Sometimes business success is derived from a unique idea – something new that takes the market by storm and, by virtue of its uniqueness, gains a competitive edge that few can touch. At other times, success follows superlative business practice and the implementation of sound operational systems, structures and strategy. In the case of Peppadew International, it’s been a combination of both. The discovery of a unique product delivered an entirely new taste to the world but it took innovative marketing, a focused strategy and some serious business suss to make a successful business out of the discovery.
The Peppadew story starts when Johan Steenkamp first discovered the sweet piquant pepper at his holiday home in the Eastern Cape. “Where the plant is native to is still open to debate but we think it’s from Central America. I also have my suspicions about how it came to South Africa because the previous owner of the house where Johan first discovered it was a botanist who had travelled quite extensively in Central America,” says Phil Ovens, managing director of Peppadew International. It was Steenkamp who first saw potential in the small red pepper and came up with the pickling recipe that today remains largely unchanged. He started off bottling and selling the product as a small cottage industry, but approached Ovens and his team for funding when he ran into financial difficulties. “The business was clearly in trouble and we have been responsible for turning it around, but let me never take away or understate Johan’s role in Peppadew. He did an enormous number of things right, discovering the product, registering the brand and getting plant breeder rights. He created what turned out to be a very good platform to build on, but the business just got to the point where it needed a serious capital injection, a strategy to take it forward and better financial controls,” says Ovens.
What started out as a 51% investment in 2000, ended up with Ovens and his team eventually buying out 100% of the company. Today Steenkamp is not involved in the business in any way, although he does receive royalties for his original product. Looking back on the decision to buy the company, Ovens relates: “I’ll never forget that I went home that night and told my wife we’d bought this company but that I wasn’t sure we knew what we’d bought and that I didn’t really want to be involved in it in any hands-on way.” The irony that he is now MD of the company is not lost on Ovens, but he has this to add: “It’s a really exciting product and the more I looked at it, the more excited I became. After all, it was entirely new – it delivered a new flavour to the world and it’s not every day you get to work with something like that. I knew we could do something really big, so I just went for it.” Hard work followed. Although the Peppadew product had potential, some serious changes were needed to take the business from the small cottage industry that it was to the internationally powerful brand position it enjoys today.
Ovens outlines some of the key challenges: “There was a very small local market and the business needed to reach some kind of critical mass, which meant we were in for a period of sustained losses until we could build up to this position. The brand itself needed to be entirely revamped to take it from the cottage industry level to one where it looked slick and professional and could have international appeal.” At the outset, the company took the decision to drive Peppadew as a branded business. “If we wanted to get anything right, the brand was the place to start. We wanted to create a label that would show as much of the fruit in the jar as possible and that would be eye-catching and appealing. We were fortunate to have Switch Design work on the project and they created the Peppadew brand that exists today,” says Ovens. With a new look-and-feel in place, he turned his attention to the marketing strategy.
“In 2000, the Rand was really against us – it was about R17 to the Pound and R11 to the Dollar – so we knew that we needed to embark on an aggressive export strategy, but before we could do that, we needed to entrench the brand locally. Our philosophy was very much that you can’t play an away game if you can’t win at home first,” he explains. Peppadew already had some local market penetration and was listed in some supermarkets. The first so-called top-end ‘A stores’ listing came from Woolworths and Ovens is quick to highlight the loyalty that Peppadew International feels towards the company. “Today they are still the only store that we will do a home brand for – we even turned down Marks & Spencer. Woolworths helped to get the company off its feet in the early days and we’re very appreciative of that fact.” Today, Peppadew has a full listing nationwide. Exporting proved to be a challenge. “I had no experience in exporting whatsoever. It was entirely new to me. I knew we needed to do it and that was all. So was it a steep learning curve? Yes, it was a vertical learning curve!” says Ovens. Fortunately, Johan Steenkamp had already secured plant breeder rights in South Africa and in 2000, when Ovens took over, the EU, Australia and the US were about to be finalised. He explains how the rights work: “Very simply, it’s a bit like a patent in that it gives the person who discovered or created something protection from competition for a period of time to allow them to commercially exploit their discovery. And what’s important is that not only does it preclude other people from growing the product in those regions where we hold rights, but it also prevents people from other regions from selling the product in the areas where we have protection.”
The real challenge, as Ovens explains, was finding a route to market in the various regions the company wanted to penetrate. “You can’t simply go through the front door, so to speak, and take your product to a supermarket buyer and expect them to list it. The barriers to entry are significant. For example, if you went to one of the major supermarkets in the US, they’d want you to commit $50 million dollars to marketing to ensure the product moved off their shelves,” he says. Understandably, the challenge is even greater with a new and unknown product. It took innovative market penetration strategies specific to each region to get it right. In the UK, Ovens and his team were lucky enough to work closely with a small company that believed in the product and allowed them to “enter through the front door” but in every other country, a unique approach was required. “We don’t have a single territory that overlaps with another one in terms of how we’ve taken the product to market. We spent a lot of time visiting the various countries and going to the big international food fairs and developing a feel for what would work best.” In Germany, open air food markets proved to be the best solution. “The German consumer buys their basics at a supermarket but they buy all their speciality products and fresh produce at these huge open air markets, so we decided that’s where we needed to be. The German supermarkets are also highly discounted which didn’t fit in with our positioning,” he says.
In Holland on the other hand, the company drove the product exclusively through the HORECA (Hotel, Restaurant and Catering) sector, creating demand by allowing consumers to taste it. Over time, this strategy has changed. “When we started in Holland four years ago, 95% of our sales came from the HORECA sector, whereas 70% now comes from retail, which speaks to how well the strategy worked in creating consumer demand,” says Ovens. In Switzerland and Austria, the company employed a combined
HORECA and direct retail approach, while in Scandinavia, it targeted the industrial food sector, getting manufacturers to use the product as an ingredient in cheeses and other food items, thereby creating the necessary demand. Predictably, the United States was the most difficult country to break into. “We spent an enormous amount of time visiting the supermarkets in the US and working with a very good agent. All the big stores in the States have something known as an olive bar which is a deli-type self-service weigh-and-pay set-up – and that’s where we knew we wanted to be,” says Ovens. The strategy worked. Today, the United States accounts for 35% of Peppadew’s business and the brand is listed in every major metropolitan region from the east coast to the west. Globally, it has successfully penetrated 22 countries.
Ovens believes the company’s export success is due in part to its determined brand strategy. “If you want to get into exporting, it’s very easy to just do home brands for supermarket chains. But I don’t believe in the sale of widgets. We wanted to create something – to build an international brand. Why would we want to take something that is unique and new to the world and dilute it by allowing anyone to put their label on it? My advice to other people in this game is to not waver on the integrity of the brand. And that’s not to say it’s easy when a company like Marks & Spencer is offering you business if you’ll do a home brand for them,” he says. Sticking to his guns has paid off. Although Ovens is the first to point out that luck has played a role in getting the business to where it is today. “We would have had to do something really wrong to not make it work,” he says modestly. The company had the right product at the right time when it came to international food trends. At the time, there was a shift towards Mediterranean-style foods, hotter and spicier foods and a massive increase in the use of condiments. Peppadew’s sweet piquant peppers fitted perfectly with these trends and successfully leveraged its position as a new ingredient to capitalise on them.
Getting export help from the DTI
“This company would not be where it is today were it not for the assistance of the Department of Trade and Industry (dti),” says Ovens, who believes more acknowledgement needs to be given to the department. The dti has a pavilion at the major international food shows each year, including Anuga in Cologne and SIAL in Paris. “When we were very small in the beginning, they paid for our airfares and even gave us a daily allowance so that we could have a presence at the South African Pavilion,” he says. “Although their support necessarily – and appropriately – diminishes as your business gets bigger, we would never have got our foot in the door were it not for them. After all, it was at those major international food shows that we identified most of our international partners and agents,” Ovens points out. The dti targets emerging local export companies. For more information visit www.dti.gov.za and click on Exporting.