Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
AMC Juices – Spain
Prepared by Antonio Davila and George Foster
AMC Group is a Spanish family-owned group (consolidated sales US$ 780 million). Its core activity is global growing, packing and selling of fresh fruits. In the late 1990s, AMC’s board decided to set up a separate unit to pursue the production of high-quality, innovative chilled fruit juices, a new emerging market in Europe. In 2001, the new juice task force created AMGAT, a 50%-50% joint venture with GAT Foods (an Israeli company) to squeeze fresh fruits. A second company, AMC Juices (100% owned by AMC) was set up to bottle and market high value-added consumer goods fruit juices, fruit drinks and smoothies, targeting private-label European retailers. In 2004, the joint venture ended when GAT’s acquirer (Coca-Cola) decided to exit the joint venture. AMC then acquired 100% equity. Since then, sales have grown at a pace above 20% year on year, reaching US$ 277 million in juice sales in 2012. Growth has been driven by strong product innovation and quality improvement programmes. In 2010, a new joint venture was set up in Costa Rica covering tropical fruit juices (such as pineapple or mango). The same model was followed in Germany, in the apple production area of the Alps, to squeeze cold-climate fruits (such as apples, pears or berries). In 2011, a commercial office was opened in Dubai, to serve the emerging markets (The Emirates, Saudi Arabia and India), with very strong sales growth. In December 2012, the German group Döhler (world leader in natural ingredients, US$ 2 billion, 23 factories worldwide and 300 highly qualified technologists in R&D) acquired 50% of AMGAT, reinforcing the innovation potential of a joint venture. The name of the company was changed from AMGAT to Fruit Tech Natural (FTN). Presently, the AMC Juices group is undertaking a major investment in a new state-of-the-art bottling plant at the port of Vlissingen in the Netherlands, reducing CO2 emissions and improving the competitive cost location for Central European customers.
Arturo Cantero is a board member of AMC Juices and General Manager of Fruit Tech Natural (FTN, formerly AMGAT), a joint venture between AMC Juices and Döhler Group. He graduated from the University of Murcia in food technology, and joined AMC straight after university. In charge of the quality and blends team during his first years, he became General Manager of FTN in 2010. After three years under his management, the company has more than doubled its sales. From a commercial office in Dubai, Cantero is leading the expansion into emerging markets.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable, growing company? How did it change over time?
Muñoz: “In the late 1990s, Marks & Spencer (the British retailer) to whom we supplied fresh fruit asked us to squeeze some of our quality mandarins into fresh juice. We responded positively. This product launch turned out to be a success and an eye-opening exercise for AMC: there was a hungry market waiting for high-value chilled fruit juices in Europe. I proposed to the board to set up a new, independent unit to evaluate and eventually exploit the new opportunity.
“The new juice team, aware of the technological challenges, engaged in negotiations with one of the most knowledgeable world players in the fruit juice processing industry, GAT Foods of Israel. GAT was interested in the abundant supply of fresh fruit from Spain and its closeness to and membership in the European Union market. We formed a new company with a 50%-50% ownership, called AMGAT. The new project got approval from local banks to build a factory. We also got some additional funding from the European Union as a Eureka project (a Eureka project in the EU is a joint venture between a European and a non-European company in which new technology, not existing in Europe, is contributed by the non-European company to the European partner). The factory started operating in Spain in July 2001. AMC Juices – a new company with its own factory that would bottle consumer goods juices from AMGAT – started at the same time. We combined the best fruit supply and the best processing technology to attack a new fast-growing market.
“Three years later, AMC’s partner in the venture, GAT, was sold to Coca-Cola Israel. The new owner was focusing on the Israeli business, and was not interested in the Spanish venture. AMC agreed to buy back the 50% share of Coca-Cola, and AMGAT became a 100% Spanish-owned company. By then, the technology transfer from Israel to Spain had been almost completed. Three senior Israeli managers/technologists chose to stay in Spain. AMGAT kept its name as an industrial juice squeezer, and AMC Juices continued bottling and selling final consumer goods to European private-label retailers.
“It was 2004. We were ready on our own to go after a new, promising market. We had the strategic fruit supply, the best processing technology at the time, an incipient, highly motivated team, and the intuition that there was a hungry, unsatisfied European consumer base with needs that we were able to fulfil. While it was scary to continue alone without the key technology partner, everyone on the board backed up the decision to continue pushing the initiative forward.”
Q2: What were the major growth accelerators for your company in the early years of high growth?
Muñoz: “There was clearly an emerging, growing demand for high-quality chilled juices by the European consumer. AMC Juices was located, as a member of the European Union, inside a very affluent and large, accessible market. European consumers wished and could afford to trade up in their choice of fruit juices. This desire was clearly embedded in a general trend in a significant segment of the European consumer base to change personal habits into a more healthy living style including convenient, innovative and great-tasting fruit juices, smoothies and fruit drinks.
“At the same time, there was the strategic drive by many major retailers to enhance the value and image of their private-label offers, as a magnet to bring new consumers to their shops. Innovative chilled fruit juices, drinks and smoothies were an ideal category to achieve that strategic aim. Branded products do not differentiate retailers; they are identical in a discount shop or in a luxury convenience store. Private-label ranges can be designed to be exclusive to each retailer, differentiating and helping to build the equity of each retailer’s private-label brand.
“We were ready to exploit these market opportunities in the early 2000s: with the best fruit from Spain, our location within the European Union, the latest technologies contributed by GAT at the time, and a clear drive for innovation in all the members of the initial small group of people.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Muñoz: “Firstly, the availability of a great local food science university: AMC’s head office was historically situated in the middle of a large plantation, relatively close to the city of Murcia. More than 30 years ago, the company donated 80 hectares from the original plantation to the University of Murcia. Today, the university has 15,000 students, mainly in food science, biology, agricultural and food engineering, and chemistry. In food technology, Murcia is probably one of the best schools to graduate from in the country.
“In 2004, when GAT left the AMGAT joint venture, we were lucky to keep three Israeli top technologists to lead the team. Though on a tight budget, we decided to build up the R&D team with bright, young food science graduates. One of the first to be hired was María García, today General Manager of AMC Innova, and a member of the board of AMC Juices.”
García: “I was recruited into the R&D team in 2003, straight out of college. My direct boss was an Israeli technologist, a very good teacher. Very soon, I was heading the NPD team, with instructions from the board to strengthen the team. Ever since, I have being recruiting non-stop young, new food technologists (from an initial team of six to 98 today, in seven years). We are today one of the main recruiters from the university. We have taken advantage of government programmes, partially subsidizing through scholarships the first year of the contracts made with ‘first job’ graduate applications. As a consequence, 80% of the new hired staff was hired for their first job.
“The young technical team has great drive and passion to excel in quality and innovation, and positively surprises the final consumer, winning loyalty to our products. Only last year, we were awarded ‘the most innovative range’ by Tesco for our ‘Juice Bar’. We won awards from the BBC as the ‘best cherry juice drink’ and ‘the best non-alcoholic mulled drink’ by The Independent. In major consumer magazines, we were voted ‘the best smoothie of the year in Belgium’ and ‘the best smoothie of the year in Norway’, and ‘the best initiative for health’ and ‘the most innovative range’ by Waitrose. We were voted ‘the best gazpacho soup in France’ by French magazines, and ‘the most sustainable supplier’ by M&S. We won The Grocer’s ‘Food and Drink award’ for two new Morrison’s Coolers, and we were voted the ‘Best supplier of the year’ by Bama, Norway.”
Muñoz: “The second entrepreneurial ecosystem that helped our growth has probably been the existence of many private and public food research centres in Europe looking for a way to exploit their ideas and innovations commercially. We are the perfect partner for them: our technical juice team is dealing daily with over 50 retail chains, with which we are launching over 200 new SKUs a year. Big brand companies (such as Coca-Cola or Pepsi) might launch two or three new juice products a year, naturally in much bigger volumes. But our teaming up with ‘external research’ centres has a much higher probability of a commercial launch, returning good royalties to the innovators. Big brands have few – though gigantic – volume launches. We have a great numbers of small, but still very successful launches.”
García: “We have at the moment more than 14 ongoing R&D joint ventures with third-party R&D groups, with AMC investing with them. Matching European Union funding for R&D leverages this financial effort, multiplying its effect. The external cooperation, combined with our internal R&D work, translates into a rich offer of innovations and ‘unique selling points’ to our retailers. We innovate in the area of fruit variety genetics with fruit breeders (looking for new fruits with special taste, colour or health characteristics), new proprietary squeezing processes for difficult fruits to yield better quality and taste, new proprietary ultra-short heating systems to maintain freshness (ITT), and new proprietary peel extraction processes to obtain new revolutionary natural health ingredients to add to our juices (i.e. macro antioxidants). The FTN joint venture facilitates the R&D cooperation with Döhler, increasing our R&D potential together.”
Muñoz: “The third element making our international growth possible is the existence of a strong IP legal protection system in Europe, our core area of operations. Our growth is based on differentiated value-added innovation, and this drive is only sustainable if adequately protectable.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges.
Muñoz: “We are very free-market oriented, but have to recognize that we have benefited from intelligent R&D-related funding programmes originated in Brussels (European Union) and also in Madrid (Central Government). But at the regional level, we suffer an excessively over-bureaucratic government, harming our speed to respond to market and capacity to grow.
“Another great challenge has been the old Spanish labour laws forcing the company to enter collective agreements negotiated in Madrid for all of the country’s industry. Typically, they reward years of service in the job, not productivity. Fortunately, by pressure from Brussels, some of these labour laws have been changed. We are about to negotiate at the company level a labour agreement between our company and our workers. We are negotiating significantly higher salaries than in the general food industry, but based on individually measured productivity, not years of service.”
Q5: At what stage did you invest significant resources seeking to grow your company internationally/beyond your domestic country or region? What factors were pivotal in deciding when to seek growth internationally and where to seek that growth?
Muñoz: “The final juice destination market was international from the beginning. Our initial model was to squeeze fruit from Spain (in AMGAT) and bottle it into a final product (AMC Juices). Both AMGAT and AMC Juices factories were located in Murcia, Spain. The international sales expansion could be described in phases: the original idea started in Britain, with core initial volumes mostly in Spain and Portugal. The United Kingdom and France were the next countries to contribute to core growth. Then followed Belgium and the Netherlands. At the end of the decade, we grew very strongly in Scandinavia, especially in Norway. Now 2013 is becoming the year for the German market, where we are entering a lot of retail chains and expect to grow very strongly.”
Cantero: “By 2008-2009, we had accumulated many new, differentiating proprietary technologies to process fruit with higher quality and freshness in AMGAT, enabling AMC Juices to bottle higher quality, fresher juice from Mediterranean fruits. Realizing that we were limited to excelling and differentiating only with fruits that can grow in Spain with a Mediterranean climate (citrus, stone fruits, strawberries and pomegranates), we decided to look at expanding into complementary climate countries. We spent two years visiting potential joint-venture partners. Finally, in 2010, a new joint venture was set up in Costa Rica to invest in special equipment to improve the quality of tropical fruit juices such as pineapple or mango at the squeezing stage: AMGAT Tropical SL. At the same time, AMGAT North GmbH was created in the south of Germany for the squeezing of cold climate fruits such as apples, pears and berries. The whole range became the best quality option available in Europe, and immediately boosted growth.
“During the past decade, we have also been progressively active at AMGAT, selling our products not only to AMC Juices, but to many other industry bottlers, including major brand companies (Coke, Pepsi and Britvic). Special areas of potential were the emerging markets in the Middle East and Asia. To introduce ourselves in line with local culture, we had to be present physically in the region. In 2011, we opened a new commercial office in Dubai, covering the Emirates, Saudi Arabia and India. In only two years, the Dubai office has generated annual sales of US$ 34 million. I am convinced we will go into exponential growth now. Negotiations with local investors are underway to invest in a new factory and frame a master license for the use of our proprietary technology.”
Q6: What were the biggest challenges in building growth internationally? How did you meet or adapt to those challenges?
Muñoz: “When we started serving Northern European retailers with private labels, we faced strong and well-established local competition. We achieved our first market share by excelling in juices originated from Spanish fruits, coupled with strong new product development. Soon, we were requested to innovate in juices from geographical areas other than Spain: Brazil, Central America, Germany/Poland, etc. These non-Spanish juices are 80% of our portfolio today.
“All those overseas fruit juices arrive in Europe through the port of Rotterdam in the Netherlands, for economy-of-scale reasons. Authorities of the port of Vlissingen (the Netherlands) offered us 60,000 square meters to build a new bottling plant. We decided to go ahead with this expansion abroad. The arrival of the vessels from overseas is 150 meters away from the reception tanks in the new factory. From Vlissingen, we will be more competitive than French bottlers in France, than British bottlers in Britain and also than German bottlers in Germany. We expect very strong growth from this position. We conquered the market initially through innovation and quality. From now on, our growth will be based on relative cost position, too.”
Q7: What major role, if any, did key aspects of the ecosystem in the country (or countries) you first sought international growth either promote or impede your ability to grow in those international markets?
Muñoz: “The fact of being inside the European Union, with no commercial barriers, and a common currency has, indeed, been an extremely favourable framework for the expansion of the business. The fact that Great Britain is in the EU but not in the eurozone has played against us: swings in the currency exchange made the process of international sales more risky and expensive (hedging), and caught us uncovered a couple of times. The extremely positive attitude of the Dutch authorities and local banks favouring local investment and creation of jobs made a difference when taking the decision to invest in a major bottling facility in the Netherlands. The new growth in the Middle East has been facilitated by Dubai’s flexible rules as an entry point. On the opposite side, the swings in the commercial policies of the final destination markets in the Middle East and Asia are a concern, and so is weak IP protection.”
Q8: Seeking international growth often has both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in seeking international growth.
Muñoz: “Our most complicated moment was the departure of GAT from our venture three years after embarking on a new project, where they were playing the role of technological partner. This was very bad news for us. It took from us a key differentiating element of our strategy just three years after take-off, and left us exposed. We were faced with few good choices. Probably, we took the only path which we could choose at the time: develop internally the resource that we had just lost, technological excellence.”
Cantero: “The biggest satisfaction took place in December 2012. Döhler GmbH, a leading natural ingredients high-tech group, invested in 50% of AMGAT, which was then renamed Fruit Tech Natural (FTN). The cooperation is excellent, and the potential synergies very strong. We are now hiring R&D graduates from the local university to be sent to Döhler’s labs in Germany.”
Muñoz: “The main reasons for selling 50% of AMGAT have been strategic. For one, we get a world-class ally in R&D and innovation. And financially, the operation helps balance our investment effort in the new plant in Vlissingen.
“Personally, my greatest satisfaction has been to realize that we have built an excellent, unbeatable team of people who work together effectively in production, logistics, innovation, marketing and sales, and who enjoy the daily challenges of their work.”