DALLAS — A fully optimized supply chain is a great problem to have. But it is a problem nonetheless, and one the WhiteWave Foods Co. is facing as the company attempts to manage the growth of its North American plant-based beverage, dairy creamers and premium dairy businesses. As a result, it has been forced to incur higher co-packing and warehousing costs in an effort to keep pace with consumer demand.
“We’re fully loaded in our manufacturing network,” said Gregg Engles, chairman and chief executive officer, in a conference call with financial analysts on Feb. 13. “And so every incremental gallon today that we are selling is co-packed, so it has higher manufacturing costs than within our network. And it is all also warehoused outside of our system and has to be redistributed in order to be married with orders from customers to ship.
“So just drilling a little bit more into distribution, on a low-teens growth in sales in Q4, we had distribution costs up over 20%, and that’s really a function of the fact that on an incremental basis, that last case of product bears a significantly higher cost burden than other cases of products.”
Part of the problem facing the company is the ramp up of operations at its new $85 million plant in Dallas. Mr. Engles said production is ahead of schedule, but demand for the company’s products has been even greater.
“We’re bringing on lines continually, and into the first quarter, we’ll be bringing up additional lines of capacity in support of our prism of single-serve, our portion control, creamer business, as well as our classic International Delight business,” said Kelly Haecker, chief financial officer. “And then as the year goes on, as we get into the latter part of the year, we’ve got two projects that are under way right now to add a half-gallon line in our West coast plant and then another half-gallon line at our East coast plant. Those two projects will come on-line late Q3, ramping up into Q4. Those will also be significant contributors to our ability to improve our distribution and warehousing costs.”
Mr. Engles said the household penetration for plant-based beverages was up almost 300 basis points in 2012, the highest level since the category was introduced.
“However, household penetration has only reached the mid-20s, and we believe it will continue to march higher,” he said.
Despite the logistical constraints, the company is not slowing its innovation efforts. To drive additional growth, the company is introducing a variety of new products in 2013, including “taste improvements” to Silk soy-milk, a single-serve format in Premium Dairy for TruMoo milks, and the introduction of Silk Fruity & Creamy non-dairy yogurts. In addition, the company will be adding new flavors to its International Delight Coffee Creamers line and extending iced coffee portfolio with lighter varieties.
But it is growth potential outside of the grocery store that has management’s attention.“As our categories become larger and more mainstream, we also have opportunities to expand our presence in channels like away-from-home, convenience, drug and dollar stores, and a food service channel,” Mr. Engles said. “As we discussed, we need to expand our capacity to enable continued growth, and we are committed to investing in our business to ensure our manufacturing network has the requisite capacity to stay ahead in our rapidly-growing categories, enhance our margins, and drive future earnings growth.”