Setting out to challenge a dominant market player became a whole lot harder when a new fruit-processing business ran into cashflow problems.
|Norm Clyne, Director/Secretary
| Business type
|Processing and packaging of Australian-grown vine and tree fruits
| Head office
| Contact details
|+61 3 5394 1515
Key Learning Points
Are you getting the best deal? Try putting your business out to tender.
Norm Clyne's years building regional roads meant growers had solid brand-name recognition when he branched into a new business.
The Clyne Foods Story
When Sunbeam Foods took over its dried-fruits competitor Angus Park in 2004, it became the dominant drier and packager of vine and tree fruits in Australia. But some growers were already worried about the affect on farmgate prices of Sunbeam's market power as well as cheaper imports from countries including Turkey and Iran. Norm Clyne, a Warracknabeal roads contractor, shared their concerns. He reckoned a business that only processed and packaged Australian fruit might have a competitive edge with growers and consumers.
Clyne's road-contracting business had made him well known in central Victoria and he was in a position to develop relationships with growers. Enthusiastic locals were ready to work. In 2004, Clyne built a $5-million processing and packaging plant, trained staff and began production. In its first year, Clyne Foods produced 1000 tonnes of dried fruit. In the second year, it reached its five-year target of 5000 tonnes.
But rapid growth put Clyne Foods under financial pressure, with demands for cash to buy more fruit, expand operations, and train and employ extra staff. Monthly cashflow was not sufficient to support the growth.
Clyne went to his bank of 14 years for an increase in his credit limit. But he was in for a shock. Clyne says the bank refused to increase the business's credit limit and asked him to cut it before the harvest in February 2006. He says the bank suggested that he shut down operations for a year because the business was growing too fast. The company had forward contracts to sell 75% of production.
Clyne Foods needed to convince a bank and the big supermarkets that it and its products were worth backing.
Clyne bridged the immediate crisis period by borrowing about $2 million from family and friends who believed in his business idea. But it was still not enough to meet all payments to growers.
The company formed a team to strengthen relationships and contacts with growers in the Sunraysia region. Its purchasing manager, Barry Bottams, was able to persuade sympathetic farmers to accept late payments.
Clyne says: "Barry and I and the other directors had lots of coffees in lounge rooms with growers who were keen to see a second processor in Australia." He says growers were ready to support Clyne Foods because they wanted a competitor to Sunbeam as an alternative purchaser of their product.
Clyne says his business offers growers $50 to $100 more per tonne. In addition, its grower-relationship team uses its links with markets and growers to be able to provide dried-fruit buyers with current data about crop size and fruit quality.
After limping through the beginning of 2006, Clyne knew he needed a better banking strategy. He hired Mark Pittock, who had spent 19 years at Commonwealth Bank and St George Bank, to manage finance. Pittock wrote a proposal with a five-year business plan and put it out to tender to all local banks.
Four banks were interested and in August 2006, Clyne Foods switched to ANZ, which recognised its stock as an asset and increased its credit limit from $1 million to $4.5 million. As part of the new credit arrangement, Clyne switched from operating on an overdraft to using commercial bills.
Clyne then employed a very experienced marketing manager, Jim Mullins, who had been with Angus Park for 22 years. He had invaluable contacts in the dried fruit industry, with the main supermarkets and with producers of cereals and bakeries that use dried fruit. His job is to convince supermarkets that Clyne Foods is a stable, reliable supplier.
Norm Clyne is thrilled that the huge financial risk taken by Clyne Foods in early 2006 has paid off. Debts to family, friends and growers have been repaid.
Clyne says his business now has about 18% of Australia's domestic dried fruit market and 10% of the export market. It buys from more than 150 growers across South Australia, Victoria and New South Wales.
Clyne Foods won the 2006 Telstra MYOB Victorian Business Award. It has received a Victorian state government grant to train more local people in customer service, fruit grading and sorting and forklift operation.