Alltech: Small ideas, big impact
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Alltech's forward-looking founder Dr. T Pearse Lyons once said, "Using yeast as a catalyst, we built a business. That business stretches from the human side, all the way through animals, to baker's yeast, supplements, but most of our business has to do with improving the health of animals."
Simple, yet time-tested ideas like this are indeed the catalyst for Alltech's impactful growth over the years, as Dr. Mark Lyons, Global Vice President and Head of Greater China, explains to FEED Business Worldwide in an interview.
FBW: Tell us more about the whole idea about using yeast as a catalyst.
Since its founding, Alltech has focused on its expertise in fermentation, which now ranges beyond yeast to bacteria, filamentous fungi and algae, but it was yeast and its impact on the improvement of animal health and performance that truly grew the business. Harnessing this technology and quickly bringing it around the world was fundamental to the growth and success of the business today, now selling in 128 countries.
Because the modes of action of many of our products are similar from one species to another, we have been able to move into new markets with relative ease. It is this global diversity and balance in terms of geography and species that has given Alltech such financial strength and stability over the years. With more than 20 different technologies and programmes revolving around yeast, yeast fermentation remains our central catalyst.
The product portfolio of Alltech's Animal Nutrition and Health division can be broadly classified into yeast-derived natural growth promoters, organic trace minerals and mycotoxin management products. What is the rationale of having incorporated each product line into the business of Alltech?
Fundamentally, Alltech's products have been developed through contact and conversation with our customers. We see a challenge and find a way to address it, and this has built our product portfolio.
At one stage, we had more than 700 products so we decided to narrow our focus to what we refer to as our Big Six, the six products that we felt represented the greatest opportunities on a global level.
Since then, we have moved beyond products towards total programmes and solutions. We are focused on solving challenges for customers such as antibiotic-free production, replacement of ingredients such as animal by-products in feed, and total replacement of minerals with regard to greater efficiency and decreased environmental impact. The replacement of inorganic minerals with organic minerals, and the introduction of new on-farm environmental audit tools will have increasingly important roles in nutrition strategy as agriculture comes under higher scrutiny for environment impact.
What has been Alltech's growth strategy?
The business has been very balanced in its development, and this is probably in large part because of the focus, to this point, on organic growth.
Up until 2011, Alltech had not acquired any significant business so the company's sales by region were broken down nearly evenly between the major regions of Europe, Asia, Latin America and North America, with the Middle East and Africa making up the rest of the sales. In every region, the growth and expectations of the business have always been considerable. We've had a track record of annual growth greater than 20%, and we aim to continue or surpass that success.
Since we began pursuing acquisitions in the last five years, these numbers have changed significantly. Most of the acquired companies have been in North America, causing that particular region to represent a much more significant part of our total sales. Other areas such as our Crop Science division or our Beverage Division make up a far smaller percentage of sales than Animal Nutrition and Health which accounts for 95% of sales.
How has the global feed and livestock industry evolved since Alltech's founding in 1980?
Looking back over the last 35 years, certainly integration would have to be one of the major changes that has taken place. In some cases, this has allowed businesses to become more efficient and reduce costs; in other cases, this has come at the price of profitability within the industry.
Other major trends and changes over this time have included subjects that Alltech has been focused on, such as traceability, antibiotic-free production and communication directly from farmer to consumer. These are now becoming mainstream concepts.
What are the some of the biggest concerns of your customers these days with regard to livestock's nutrition and health?
Fundamentally, the number one concern for all producers can be generalised as profitability.
Specific issues include concern about disease challenges and what is in feed, whether it be mycotoxins or other potentially dangerous materials.
Alltech has also established a gut health programme which has helped to bridge the gap between nutritionists and veterinarians, highlighting key nutritional issues and the impact they can have on gut health.
In the dairy sector things like mastitis and somatic cell counts as well as reproduction continue to be some of the largest concerns. Alltech's programmes have had enormous impact on these areas. We aim to address these issues with products like Sel-Plex, used by an estimated 80% of the reproducing animals in the US pig market, which has also made a huge impact on reproduction issues in virtually all other species.
In the past year, the global feed and livestock industry has generally not performed well. Like most commodities, prices of feed grains -- corn, soy and wheat -- have been treading at low prices, consequently dragging down feed markets worldwide. How has Alltech worked with your customers to improve their profit margins?
We have a mix of customers which includes grain producers, feed customers and livestock producers, and typically someone in the chain is likely to be enjoying better profitability than someone else at any given time.
High feed prices, while great for the feed industry, are a real burden for producers. I think what has made Alltech different over the years is that it is always focusing on how best to improve things for the customer.
If feed prices are high then the producer needs to use feed more efficiently, which means that the feed company should be able to sell the value of more efficient feed. If grain prices are low, we might focus more on improving production levels at the producer level, particularly if they have good prices for their meat, milk or eggs. Feed producers would typically be selling higher volumes with low grain prices and often can offer their customers, livestock producers, higher value feed additives that can provide greater profit opportunity.
Tell us more about Alltech's corporate mantra, "Make a friend, make a sale."
Alltech differentiates itself from its competitors through relationships with customers first and foremost. The first rule at Alltech is "Make a friend, make a sale", and this really is something that we are very genuine about. The connection with the customer allows us to help them in all parts of their business and truly results in a partnership as opposed to some simple contractual or transactional relationship.
Of course, this connection we have with our customers adds on to the strength of our product offerings. Nobody in the industry has the expertise and wide offering of products and the ability to create programmes with them like Alltech does. Our products are safe, efficacious, and we have always looked beyond the general standards of quality for new ways to improve safety within the feed and food industries.
I think the Alltech advantage is the combination of these points, which put us in a different position than the companies trying to compete with us.
Where are your production facilities located? Is Alltech planning to expand their capacities?
Alltech has a strong emphasis on local production. We believe that having facilities in our local markets helps us to respond to customer requirements and improve our overall service.
We have 48 facilities globally and have invested substantially within the Asia-Pacific region. We have recently expanded our facilities in Thailand and India.
In China we have a large production facility in Tianjin, close to our head office in Beijing, but we are looking for facilities in Southern China due to growing demand there.
Typically local production is related to market growth and opportunities. However, these decisions are also impacted by regulatory requirements which can demand local manufacturing.
With the emphasis on sustainable agriculture and animal welfare, feed mills and farms increasingly have to meet these requirements in their additive products. Do your customers make demands that the solutions provided by Alltech meet these requirements?
In terms of agriculture, Alltech's product lines have been very aligned with these concepts for some time.
Since 1989, we have been guided by the ACE principle, which stands for benefit and safety to the Animal, Consumer and Environment. Additionally, the basis of our products has always been natural.
We see this move towards sustainable agriculture as something that we can uniquely service. For example, we recently acquired a company called EC02 which conducts on-farm audits and highlights ways that farms can be more sustainable and efficient while reducing their impact on the environment.
We also focus on improving management on farm which can be one of the best ways to improve animal welfare.
How do you see your product portfolio changing in the next five years to meet customers' expectations?
I believe our product portfolio will continue to develop, particularly through the exciting developments with our algae production. We have operated a heterotrophic algae production facility, close to our headquarters in Kentucky, since 2011. Adding this technology to our range has allowed us to further develop enrichment programmes, supplementing our already established mineral enrichment programs with DHA enrichment. In five years there will be very few synthetic products and Alltech is extremely well suited to provide more natural products.
I think more than anything, Alltech's offering will focus most exclusively on programmes in nutrition partnerships. Our nutritional capabilities are considerable and this skill will allow us to truly partner with producers and make sure they not only receive maximum value out of Alltech's technologies, but also develop new creative solutions to their nutritional challenges.
Please share with us the R&D activities carried out at Alltech.
Alltech has three major bioscience centres and, in the last three years, has also formalised research alliances with 19 universities around the world, eight of which are in China. We are engaged in terms of R&D and also new applications, with the latter taking place through our research alliances, which are in markets close to customers. This can help us to establish suitable market-ready products and solutions faster.
We have also started to bring customers into these alliances, which I think is truly a great innovation and collaboration. In terms of R&D spending, this has meant that we have moved from maybe an 80/20 split to something closer to 50/50 with more money going towards making sure that our innovations are truly relevant to the market.
Where are Alltech's key markets?
As earlier mentioned, Alltech has had incredible growth through our acquisitions in North America.
Also, Latin America has been an amazing success and is truly, I believe, our strongest market. Venezuela has been an outstanding success and Russia and Brazil also are very strong markets for the company.
However, in the future we are certain that Asia will rise to be the largest regional market and we have put even deeper commitment into countries such as India, China and Thailand. I would foresee us doing the same in markets like Indonesia and Vietnam as well as other Asian countries.
How would you differentiate your business in developed markets such as in the US and Western Europe, where the growth in feed production is negligible, versus in developing countries such as those in Southeast Asia and South America, where feed production continues to register good growth driven by rising meat consumption?
Growth in established markets such as Western Europe and North America can be somewhat slow but Alltech has continued to make strong advances. This is due to growing uptake of Alltech's products and concepts. The challenge in these markets has been to keep the dynamic nature of the business at the forefront and make sure that we continue to think differently and not become complacent in a market that seems stagnant.
Part of our strategy has been to get closer to farmers, whether it be through partnering with feed or premix companies, or working directly with the farmers ourselves. I believe this move has revolutionised the way we look at ourselves and the way we do business. We are seeing this work in some of our best markets in Asia, such as the Philippines and Taiwan, where our teams have embraced this on farm modules.
In markets that are growing very fast there is also another type of complacency that can set in. When sales performance is improving simply on the back of growth in feed tonnage, teams can stop bringing new ideas to their customers. We must always remember that we should be moving faster than our customer base and bring them new ideas every day.
How are the demands and expectations of your customers in Asian countries such as Vietnam and Thailand different from that in developed markets such as the US and Western Europe? What are the local partnerships you have in these countries to deliver the same level of technical support and marketing activities as you would provide in your home regions?
I believe the demands of customers all around the world tend to be somewhat similar in the sense that everybody wants something unique that fits their exact need. Alltech has been most successful when we address these needs, irrespective of the market.
However, I think the Asian markets are often more open to this collaborative Alltech style of partnership and it has been my experience that as we bring new ideas and concepts we have been able to show great value. Part of the reason is that we can often draw on previous experiences that suit present situations in faster growing markets. We have also seen strong partnerships formed in Europe.
We have also seen the rise of global partnerships becoming very important to our business. In October 2014 the Nestle DFI (Dairy Farming Institute) opened in Heilongjiang in Northern China. This is one of several collaborative efforts we have and is one of many projects we are working on with Nestle. Nestle and Alltech share a great deal in common, with Alltech moving from the farm to the consumer and Nestle moving from the consumer to the farm. This type of partnership is quite unique. Although Alltech is much smaller than Nestle, we are actually present in more countries and through their programme of creating shared value with suppliers, we are both aiming to support the same individual, the farmer. I expect that such partnerships will be a bigger part of our business in the future.
I would also say that Alltech does not have a home region. There has never been a history of exporting managers from one market to others. While our headquarters are in Kentucky, we have developed local talent in virtually every market that we operate in.
Besides high-quality product offerings, Alltech has a well-established market presence and high industry visibility. Please share with us how you reach out to your target audience.
One of the cornerstones of Alltech's business philosophy has been marketing through education. We hold an incredible number of educational seminars and these continue to become more sophisticated and far-reaching. We are doing more and more farm-level programmes and also high-level technical seminars on specific topics, such as, mineral nutrition and mycotoxin mitigation.
It is so important for us to be engaging also with the leadership of the agribusiness and food industries, which is why we have a series of executive events highlighted by our Presidents Club, which this May took place during REBELation, our 31st annual international conference. This education and marketing effort is critical to us getting our messages out and helping to bring thought leaders together to try and resolve crucial issues in agribusiness and food.
I am very pleased to see more and more of these types of activities happening at a local level which will continue to bring more relevance to the Alltech message and keep us close to our target markets. Through our University Lecture Tours, Alltech Young Scientist program, Career Development Program, and attendance at conferences and tradeshows, we come in contact with thousands of people a year. All told we estimate that we are speaking to more than 50,000 people per year, so the importance of understanding and addressing local issues in a global context is an important part of our purpose as a company.
Alltech entered the China market in the 1980s, way before the country officially opened up to international trade. What were the opportunities which your dad Dr. T Pearse Lyons had seen then?
For a long time, the China market has been both fascinating and challenging. With a market of this size changing at the speed it does, one must always be learning and be alert.
When Dr. Lyons travelled to China in the early 1980s, I think he was astounded by the size of the country and the challenges and opportunities it presented. Alltech began to sell products in the market in 1984.
We established our first office in Beijing as a wholly-owned foreign enterprise. We have been able to develop our own culture within China and establish a very strong brand, which has been fundamental to our success.
Moving forward, the regulatory bar in China is very high and is constantly moving up, but again we see this as a dynamic of the market and an opportunity to out-compete others. The number of registrations that Alltech has received in recent years dwarfs any other company in our area and has allowed us to separate ourselves through a myriad of different offerings that our localised team develop with customers.
We also are really pushing the strong message of empowerment in our China office and throughout the team, which is helping us to speed up our growth.
One of the greatest challenges of China is that the market is so big that one must really decide where one wants to focus and pick the best opportunities. It requires diligence, commitment, endurance and a very unique mix of assertiveness and quick action, together with patience and understanding. However, I believe this is what makes it so enjoyable doing business in China.
Our marketing strategy has been based on a programme we created three years ago called "China Now". We believe it is crucial to establish the right resources and information, as well as partnerships and investment, so that we can help the market continue to grow.
Over the last three years the Chinese feed market has flat-lined, mainly due to increased environmental pressure, fading consumer confidence due to food safety issues, and challenges in terms of efficiency. All of these are areas where Alltech can play a role and we believe it is important that we do so. We are doing this by partnering with many different stakeholders from government, both local and foreign private enterprise, and other groups including academia and foreign government organisations.
Alltech is somewhat unique in that we are partnering with so many different groups, and establishing very relevant projects that are aligned with the government's five-year plans and will thus help the market move forward.
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