Parmalat Finanziaria SpA

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Parmalat Finanziaria SpA

Via Oreste Grassi 26
Collecchio, Parma 1-43044
Italy
Telephone: +39 (02) 806-8801
Fax: +39 (02) 869-3863
Web site: http://www.parmalat.net

Public Company
Incorporated: 1961
Employees: 38,303 (2000 est.)
Sales: US$6.92 billion (2000 est.)
Stock Exchanges: Italy
Ticker Symbol: PRF
NAIC: 311513 Cheese Manufacturing; 311514 Dry, Condensed, and Evaporated Dairy Product Manufacturing; 3115111 Fluid Milk Manufacturing; 311421 Fruit and Vegetable Canning; 311941 Mayonnaise, Dressing, and Other Prepared Sauce Manufacturing; 311812 Commercial Bakeries; 311821 Cookie and Cracker Manufacturing; 311919 Other Snack Food Manufacturing; 311330 Confectionery Manufacturing From Purchased Chocolate; 311340 Nonchocolate Confectionery Manufacturing; 312110 Soft Drink Manufacturing; 312112 Bottled Water Manufacturing

Parma, Italy, is not only the home of fine Italian cheese and ham, but also Parmalat Finanziaria SpA, a diversified, international food company and one of the world’s largest dairy processors. The company is best known for its revolutionary, ultra-high temperature (UHT) milk, which can sit unopened on an unrefrigerated shelf for six or more months without spoiling or souring. Parmalat also produces, distributes, and markets an ever-growing range of other food products, including dairy products, such as ice cream, yogurt, butter, and cheese; fruit and tomato juices; vegetable soups and tomato sauce; and bakery products like snacks, biscuits, pastry, pizza, and focaccia. Annual sales have exceeded US$6 billion, with roughly one-third made in each of Europe, North and Central America, and South America, and with remaining sales made in Africa, Asia, and Australia. The founding Tanzi family remains an important part of the decades-old Parmalat, owning 51 percent of the company.

The 1960s: From Cold Cuts to Riches

In 1961, in a small town in Italy’s Parma region, Calisto Tanzi founded Parmalat (meaning “milk from Parma”), expanding on the family tradition of operating a quality food business. Tanzi had just inherited his father’s company, Tanzi Calisto e Figli: Salumi e Conserve (Tanzi Calisto & Sons: Cold Cuts and Preserves), which was established by his grandfather. But the 22-year-old entrepreneur wanted to produce a new range of distinctive foods. He decided to begin with dairy products and built a small pasteurizing plant in the town of Collecchio. The operation supplied fresh milk throughout Parma. By 1963, the Parmalat brand was born, establishing Tanzi’s company as the first one in Italy to produce branded milk.

From the start, Tanzi’s business pursued the creation of new milk products and innovative packaging. By 1966 those efforts resulted in what would become the company’s signature product for decades to come: milk pasteurized at ultra-high temperatures (UHT milk). UHT milk was revolutionary because it maintained an unrefrigerated shelf life that exceeded six months before opening. One of the unique packages for this new milk product was equally novel, a tetrahedron-shaped paper package which soon became known as the Tetra Pak. Other appealing packages were introduced: the Zopak (1963) and the Pure Pak (1966), which featured Parmalat’s new logo, later honored in New York’s Museum of Modern Art. In 1969, Parmalat applied the UHT treatment to cream, creating a new product, Panna Chef.

Without question, the new UHT milk gave Parmalat an edge in the milk industry. Parmalat quickly became a successful business and was positioned to go well beyond its small region just as quickly. During its first decade of business, Parmalat recorded sales increases of 30 percent each year. A few years after that, the company business received a great opportunity to extend its distribution significantly and offer new products.

The 1970s and 1980s: Expanding in Italy and Abroad

The Italian milk industry saw changes in milk legislation throughout the early 1970s, which in effect, allowed Parmalat to sell its products beyond Parma, to other provinces throughout Italy and in grocery stores. Also, a major monopoly held by the Centrali del Latte (Municipal Milk distributing centers) was broken up in 1973, allowing Parmalat to go beyond producing part-skim milk and enter into the whole-milk market.

Parmalat expanded greatly throughout the 1970s. In 1971, Parmalat launched its yogurt operation, and in 1973, introduced Parmalat Vita7, a specialty milk enriched with seven vitamins. In 1974, Parmalat made its first international move, establishing a yogurt production facility in Itamonte, Brazil. The new venture went head-to-head with already established yogurt competitors Danone and Chambourcy, however. It was not long before Parmalat changed the Brazil facility’s focus to UHT milk. The Brazil operation proved to be a good test of Parmalat’s ability to maintain a successful business outside its home country.

On March 23, 1975, Parmalat became instantly famous throughout the world. It was the first company ever to sponsor a popular sports competition, the Ski World Cup in Val Gardena (the Italian Dolomites). The company paid roughly US$230,000 for the sponsorship. The Parmalat name and logo, posted all over the venue and worn by the athletes, was broadcasted for hours on prime-time television. Parmalat instantly became known as the “champion’s milk.” It was a branding tactic that the company repeated and other companies copied. Parmalat continued to sponsor other high-profile sports events, including the Formula One racing competition, and volleyball, baseball, and football events, among scores of others.

Parmalat continued to grow in more ways than one. It acquired companies in Italy and abroad: Bonlat SRL in Mantova, Dietelat SRL in Verona, and P. Paestum in Salerno; Molkerei Weissenhorn GmbH in Germany (1977); and Laiterie de Carpiquet S.A. in France (1979). The company’s range of products expanded to include cheeses (1974), desserts (1976), butter (1978), and UHT bechamel sauce (1979). By the decade’s end, Parmalat had already established the most efficient commercial network in Italy and was already established abroad. By this time, the company had 242 agents, 1,000 vehicles, 1,500 salespeople, and 150,000 points of sale. Sales during the 1970s increased yearly by 50 percent, turning Parmalat from an L6 billion company in 1970 to an L289 billion company by 1980.

The Parmalat brand debuted in the United States market in 1982 with its Pomi product brand of boxed tomatoes. One year later, the company established an operation in Spain. In 1987, Parmalat bought 25 percent of a little-known football team based in Parma, called the Parma AC. A few years later, after the death of the team’s main shareholder, Parmalat took over altogether. The food company’s investment helped turn the team into one of the best in Europe, and helped maintain Parmalat’s strong product branding. In 1989, the holding company Finanziaria Centro Nord, which was controlled by the Tanzi family, acquired Parmalat, and in 1990, changed its name to Parmalat Finanziaria SpA in 1990.

The 1990s and Beyond: Capturing the American Market and Others

In terms of sales, new operations and businesses acquired, the 1990s marked a time for explosive growth for Parmalat. By 1990, Parmalat was already selling its products in more than 30 countries. Although that number did not grow much, the number of businesses within those countries producing, distributing, and marketing Parmalat products increased dramatically in the next ten years, as did revenues for those operations. Dairy sales in the United States, for example, ballooned from US$5 million in 1992 to US$650 million by 1999.

Parmalat was especially keen on developing its business in the United States. The milk industry in the country was regional, and in some instances ailing, since the collapse of Borden in the 1970s, which was the last company to produce, distribute, and market milk on a nationwide basis. Parmalat saw an opportunity to grow a national brand. Its strategy was to grow the national brand region by region.

According to Paul Betts of the Financial Times, “Parmalat’s success has been its ability to exploit fragmented product markets formerly dominated by small and inefficient companies. It has acquired smaller companies, bringing the new subsidiaries’ technology, production, and distribution know-how with a coherent marketing approach and brand.” The company acquired an Atlanta dairy plant in 1991, from which a strong presence in the Southeast grew. The Atlanta facilities received a US$25 million face-lift, including a new 14,000-square-foot office building. And within the next year, the company acquired White Knight, West Dairies, and Farmland Dairies in the Northeast, as well as other large dairy processing plants. With Parmalat’s new investment in White Knight, for example, the facility boosted its output from 160,000 to 500,000 cases of milk per month within less than a year. Parmalat U.S.A. was established in Wallington, New Jersey, part of a larger North American operation, which included Parmalat Canada and Parmalat Mexico.

Company Perspectives:

As an innovative, profitable and dynamic leader in the U.S. Food and Beverage Market, Parmalat is devoted to creating a work environment where professional excellence and personal satisfaction reside. Through research and innovation we aim to meet the demands of every consumer, individuals with different lifestyles in search of healthful, flavorful and convenient solutions to their needs. We excel in the global market through constant growth and balance our organization through communication among our many operations, as well as sustain close relationships with our customers.

In 1993, Parmalat introduced its UHT milk to the U.S. market, to lukewarm reviews, at best. Sales of the product that year reached a disappointing US$27 million. Analysts explained that the U.S. market was quite different from others: There was already a declining trend in drinking milk in general, with more and more teenagers opting for soft drinks; the concept and packaging were unfamiliar; and the price demanded a 10 percent to 15 percent premium. Also, another company, Dairymen, Inc., tried and failed to do the same thing in 1992. By 1994, Parmalat was organized into four main divisions: Liquid and Powdered Milk Products, which made up 60 percent of sales; Fresh Foods, which included yogurt, desserts, butter, and cheese (18 percent of sales); Vegetables (11 percent); and Baked Products (8 percent).

Still hopeful for success in capturing the U.S. market for UHT milk, Parmalat doubled its U.S. advertising budget to US$8 million in 1994. Thirty-second television commercials were developed to explain the convenience of UHT milk in a straightforward fashion. The UHT milk packaging was spiffed up to be more appealing and to make opening, pouring, and closing easier for the consumer. And the company launched a campaign to persuade stores to stock their products in the refrigerated section instead of next to the evaporated canned and dry milk shelves, or in the juice aisle. Parmalat insisted that its own permanent display unit designed for the refrigerated section could increase sales by as much as 10 times. By 1994, the company had a fleet of 125 additional route trucks to help distribute the products it expected to produce from the newly acquired facilities. Parmalat sales in the United States reached US$128 million in 1995, about one half of 1 percent of the $22 billion U.S. milk market. Sales overall for the company grew 19 percent in the same year.

By 1997, Parmalat consisted of 62 companies, 84 plants, and 14,000 employees in 22 countries. Sales reached almost $5 billion that year. Sixty percent of its revenue came from North and South America, with U.S. sales reaching $400 million. All was not rosy, however. Parmalat was faced with some problems in Brazil and South Africa. For example, during 1997 the company entered the instant coffee market in Brazil, but ended that operation only a few years later in mid-2001 when its market share had fallen significantly. By that time, Parmalat’s market share was a mere 2.1 percent, compared to Nestle’s huge 70 percent share. And in August 1999, a strike organized by 1,000 of Parmalat’s 3,500 employees in South Africa led to a series of violent outbreaks including shootings, firebombs, hijackings, and death threats. According to Africa News Service on October 12, 1999, “the workers went on strike after failed negotiations concerning wage increases, an effort apparently prompted by the recently enacted labor laws.”

Throughout the 1990s, Parmalat established many new operations, gaining a staggering reach into additional markets: Portugal (1990); Argentina, Uruguay, and the United States (1992); Russia and Hungary (1993); Ukraine, Venezuela, Chile, Paraguay, and Colombia (1994); Mexico, Ecuador, and China (1995); Rumania and Australia (1996); Canada, Mozambique, and Dominican Republic (1997); South Africa and Zambia (1998); and Nicaragua, Cuba, and Swaziland (1999). In 1996 the company also launched a new chain of ice-cream parlors, the first one in Brazil. Others were also opened elsewhere, including Spain and New York City. Parmalat also made more than 100 acquisitions during the same decade.

By the year 2000, Parmalat had spent $400 million to become the number 8 milk producer in the United States, although the brand is not well known outside the Northeast and Atlanta. Total U.S. sales reached $650 million. During 2000, Parmalat established new operations in the United Kingdom and Botswana. The company also made significant investments in e-commerce and e-marketing that same year, buying a 22 percent stake in NetGrocer.com and a $6 million stake in Transora.com. Parmalat also acquired two well-known U.S. cookie companies, Mother’s Cake & Cookie Co. and Archway Cookies for $250 million. The company also introduced three new milks to the U.S. market: Milk-E, Lactose-Free Plus, and Skim Plus. In 2001, Parmalat also introduced its Omega3 milk, and in 2002, introduced an organic version of its signature shelf-stable whole milk. The new “functional” milks were promoted as healthful products.

Key Dates:

1961:: Parmalat is founded in Italy by Calisto Tanzi
1966:: Parmalat’s revolutionary ultra-high temperature (UHT) milk is introduced, which is able to sit unopened and unrefrigerated for six months
1969:: Company applies the UHT treatment to cream creating a new product Panna Chef
1974:: First operation abroad is established in Brazil
1975:: Ski World Cup sponsorship makes Parmalat famous
1977:: Parmalat acquires three companies in Italy: Bonlat SRL (Mantova); Dietelat SRL (Verona); and P. Paestum (Salerno); and one company in Germany, Molkerei Weissenhorn GmbH
1979:: Parmalat acquires the French company Laiterie de Carpiquet
1982:: The company debuts in U.S. market with Pomi tomato product
1990:: The company name changes to Parmalat Finanziaria SpA
1991:: Parmalat acquires its first U.S. dairy plant in Atlanta, Georgia
1992:: The company acquires three more U.S. dairy processing plants: White Knight, West Dairies, and Farmland Dairies
1993:: The company introduces UHT milk to U.S. market
1996:: Parmalat launches its first ice-cream parlor in Brazil
2001:: Calisto Tanzi’s son Stefano is named CEO and Parmalat restructures, combining its United States, Canada, and Mexico divisions into a single larger division called Parmalat of America based in Toronto, Canada.

In 2001, Calisto Tanzi’s son, Stefano, was named CEO. In October of the same year, Parmalat acquired from Kraft Foods some of its dairy operations in Brazil, including the Gloria and Avare brands. The next month, Parmalat restructured, combining its U.S., Canada, and Mexico divisions into one larger one, called Parmalat of America, based in Toronto, Canada. By the end of 2001, Parmalat had sales offices in California, Florida, Georgia, Michigan, New Jersey, New York, and Texas. The retail distribution network had grown to include Georgia, eastern Alabama, South Carolina, and northern Florida in the Southeast; and New York, Connecticut, New Jersey, Massachusetts, Rhode Island, Pennsylvania, Virginia, Maryland, Maine, Delaware, and New Hampshire in the Northeast. Other places in Parmalat’s new U.S. distribution network included California, Illinois, Michigan, Ohio, Wisconsin, and Arizona. Barely into the new millennium, Parmalat was already a $6 billion company, with 162 plants and more than 40,000 employees in five continents.

Principal Divisions

Bakery; Fresh Foods; Milk; and Vegetables.

Principal Competitors

Cooperative Group; Dairy Crest; Dairy Farmers of America; Danone; Dean Foods; Express Dairies; George Weston; Kellogg; Kraft Foods North America; Lactalis; Leche Pascual; Nestlé; New Zealand Dairy Board; Saputo; Suiza Dairy Group.