When Italian dairy giant Parmalat collapsed at the end of 2003, many industry spectators wondered whether it would or could survive. But 15 months on, a slimmed-down, refocused company has emerged. David Robertson examines the turnaround process and the future of the company and the Parmalat brand.

The spectacular collapse of Parmalat, the Italian dairy giant, 15 months ago was so drastic that many questioned whether the company could survive. It seemed inevitable that Parmalat, which had operations in 30 countries and over 32,000 employees, was set to disintegrate after one of the biggest fraud cases ever was uncovered at the company. But the impossible appears to be happening: Parmalat is back from the dead.

Parmalat was founded by Calisto Tanzi, who inherited his father's delicatessen and salami factory at the age of 22. Tanzi, now in his mid-60s and under investigation by Italian authorities, moved the company into milk production, initially supplying cities like Genoa, Florence and Rome. Tanzi then started to buy an ever-increasing number of subsidiaries in countries as diverse as Ecuador and Russia. Parmalat became a big Italian umbrella that sheltered this multitude of smaller businesses.

But this structure was apparently less profitable than Parmalat was claiming and Tanzi was forced to pump cash into various parts of the business including Parmatour, the Tanzi-family run travel agent. Towards the end of 2003, a restructuring and recovery expert, Enrico Bondi, was appointed by the Italian government to save the business, but what he found was fraud on a staggering scale.

Disintegration or recovery?

An estimated €14bn (US$18.7bn) is thought to have gone missing from Parmalat, and in December 2003 the company declared bankruptcy. It seemed inevitable that Parmalat would go the way of Enron and Worldcom, two other high profile fraud cases, and disintegrate. But Bondi's restructuring work in 2004 has laid the foundation for the long-term survival of Parmalat.

His strategy has been to simplify the business. Parmalat is in the process of reducing the number of brands from 137 to 30. It is also pulling out of 18 countries and will eventually halve its headcount to 16,000. Parmalat is negotiating the sale of its Italian bakery division (the Mister Day and Grisbi brands); it has pulled out of Argentina, Thailand, Chile and Mexico, and will exit several other markets.

Parmatour and the Parma football club will both be sold later this year and the US bakery business, which included the Archway and Mother's brands, was sold to a private equity firm, Catterton Partners, at the end of January.

New Parmalat

In some markets, like China, the company has not pulled out entirely and is now licensing its brands to domestic suppliers, following a food-industry trend that has become quite common in emerging markets. In other markets, the focus has been switched to premium "functional" milks and yoghurts, which claim greater health benefits.

Analysts and financial deal makers had initially seen the Parmalat scandal as a great opportunity for major food companies like Danone and Nestlé to pick up assets in the fire sale that would inevitably follow. But, instead, most of the units being sold by Parmalat have gone to local entrepreneurs or private equity vehicles. This is probably because most of the world's big food producers are themselves following brand divestment strategies and, as a result, Parmalat has lost surprisingly little ground to its international competitors.

Bondi's divestment has left a core business, dubbed New Parmalat, which still has a 30 to 35% share of the Italian dairy market. It also retains brands like Sunnydale Farms milk in the US, Loseley yoghurt in the UK and Pauls milk in Australia. New Parmalat increased its earnings before taxes etc. by 30% in 2004 to €273m. Turnover fell by 3% to €3.7bn, but given the turmoil surrounding the company, and its almost complete lack of advertising in 2004, this is considered a good performance.

A return to advertising

This year the company plans to start winning back consumer confidence and has launched a new TV advertising campaign in Italy that thanks people for sticking by the brand. Further ads will continue to emphasis the quality of Parmalat products. Given that many people, particularly in Italy, now equate the Parmalat name with fraud, there had been an expectation that the company would change its name (as the remaining parts of Enron and Worldcom did). However, Parmalat is not giving up its heritage so easily.

Alasdhair Macgregor-Hastie, executive creative director of Publicis Italy, the ad agency working with Parmalat, told just-food: "There was no reason to rebrand the company since Parmalat's products hadn't been affected by the company's financial scandal caused by people at the top.

"We focused our campaign on Parmalat's people and products because it's thanks respectively to their strength and quality that Parmalat could go on. In fact all people shown aren't actors or models but real people working at Parmalat or cooperating with the company, from the farmer to the shopkeeper up to the final consumer."

Rumours and conspiracy theories

As if to demonstrate that the company is refusing to hide in shame, Parmalat will launch a global range of low-fat, low-sugar products in April. The "Jeunesse" products, which will include milk, fruit juice and yoghurt, have added vitamins, and the marketing will focus on their health benefits.

While all this is going on, Enrico Bondi is expected to hand over to a new board and management later this year. Parmalat's creditors, mostly banks and suppliers, will also get a chance to vote on whether the company rejoins the Milan Stock Exchange. Bondi is also pursuing 40 banks for compensation for their alleged role in the fraud. Morgan Stanley, UBS, Credit Suisse First Boston and Deutsche Bank are among the firms targeted by the administrator, who claims the banks misled investors by assisting Parmalat in making false communications to the stock market. All the banks have denied any wrongdoing. This attempt to reclaim money from the banks has put Bondi in an interesting situation as most of these same banks are Parmalat creditors - and therefore own the company.

Conspiracy theorists suggest that a number of banks are lining up Granarolo, another Italian dairy company, to take over Parmalat. If Granarolo was to receive backing for such a bid, the theory says, it might be willing to drop the lawsuits against the banks. So far, however, this has remained just rumour and Parmalat gets on with its Lazarus-like recovery.