Salada hits $1b jackpot, now faces inventory control challenge
Coffee processor Salada Foods Jamaica Limited has hit its sought-after prize of $1 billion in annual revenue, a mandate given to General Manager Dianna Blake-Bennett, who assumed leadership of the company two years ago.
Blake not only grew annual sales by 19 per cent to get to the target, she also tripled Salada's profits from $69 million to $219 million in the year ending September 2018, which partly came from a $34-million write-back on retirement benefits.
Company directors described the results as "the best" in the company's history.
Now, the GM's next challenge is ensuring that the recent forward arrangements to purchase a year's crop of Jamaica Blue Mountain (JBM) coffee - which will lead to a build-up of inventory at the company - won't result in trading losses. Inventory at the plant was already up nearly 10 per cent year on year in September before the current initiative was put into play.
Salada is buying $100 million worth of coffee beans within a three-month span - from November to January. But those JBM beans are three times the price of the commodity coffees it imports to blend with local coffee for its key roasted and instant - coffee products, packaged and sold under the Jamaica Mountain Peak brand.
The average value of coffee that Salada purchases annually, which includes local JBM and non-JBM beans and overseas coffee imports, hovers at $200 million, the company said.
In order to offset the price differential, Salada said it would also use the JBM beans for new products of a higher tier but declined to give additional information, except to say that innovation will take time. Unprocessed or green beans can be stored for years.
"Certainly, this initiative is a strategic business decision and will see us entering the market with new products in the long term," said Blake-Bennett.
"What we are now purchasing is Blue Mountain Coffee, which is premium and is approximately three times the price of coffee purchased on the commodities market. From Salada's viewpoint, our initiative provides a sustainable supply-chain source as our current products must include local coffee. We are also providing a solution to the challenges being faced by local farmers in securing a market for their cherries," she said.
Salada trades in affordable instant coffee normally processed from cheaper beans under the Jamaica Mountain Peak and Mountain Bliss 876 brands, but it recently added roasted and ground products to the line-up. Its other product lines include teas under the Jamaica Mountain Peak and Salada brands, as well as food items packaged under the Roberts label.
Inventory at Salada Foods stood at $224 million at September 2018. The $100-million purchase of green beans could potentially move inventory beyond $300 million.
"We are purchasing 25,000 boxes of cherries, which is equivalent to our needs for the year, therefore ensuring best practices of inventory management are employed," said Blake-Bennett. The beans "will be used in both our instant and roasted and grounded products", she said.
Salada has had challenges with inventory pile-ups before, back in 2015, which contributed to a two-thirds decline in profit that year from $98 million to $32 million. In that year, which predated Blake-Bennett's tenure as boss, inventories increased to $341 million from $227 million in 2014 due to what Salada described in its financial report as "high volumes of high-cost coffee beans being held". It later worked the inventory back to "normal" levels.
Inventory in 2018 represented 22 per cent of the $1.04 billion in annual sales just reported by the coffee company, compared with 51 per cent of $660 million in sales in 2015.
Salada's commitment to purchase $100 million worth of coffee beans was agreed to earlier in November and formed part of a strategy to aid struggling coffee farmers during a downturn in the market.
The 60-year-old company, which will pay around $4,000 per box for the green beans, is the only large processor currently buying coffee from the farmers.
Other large processors - Coffee Traders, Mavis Bank and Wallenford - have suspended large purchases until new contracts for orders are signed with Japanese marketers. Japan currently buys around 70 per cent of Jamaica's coffee.