The food industry is, as the old Chinese curse has it, living through interesting times. The macroeconomic outlook is mixed. Consumers’ tastes are becoming almost as hard to predict as raw material prices. Energy costs are easier to read: they’re going the wrong way – up. State intervention is increasing, as governments try to avert an incipient epidemic of obesity. And, as the major players try to position themselves for growth, there is a fair degree of corporate turmoil in the industry.
Against that backdrop, the performance of the Strauss Group has been quietly impressive. In 2012, it set new records for sales (up to US$2.2bn) and profits. The figures only tell part of the story. In the last 12 years, the company has been transformed from one that relied heavily on its home market in Israel to a global giant that generates around 51% of sales from overseas (and 43% from emerging markets). That alone explains why group Chair Ofra Strauss routinely features in Fortune magazine’s list of the 50 most powerful women in business. Yet the intriguing aspect of Strauss’s success is that it has competed with brands and companies such as Nestlé and Kraft by launching joint ventures with corporate heavyweights Danone, Chinese white goods giant Haier, PepsiCo and Richard Branson’s Virgin, amongst others.
For many companies, such alliances have been short-lived marriages of convenience, but Strauss’s have had more longevity: it has been working with Danone since 1986 and PepsiCo since the 1990s. Partnering with such famous names is challenging but the relationships are flourishing. PepsiCo CEO Indra Nooyi said, after the companies had negotiated one joint venture, “As far as I’m concerned, PepsiCo and Strauss are partners forever.” Fine words, and PepsiCo have acted on them. Last year, the groups put their joint venture in dips and spreads on a global footing.
So what is Strauss’s secret? In an interview, Ofra Strauss suggested the company’s success partly reflects one simple rule: “We never vote on anything. We never have. When you work closely with companies, you know from discussions whether everyone agrees on a proposal. If it’s clear that no such agreement exists, you’re better off not having a vote, reconsidering the proposal or working out what you need to do to get that agreement. I honestly can’t remember not getting an agreement in any of our joint ventures.” You need, she says, the right chemistry to make alliances work: “Joint ventures don’t work in certain company cultures but they work well in others. We have a lot of experience and processes that help them succeed. Respect is key. We are particularly interested in ventures that help us access markets and strengthen our connection with consumers, where we and our partner share knowhow and risk.”
One aspect of sharing knowhow is encouraging genuine debate. “If opinions don’t differ,” the Strauss chairperson has said, “something is wrong. Some might voice concerns about risk, while others focus on the opportunity. It’s about learning to listen.” That openness – and a desire to remain innovative and entrepreneurial – inspired the company to launch Food Tech Alpha Strauss to reach out to researchers, inventors, academic institutes, capital risk funds and governmental organizations who might have good ideas it could develop into products.
Historically, Strauss has focused on a few key alliances that deliver strategic value for both parties. The first partnership – with Danone – originally started in the 1960s and has been, Ofra has said, “a particularly useful alliance – we have learned a lot from them.” The partnership was strengthened only last year when Danone agreed Strauss could use its trademarks for all its fresh dairy products and refrigerated food products for infants in the Israeli market.
It is easy to see why working with Danone and PepsiCo would benefit a group keen to accelerate its global growth, but what do these giants see in Strauss? The group’s Chairperson sums up what makes her company so sought after in two words: “Entrepreneurial spirit.” That has been part of the company’s DNA since her grandparents, Richard and Hilda Strauss, launched a dairy farm in Nahariya, a small town on the Israeli coast. They started in 1936 with two cows. Their son, Michael, became CEO in 1975 and turned Strauss into a national brand famed for cheese, ice cream and yogurt. In 2001, he handed over to Ofra (they are joint controlling shareholders). Three years later, Strauss consolidated its position in its home market with an audacious merger with rival Elite, a group with sales twice as large as Strauss’s. The deal created Israel’s second largest food and beverage business and provided the springboard for Strauss to grow organically, by acquisition and through strategic partnerships, to become a global enterprise with 29 plants in 19 countries. The business now rests on six pillars:
- Health and wellness. Foods and drinks that are marketed to health-conscious consumers, such as hummus, cereal bars and olive oil, in Israel, where the company’s brands are market leaders.
- Fun and indulgence. A range of treats for the Israeli consumer, such as bakery products, chocolate and salty snacks, usually marketed under the Elite brand.
- Coffee. With 83% of this division’s revenues coming from outside Israel, Strauss is the world’s fifth largest coffee company. It has a joint venture with Santa Clara in Brazil and recently completed the acquisition of the Le Café instant coffee brand in Russia.
- Water. Management identified the need for bottled water as a global strategic opportunity in 2007 and the business, being developed with Virgin and Haier, experienced sales growth of 14.1% in 2012. The potential is huge, especially in China where, as Strauss says: “The middle class is growing and so is their demand for clean available water where they live, but we are just a small start-up.”
- Max Brenner chocolate. An Israeli brand acquired in 2001, run by franchises and Strauss – with 40 shops overseas.
- International dips and spreads. The US$275m-revenue joint venture between the company’s Sabra business and PepsiCo has the bestselling brand of hummus in the US. Top-line growth in Sabra dips and spreads rose to 30% in 2012. Strauss and PepsiCo are developing these products for other markets, investing US$10m in the launch of the Obela brand in Mexico and making acquisitions in Australia.
Looking ahead, the Strauss chairperson says, the company expects to make more of what it has: “We have a nice rounded portfolio of products, with sales that have kept growing even in the last two to three years. We will invest to make our portfolio more profitable and help it grow, especially in Brazil, North America and Russia.” In Israel, Strauss’s goal is to become more competitive and, in 2012, it launched 200 products in its home market. In the rest of the world, Strauss sees scope for dynamic growth: sales grew by 32.7% in North America in 2012. Acquisitions are possible but managers are open to other partnerships that strengthen its market presence or give it a foothold in new countries.
Despite the pressures on the food sector, it is easy to see why Strauss’s Chairperson is so optimistic. Consumers are unlikely to stop buying its core products – healthier dips, coffee, chocolate, water – anytime soon. The company has plenty of market share to attack: in roast and ground coffee, for example, Strauss has a global share of just 4.1%. And as it seeks to accelerate growth, it can call on some very powerful allies.