Jan Bennink - The new Numico

Royal Numico’s chief executive Jan Bennink (49) never chooses the line of least resistance. When he decided in early 2002 to give up his job at Danone to become Numico’s executive chairman, he knew that he was switching from comfort to trouble. Numico was a former blue chip company that had quickly lost its colour.
Elsevier Food International, Vol.8, No.3, September 2005 Pascal Kuipers

Jan Bennink, Numico’s chief executive, describes himself as a builder rather than a crisis manager and after a major restructuring operation he has managed to get Numico back onto its feet. By focusing on its two core competences of baby food and clinical food, Numico is targeting high growth and high margins. As a specialist Numico is in a favourable position and the company intends to develop the market by innovation. To support its innovative capacity, Numico works intensively with scientific research labs. Organic growth may be the prime driver of growth but possible takeovers are of course considered.

In 2002, Numico was a €4 billion company with a record net loss of €1.6 billion, representing 40 per cent (!) of sales. That year the share price reached a low level (€10.45), where only two years earlier Numico celebrated its all time high (€61.05). Bennink and his fellow board members went through a vale of tears in 2002 and 2003 when reorganising the business, which included for instance the sale of Rexall Sundown for US$250 million. Numico had bought this US-based manufacturer of nutritional supplements only three years earlier for US$1.8 billion.
Desperate diseases require desperate remedies and the patient recovered quickly. In 2004, Numico was a €1.7 billion company focusing on baby foods and clinical foods with a net profit of €145 million (8.4 per cent of sales). The numbers illustrate Bennink’s restructuring zeal.

Did you prove yourself to be a successful crisis manager, having restructured Numico?

“I am by no means a crisis manager. I am a builder. The restructuring is a never-ending process. An organisation should constantly adapt to change. Three years of standstill is impossible. People must constantly be challenged to leave their comfort zone. It prevents complacency and supports a spirit for growth. This also holds true for myself. When I accepted the executive’s role at Numico, I thought it would be a four-year job. Now, after three years, I am far from reaching my comfort zone. Instead, I am still learning every day. Numico has a huge growth potential.”

You started your career with Procter & Gamble, a company which is renowned for its in-company training.

“At P&G I learned to rigorously deal with the facts. Analysing marketing facts by ratio and not by feeling, prioritising the facts on a one page memo. I managed to get a marketing position at P&G’s headquarters in the US. There I found out that the P&G culture isn’t my cup of tea. Provided you perform well, your life-time career is already laid down for you. I don’t like that. It oppresses me as I am adventurous by nature.
P&G provided me with the basis and a second step was Joh. Benckiser. Its CEO Peter Harf is a very inspiring personality, leading an entrepreneurial company. Harf convinced me to go to Italy to turnaround its business which included some 1,200 lay-offs and reducing the production capacity from seven factories to one. I was only 32 years old and I doubted if I was ready for such a responsible task. Harf trusted me and said I could do it. I regard him as my mentor. He supported me and provided feedback. I learned a lot there, especially with regard to people management. I am good at motivating people and that helped me a lot. I could only express myself poorly in Italian, but I managed to convince people. I also went to Rome to speak to representatives of the trade unions.
I left Benckiser in 1995. The company was engaged in M&A activities and the whole management was increasingly financially focused. Money is not my key driver, however. I need more and then Danone became an opportunity. Friends warned me. Don’t do it! They’re French! You’ll dig your own grave and die there! I met Danone’s chief executive Antoine Riboud and had a good conversation with him. Riboud was a charismatic man and after one meeting with him I decided to do it. Food, dairy products instead of detergents and the opportunity to develop the market. I was the first foreigner in Danone’s executive board. I had to adapt myself. Firstly by learning the language as boardroom discussions were in French. My fellow board members were strong strategists. I added Dutch pragmatism. I also had an excellent contact with Daniël Carasso, son of Danone’s founding father and a visionary leader of the company. He is one of a kind of authoritative people whose authority is immediately recognised. Very interesting.”

The food industry is increasingly financially driven by bankers instead of entrepreneurs. Are they still there, such visionary executives?

“Visionary leaders are always needed, but currently such leaders are indeed thin on the ground. In my view, Nestlé’s Peter Brabeck clearly stands out. He is the best CEO currently active in the food industry. In retail, Tesco and Wal-Mart are known examples of companies with a healthy business model, however, Wal-Mart should be keen on not losing ground. Aldi’s business model is also successful as it masters its own model. But all models are prone to suffer from cracks in the long run. Tesco has always been focused on internal growth and masters its domestic model, which it is now expanding abroad. Ahold was close to Tesco’s business model but it focused too much on external growth. Bigger is not necessarily better.”

This also holds true for a supplier like Numico that divested more than half of its business in two years.

“Numico is a small player with some €2 billion of sales. Nestlé for instance is a different league with a sales level of some €50 billion. Nutrition is a very broad perspective and our reason for existence is that we are focused on two core competences – baby food and clinical food – with high growth and high margin targets. Mostly growth and margin counterbalance each other, but we clearly set an above average target for both. On average, food companies grow organically by some five to six per cent. We aim for nine to 11 per cent top line growth by 2007 and I am confident that we can reach this. In the first quarter of 2005, we grew 12 per cent. PepsiCo is among the companies with the highest margins in the industry, also due to its large domestic market. Its margin is some 18 to 19 per cent. Numico aims for a margin of at least 20 per cent.”

Small but specialised. Does this prevent Numico from being squeezed by the large retailers?

“As a specialist, Numico is in a favourable position. We don’t suffer from price pressure from retailers. Baby food is an extremely high-involvement product category for consumers who will definitely switch stores when confronted with out of stocks. But these are consumers who spend far above average. When I started at Numico, our service level at Tesco was an unacceptable 65 per cent! Our supply chain was far from up to date. But we weren’t delisted as our brand position was strong. Now things have improved, fortunately. We can concentrate on growth and innovation.”

Did Numico ever consider producing private labels?

“We will never produce private label. That would be cancerous growth in our organisation. We intend to grow the market by innovation. Private label aims to destroy the market.”

You are a member of the supervisory board at Boots which has a private label baby food.

“Yes, and it accounts for negligible sales figures. Boots’ brand image is extremely strong and it comes closest to being the ideal retail brand for baby food. But still, Boots’ brand awareness is not strong enough for a well-performing private label baby food. Brand loyalty is incredibly high in baby food, which is a complex niche market. It has some 200 references and sales levels are relatively low. Its shelf space is therefore very expensive. This, combined with necessary food safety measures results in baby foods being almost immune to private label threats. There have also been initiatives in the French market but it wasn’t successful.”

How is R&D organised at Numico? Does it collaborate with third parties?

“R&D is a core competence which is discussed at board level. Every three months we get an overview of what’s happening. Our R&D centre in Wageningen is state-of-the-art and a very motivated staff works there. We allocate three per cent of sales to R&D. With €2 billion of sales this is of course modest when compared to a giant like Nestlé that spends two per cent of its €50 billion sales. To support our innovative capacity, we work intensively with scientific research labs. This is unique for food, but at par with other players in the pharma business.”

Are R&D initiatives in baby food and clinical food linked? Can one competence benefit from the other?

“These are mostly separated activities. For clinical foods, the R outweighs the D by some 80 to 20. For baby foods it’s the opposite with R accounting for 30 per cent. Here research focuses on milk, especially how to come closest to a product with the benefits of breast milk. For the rest it’s product development. The international market for baby foods is a desert. It has been gravely neglected. With annual consumption per capita of 190 kilo and an annual growth rate of nine per cent in the last decade, France is the world’s leading baby food market. Here Danone and Nestlé have been quite active. But in France as in other countries it is a niche market that easily accepts price increases. Then complacency occurs. The potential is, however, impressive. Infant formula is milk for babies up to 12 months. Next, most babies switch to cow’s milk, which is not an ideal product. For children up to three years we are able to pass on benefits of breast milk via our infant milk. In France, this product soared by 15 per cent to a sales level of €150 million. If you calculate the potential for western Europe, that means an addition of €500-600 million to the market.”

But aren’t there clinical food products of Numico that are sold via retail channels as OTC products?

“For retail we stick to baby foods. All other products sold via retail channels are of no interest to us. For instance specialised foods for old people that suffer from malnutrition. We don’t sell these. Our focus is on disease-specific nutrition that is prescribed by doctors and distributed via hospitals, clinics and pharmacies. These channels have a different margin structure. In this way we can increase our margin by over 20 per cent and do relevant research. In clinical foods, research focuses on relieving clinical pictures. It’s possible to slow down processes such as Alzheimer’s disease or the development from HIV to AIDS via clinical foods. Impressive work is done there.”

Isn’t the new Numico an interesting acquisition target? And on the other hand, does Numico look at acquisition targets now that it has acquired the Italian baby food company Mellin?

“Above average growth surely draws attention. The Board holds the opinion that it wants to remain independent, but shareholders make the final decision. We deliberately removed all protective clauses as we think that performance is the best protection. In 2004, we had sales of €1.7 billion and a market cap of €6.5 billion. Even the largest players in the industry would carefully consider an acquisition of this size. But might this come true, I will be gone. I don’t intend to become a division manager in a large company, having to deal with company politics. I already did that in the past.
Organic growth is our prime driver of growth, but we of course consider possible takeovers. This is something I discuss with my CFO Jean-Marc Huët. We know the market and its players. Might an opportunity like Mellin occur, we can act promptly. We reduced most of our debt and our current debt level is low considering our cash flow. We expect to be debt free by 2008. Finding funds is therefore no problem. Recently we did a private placement in the US for US$400 million, with an interest level below four per cent. This proves that investors believe in Numico.”