Hot Milk: The Longwarry Story

Every company has a story. Some demand repetition more than others.  Some are the guiding light behind a company’s evolution and its values. Stories are forged in creation and adversity. Consider that of the Australian company Longwarry Food Park, an entrepreneurial narrative punctuated by a potentially disastrous crisis.

The starting point for the Longwarry story is 1992 when Rakesh Kumar Aggarwal decided to leave his native India to move to Australia.  He had an engineering degree in technology from Banaras Hindu University and secured a job with a large dairy products company called Bonlac Foods.  After five years with the company, Aggarwal was restless.  He struck out on his own and set up his own engineering consulting company. He named it Saurin, after his sons Saurabh and Rohin.

As he lived his own entrepreneurial dream, Rakesh Aggarwal’s previous employer hit problems.  At the beginning of the new century, Bonlac Foods was forced into selling off its plants.  Rakesh Aggarwal saw a business opportunity to rescue the plant he had worked for in its glory days by utilizing state-of-the-art green technology to make the company’s operations more efficient and environmentally friendly. It was a grand vision, but it would not come to reality without its share of challenges.

Aggarwal placed a bid for the company in August 2000. The plant was old and outdated and his plan – and the business necessity — was to improve its technology in order to increase capacity and efficiency.  It was a good strategy, but it stumbled at the first hurdle.  Banks refused to back the bid because of the decommissioned plant’s polemical history. The plant was of 1970’s technology, it was too small and very manual. The labor cost and energy costs per unit of production were prohibitive and not competitive with modern plants. Also, Rakesh Aggarwal lacked experience in the industry.

“Banks did not want to lend me money for the purchase because I did not have experience in the field, which put in question my ability to pay back the loan,” he recalls.  Set on achieving his goal, Aggarwal refinanced his mortgage and secured a loan from the Queensland Bank which effectively used the land as collateral to purchase the land. Along with his own personal savings and help from family, he was able to buy the entire factory.

In July 2001, the plant was his.  From arriving nine years previously as an engineer, Rakesh Aggarwal was now the owner of the entire operation.

This should have been the signal for a period of exciting growth at the company. But, there was a second challenge for Rakesh Aggarwal: a restriction imposed on the old company by the Australian government meant that he could not produce milk for the first three years of operation. Instead of viewing this ban as a setback for both the business and his vision, Aggarwal used it to his advantage. “In the first three years, I used the land as a real estate business to generate income. I leased some space to a cheese company and a meat company that operated within it. Trucks from the plant were sold to other companies,” he remembers.

While this took care of the finances, he focused on the real dairy business.  During this three-year period, Aggarwal updated the dairy producing technology and revamped the existing outdated machinery with green technology applications. In 2006, the plant was finally in good enough condition to operate with greater manufacturing capacity. The implementation of his innovative and affordable in-house automation allowed for better productivity at lower costs – and would not have been possible if Aggawal had not taken the time to implement the necessary updates.

Renamed as Longwarry Food Park, the company managed to reduce its energy usage by 30 percent and its water usage to less than half of the industry standard.

Being Australia’s first private company in the dairy industry, the next years, from 2005 to 2008, saw a great deal of growth and success for Longwarry Food Park. Rakesh Aggarwal’s first strategy was to approach local diary farmers and propose that Longwarry purchased milk on credit from them. His hope was that at least 30 farmers would agree and in the end 38 farmers accepted his proposal.   This meant that  Longwarry Food Park was able to enter Australia’s competitive, government-run dairy industry for the first time. After the first year of production, the company recorded AUS$17 million in sales. By 2007, annual sales increased to $41 million with exports accounting for 90 percent of sales revenues. Longwarry Food Park was recognized as one of Australia’s fastest growing businesses.

And then came the global financial crisis in 2008. The crisis resulted in a rush of order cancelations. Priced plummeted by 60 percent.  This in turn caused Longwarry Food Park’s revenues to plummet, from $41 million to $32 million. Once again, Rakesh Aggarwal preferred to see a difficult situation as an opportunity and focused on the company’s reputation as a “clean and green” source of food and fiber.  This distinguished it from competitors and helped the company receive some much needed credit from Suncorp Bank.

He also developed a diversification strategy to avoid exposure to dynamic shifts in export markets, introducing new products such as fresh milk, UHT (ultra-high temperature) milk, and cream cheese.  This strategy was developed with his son Saurabh Aggarwal, a former UBS investment banker, who had recently joined the family business. These measures proved to be successful and in the coming years Longwarry Food Park returned to prosperity and growth. Rakesh Aggarwal was confident that the company would continue to grow at about 25 percent to 30 percent per year.

But, on February 21^st 2012, an unforeseeable challenge surfaced: a fire in the middle of the night damaged a section of the factory and its equipment, creating bills amounting to $5 million and forcing the factory to halt operations for seven weeks. The fire took place in the powdered milk section of the factory due to a dust explosion.  Luckily, since milk powder dust is highly flammable, safety precautions had been put in place to ensure everyone’s safety in case of fire and all employees had followed the established protocol.

The fire was a big setback for Rakesh Aggarwal and Longwarry, but he refused to admit defeat. He recalls the three things he had in mind after the fire: suppliers, workers and customers:

“Three things I had to work through besides getting the factory back in operation. We have suppliers of milk to us. I couldn´t stop buying milk from them even if I can´t use it. If I don´t buy milk from them during that time, I would never be able to buy milk from them again because they would go and supply to some other company. So we bought milk from them and sold it at a loss to other companies to process the milk.

“The second challenge was, because the factory couldn´t operate, what do I do with the workers? Do I keep paying them or do I terminate their employment? We had no idea how long it would take to get the plant back up and running. So what I did was to speak to the insurance company and I said that, we need to clean the plant and do work on the factory, so I use my people to do the work which will be cheaper than getting workers from outside, they agreed as they saw the logic in doing that. So we used our people to clean the factory and get it ready for the operations. That means I did not have to terminate their contract.

“The biggest challenge was the customers. The customer thought that because of the fire, even the product that was produced before the fire would smell and it won´t be good quality milk. So they stopped buying from us. So I had a warehouse full of milk powder which I couldn´t sell. It created a cash flow problem and we had to go to the bank to get special funding.”

While he worried about the future of his business, Rakesh Aggarwal considered multiple stakeholders. He wanted to inspire confidence among his suppliers and decided to resell the raw milk to competitors at a loss.  This enabled Longwarry Food Park to continue its association with the local farmers who had first helped the factory become prosperous. He was also concerned with the welfare of his employees who had worked countless hours to ensure the factory’s success and had always remained loyal to the company. He knew that his leadership decisions in the face of this crisis would affect both revenues and the reputation of the company.

Revenues for the year of the fire fell from $85.7 million in 2011 to $75 million in 2012. However, in recognition of the company’s commitment to its employees, it received several awards and, since the crisis, Longwarry Food Park has continued to grow and expand by introducing new products and new production facilities. Longwarry is frequently in the news for good reasons as one of the top 500 private companies in Australia in 2014. Employees at Longwarry are looked up by their neighbors and friends. They are part of its success.

What are the lessons learned from this story?

Arwgall developed his authenticity and leadership role out of struggle turning bad news into opportunities with a clear orientation to learning. Tenacity is the key to his success. Even in the most difficult circumstances, he kept his entrepreneurial spirit and vitality to move forward. He learned to delay rewards by pursuing not only his own benefit but also a long lasting impact on the company and coming generations.

Here are five tips to develop your authenticity in times of crisis:

1. Turn bad news into opportunities: Take leadership as self-improvement through learning knowing that negative information has a greater impact on your development than positive information.
2. Be alert to social cues: Shift ways of handling things to adapt effectively to new situational demands.
3. Develop a systemic view of the company and the industry. This overall picture gives you the required flexibility to adapt and progress.
4. Practice behavioral flexibility: Have a broad range of responses and adjust your strategies to different circumstances while preserving your integrity and trustworthiness.
5. Share your stories of courage: Followers look up to you for inspiration and guidance and self-sacrifice tales carry moral stand and hope.

Authentic leaders like Rakesh Kumar Aggarwal have an entrepreneurial spirit with built-in resilience and mental strength. They have the ability to adapt to new circumstances.  By doing so, they articulate life principles that communicate to others how to live.

Margarita Mayo (margaritamayo.com) is Professor of Leadership and Organizational Behavior at IE Business School in Madrid and a Visiting Professor at ESMT – the European School of Management and Technology in Berlin.