Merger of giants shakes up dairy industry

Time of article published Feb 4, 2015

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Nompumelelo Magwaza

THE MERGER of two major South African private label dairy processors, Montic Dairy and Sonnendal Dairies will up the game for the local dairy companies.

The two companies’ merger facilitated by Novitas Capital Advisors will create a new entity known as Sontic Group.

The two groups produce brands such as Montic fresh milk, Rio juice as well as YoMo drinking yoghurt. Sontic will compete with the likes of Clover and DairyBelle among other dairy producers in the country.

Sontic Group, a privately-owned company with a turnover of about R1 billion and 800 staff, has processing facilities in Gauteng and the Western Cape, as well as six distribution centres across the coastal and inland region.

The group’s chief financial officer, Adrian Labuschagne said the merger would be a game changer for the industry.

“The industry has been very fragmented with lots of different players in different areas.”

He said the merger’s advantage was that it would be able for the two companies to consolidate and be growing a national footprint.

The merger will also help grow the informal sector and reach the unserved markets and promote dairy usage and high quality products such as yoghurt to remote or informal regions.

The first stage of the programme would be the R70 million capital expansion programme to increase processing capacity and efficiency in order to bring down the unit cost of production.

He believed through Sontic Group had the broadest processing technologies in the country. “With the processing technology we are able to offer a myriad of products to all different markets and the consumer will benefit.”

Labuschagne said although Sontic was a primary retail manufacturer, it had spotted potential growth in the informal market. More than 70 percent of the group’s sales comprise of private label products produced for retail supermarkets who sell them under their own store brands.

“South African supermarket chains were often forced to source private label dairy products from a mixed bag of regional processors. As such, any national store brand dairy strategy was severely limited by inconsistent quality, volumes and availability across the different regions,” said Sontic. Labuschagne said the firm’s priority would always be the private label brands.

“We are committed to making those private brands offer the best value in the retail sector, however, there is a big informal sector that we plan to grow with our own brand,” he said.

Dana Gordon-Davis, Novatis Founding partner said: “This is a game changer for the South African dairy sector and opens the way for Sontic’s customers to double their store brands’ market share.”

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