Dairy processor and foods group Bega is looking to become the big cheese of peanut butter as it accelerates its marketing spend on one of its key products.
The company’s net profit for the six months to December rose 31 per cent to $20.6 million as its new products boosted overall revenue and favourable seasonal conditions and greater intake of milk benefited its dairy operations.
Bega acquired Vegemite and Kraft peanut butter, which it has rebranded Bega peanut butter, in July 2017 as part of its $453 million purchase of the Mondelez Australia and New Zealand grocery business.
The deal was key to the company’s strategy of diversifying its operations away from dairy products to include higher-margin consumer goods.
Bega also recently acquired Australia’s largest peanuts processor, Peanut Company of Australia, with the aim of expanding peanut production in Australia and using all local product in Bega peanut butter.
Bega executive chairman Barry Irvin said peanut butter is getting more attention since Bega bought Kraft peanut butter, and was involved in a legal battle with Kraft-Heinz over the rights to the design of the jar.
He said Bega is significantly accelerating its investment in the brand and its promotion.
He said Bega peanut butter would be differentiated from competitors because Bega has its own supply chain and manufacturing structure, and a close association with Australian farmers.
Mr Irvin said the peanut butter market was currently very competitive and that had impacted margins, but Bega believed it was in a good position.
Favourable seasonal conditions and more dairy farmers switching to supply Bega in the wake of rival Murray Goulburn’s troubles boosted Bega’s milk intake to 456 million litres in the first half, up from 347 million litres a year earlier.
Mr Irvin said most of the extra milk intake was directed into higher-value products such as cream cheese and mozzarella.
“Mozzarella continues to be an area that we will invest in into the future,” he said.
Mr Irvin said the global dairy market was softening, so it would be wrong for him to commit to a step-up in the price Bega pays farmers for their milk.
“We’re communicating to our suppliers that the market is not strengthening, it’s in fact softening, and we note that our competitors are doing the same,” Mr Irvin said.
“At this stage, we think that the price will be held but beyond that we haven’t made any other commitment.”
Shares in Bega dropped 47 cents, or 6.4 per cent, to $6.86.
MORE MILK AND NEW PRODUCTS BOOST BEGA’S PROFIT
* First-half profit up 31pct to $20.6m
* Revenue up 13.5pct to $705.2m
* Interim dividend up 0.5 cents to 5.5 cents fully franked