Wyke Farms, the UK-based cheese supplier, is trying to navigate a tough domestic market while building a more focused export operation amid a volatile dairy sector and with Brexit on the horizon. For all that, managing director Richard Clothier, while cognisant of the challenges, sees opportunity. Dean Best caught up with Clothier to find out more about his plans for growth.

If you want a handle on what life is like for an ambitious UK food SME, Wyke Farms and its managing director Richard Clothier are good places to start.

Wyke Farms, the Somerset-based cheese maker, is now more the M – the ‘medium’ – part of the SME acronym but it is that growth and the company’s ambitions for further expansion that make it a good gauge of the challenges and opportunities facing UK food manufacturers.

The group manufactures branded and own-label cheese on sale in the UK and in 160 export markets. Smaller chunks of the business are food ingredients and the supply of renewable energy. In the year to the end of March 2017, the company generated a turnover of GBP67.5m, level with the previous 12 months. Profits rose from GBP2.2m to GBP2.3m.

UK food manufacturers can lag their international counterparts in export markets but Wyke Farms is an example of a British business that has carved out a foothold. It generates 30-40% of its annual turnover in export markets (“Probably exports at the back end of December grew to about nearly 40%,” Clothier reflects) and, in November, struck a notable deal to support its overseas ambitions.

The company has joined forces with the UK’s largest organic milk producer, The Organic Milk Suppliers Cooperative (OMSCo), to form The British Organic Dairy Company. The venture is centred on manufacturing and marketing organic cheese, as well as supplying by-products such as organic whey proteins.

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Wyke Farms sees domestic and international benefits to the venture. Clothier, noting the growth of the overall organic food industry in certain countries, says the development of the organic cheese category in the UK has been held back by irregular availability.

“[The OMSCo venture] came about because there’s a real growth in organic products generally.  
In France, for example, they’ve seen growth of up to 30% in some organic categories. The US is double digits, up to 20%. The UK has not seen that growth, especially in the cheddar part. Yogurt is growing at about 8% whereas cheddar is growing at about 1%,” Clothier explains.
“We’ve been making organic cheddar for years. We’ve had a lot of inquiries for organic cheddar. One of the big problems has been the consistent supply of the milk. The category had suffered from cheese that was disproportionately expensive because it was small runs and the quality was poor.”

In export markets, Clothier believes there is potential for organic cheese from but again argues customers want to be sure supply will be transparent – and sustained.

“To be a world-class exporter we need to have shorter, more transparent supply chains and a commitment from the supply chain all the way through. Particularly in the Asian market, they want to know that the whole process from the farm all the way through to their supermarket shelf is controlled and under control and transparent.”

The deal with OMSCo was announced in June and formalised in November. Clothier says the venture has already won business both for its organic cheese and its ingredients, with an eye for the latter on the infant formula sector.

“We’ve picked up a number of supermarket own-label agreements in the UK and abroad as well. We’re already doing bits with [the ingredients] because we’re able to supply concentrated organic whey concentrates, whey proteins and that sort of thing. We’re looking for partners to work with on those projects.”

Clothier says the venture plans to launch organic cheese under the Wyke brand, while a “bespoke organic brand” is also under consideration. Overall, he wants to double the volume of organic cheese Wyke Farms makes within three years. “We’re making in the region of about 2,500 to 3,000 tonnes of organic cheddar per year. I’d be disappointed if we can’t double that in the next three years.”

The Wyke Farms managing director is an advocate for UK food companies seeking growth through exports. That is clear from the investment Wyke Farms has made in trying to expand internationally and in its decision to team up on organic cheese with OMSCo. However, Clothier is alive to the challenge facing British food businesses looking to export. He argues the competitive UK market can make it difficult for firms who are also trying to grow overseas and he believes the country’s government, especially with Brexit on the horizon, could be offering more support.

“The other day, I was lucky enough to be at the Treasury to talk about exports with some other industry leaders and I was asked: ‘Why aren’t British food companies doing well with export?”‘ I said: ‘The very nature of our business means in order to survive in UK retail you have to be very lean, very efficient.’ That doesn’t gel with an export mindset, which is a load of front-loaded investment, extra people, to build speculative, growing markets,” Clothier says.
“Brexit’s going to happen I think regardless, and if they’re really serious, there is going to have to be a change of mindset from Government. They’re going to have to adopt a global trading mindset and they’re going to have to help to support businesses with some of the upfront expenditure. It would encourage businesses when they are profitable to invest in growing world markets. At the moment there’s nothing like that available.
“Food manufacturing is one of the areas where [UK] industry can really punch above its weight. Our reputation for producing quality, safe food is second to none. If we could get one thing out of [UK Food Secretary] Michael Gove, I would like him to put together a robust medium-term strategy to grow UK food exports.”

That said, Clothier is open about what Wyke Farms needs to do to try to improve its performance in international markets. With an eye on export, the company is investing GBP5m at its packing site in Wincanton in the south-west of England to increase the shelf-life of cheese. Wyke Farms is also working UK-based food-industry consultants at Promar International to see where best the company can direct its resources.

“You can’t do 160 countries effectively and be everywhere. We’ve done well with the scatter gun-type approach. We have to focus on some of the regions that have got the most potential,” Clothier admits, adding the company would consider pulling out of some markets if need be.

Clothier is at pains to say the attention Wyke Farms is giving to export markets does not mean the company is ignoring its business back home. “What I want is a balanced business between the two, and be dealing with people that we’re going to be dealing with in the UK and export for the next ten, 15 or 20 years.’ And that’s probably how a lot of the exporting businesses are looking at the UK. They’re saying they want long-term partnerships.”

The UK remains the majority of Wyke Farms’ business but it is a tough market – with cheese one of the more demanding categories. In Wyke Farms’ most recently-filed accounts at Companies House, the company outlined the challenge of passing on costs to its UK customers, especially since the Brexit vote.

With the accounts covering the year to 31 March 2017, how has Wyke Farms fared on that front since? “It has been a struggle. On butter, it was really difficult. It probably took us the best part of six months to get the prices up,” Clothier reflects. “The retail landscape has never been so challenging. The discounters are growing really strongly. Multiple retailers are looking to close the gap, but at the same time, no-one wants to reduce their margin and it just makes it a tougher environment to do business long term.

“This sort of landscape makes it tougher for SMEs and that’s why a lot of us have had to be more focused on export. For a lot of us it’s been a lifeline and it’s an area where we can articulate our value, our values are more appreciated and they’re prepared to pay [a] higher margin. In the UK, sometimes you feel like it’s almost like a race to the bottom.

“What we’re doing on export makes you look at the whole business in a different way. Increasingly, the business we do in the UK needs to be less complex, less risky. The tender-type business that we would have taken part in in the past, or the deep-cut promotional stuff, a lot of that had to go. We’re looking for business in the UK now that complements our export offering, whereas it was the other way round before.”

As a line of a family that has been farming for generations, Clothier says he is “always both” a farmer and a businessman. He speaks at length about how the “Punch and Judy” nature of negotiations on dairy prices in the UK over the last decade has led to swathes of farmers leaving the sector. Against that backdrop, he believes a spike in international demand for dairy commodities, driven by emerging markets like India and China, could lead to the prospect of “food shortages or big inflation in the UK retail market”. Even without such spikes, international demand means, Clothier argues, “food in the UK is going to get more expensive over the next 20 years”.  

But how does Clothier square these concerns over UK production with Wyke Farms’ push to supply international markets? With Wyke Farms trying to grow its exports, how concerned is it about the UK’s food security, particularly in a harder post-Brexit scenario?

“It’s a tough one,” Clothier says. “We are concerned and that is why we are looking for long term UK partners, so that there is a commitment through to the supply base. We are looking at our UK partners and saying that where we have had a successful long term relationship, we wish to turn that into a mutual, long-term ‘marriage’ which can give them and us the security we need in a dynamic world where populations are heading towards nine billion. This also fits into our medium-term investment strategy here, and the rebuild of our production site at Bruton and expansion of our packing at Wincanton, both submitted to planning.”

Clothier, however, says there needs to be changes to the prices farmers are paid for milk in the UK so the industry can support domestic and international demand. “There is still ample land and potential capacity for UK dairy if the milk price allows profits to be made. There is still much of the country especially further east put down to cropping which relies on EU subsidies, such as rapeseed for biofuel. How much of this land could be unlocked or transferred into dairy if the price was sustainable? We can grow UK dairy to meet world demand and UK demand if it’s there at sustainable prices.”

The end of Wyke Farms’ current financial year is in sight. Clothier says the company is “fairly optimistic that we’ll do at least as well as last year”.

Looking to the new fiscal year, Wyke Farms will keep looking at its efficiency domestically and intensifying its efforts overseas, though in a more focused fashion. That said, Clothier does see opportunities for Wyke Farms to develop in its home market.

“The main initiatives are to keep driving the efficiency – an efficient cost base will keep us safe – to keep pushing the story about quality and provenance in the UK and not just in multiple retail but the growing middle ground as well, because there’s some big independent retailers coming through in the likes of B&M, Home Bargains, big players turning over billions.

“On export, it’s upping the tempo and concentrating our efforts. Making sure that we’ve got a really strong hold within the European market so that whatever Brexit throws at us, we’ve got the building blocks in place to weather that. Maybe looking at consolidating more product in our French distribution depots and working with longer-term agreements with European customers so that even if we do end up with tariffs or potential customs disruption, we’re all bought into it for long enough that we’re prepared to work through it rather than just give up on it.”

It sounds like the cheese maker’s export business is becoming more mature. “That would probably be a good analogy,” Clothier says. “It’s like a teenager now. We’ve sort of got to decide how we’re going to forge it, how we’re going to develop it and what its long-term career is going to be. It was all right running around in the playground, being happy, but it’s too important for that now. It’s a big part of what we do. It’s got to be a bit more strategic.”