we collect over 130,000 liters of milk per day.

What are the best sold products in your portfolio?

Covalact is the market leader on the cottage cheese segment with Branzica de Casa and among the top 10 producers for the other dairy products with its Covalact de Tara brand.

The top selling products, which have also made an important contribution to raising brand awareness, are Branzica de Casa and the goat’s milk dairy range, as Covalact is the company that established this segment on the market. Another segment that is performing very well is yoghurt, as well as the recent additions from the Sana and Kefir ranges.

What is the company’s strategy for the medium term?

Our strategy on the medium term is to become recognized for the traditional taste of our products. For that, we will focus on communicating this to the public and on consolidating our position in the market. We will continue capitalizing on our relationship with local producers, in order to secure quality milk and provide them with the support they need to expand their farms. On the medium term we also plan to complete the integration of the two production units in the group.

As far as the financial targets are concerned, we plan to acquire more market share in certain areas, such as the yoghurt and cheese segments. As a company, we also want to maintain a constant increase in our general market share, with values that exceed the average evolution of the market.

From 2010-2011, Covalact will continue its development plans and invest over EUR 1.3 million to increase product quality, diversify the portfolio and expand the production and logistic capacities.

Starting this year, Covalact has also initiated an aggressive communication campaign, which is aimed at consolidating our position on the market and making known the fact that we produce traditional, quality dairy products, which are in high demand at this time.

by Simona Fodor

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