Positioning mills for success
July 18, 2014
by Arvin Donley
Specializing in the standardization, processing and fortification of flour, Mühlenchemie, headquartered in Ahrensburg, Germany, recently celebrated its 90th anniversary.
In a recent interview with World Grain, Managing Director Lennart Kutschinski explained how mills can position themselves successfully even in times of fierce competition, what services Mühlenchemie offers the industry and why it is advisable always to have a “Plan B” up one’s sleeve in view of the volatile raw material markets.
WG: You have been following developments in the international milling industry from the supplier’s side for about 20 years. What structural changes have affected the industry most?
Kutschinski: Above all, the process of concentration: what milling capacity must I have in order to survive? Size and location are factors relevant to competition. Mills that process less than 600 tonnes a day and are not in a seaport or close to a large sales market such as a metropolitan region, or both, are likely to find it hard in the future to hold their own in this high-volume business. The transportation and warehousing costs are just too high. The market will become more and more consolidated in the next few years, and the pressure on prices will increase.
WG: What course will companies have to follow in order to meet this development?
Kutschinski: Milling is a single-process technology. It involves only one step: from wheat to flour. Of course, that makes it difficult for mills to create a unique selling proposition. You can offer higher quality, optimize the milling process with better equipment or reduce the procurement and production costs with larger quantities. But basically, all measures are directed towards one goal: to reconcile economy with quality. An alternative approach is to specialize and concentrate on market niches, but of course this option is only open to a small number of market players.
WG: That’s an important point.High costs and narrow margins are leading some mills to focus on new products and special flours. Will the solution for the future lie in widening the vertical range of production?
Kutschinski: I have no doubt that the topics “diversification” and “specialization” will play a crucial role in the next few years. Ready-mixed and composite flours, mixes for industrial bakeries and the retail trade, flours to meet special nutritional requirements ... there are still numerous niches to be filled in this sector. It’s worth taking a look at new clienteles, too. Some mills are cooperating very successfully with hotels, fast-food chains or the restaurant trade and offering individual solutions to meet their needs.
Another trend in milling is fortification with vitamins and micronutrients. This is in fact prescribed by the regional governments in many parts of the world. Flour fortification has become common practice. Whereas 27 countries fortified flour in the year 2000, it’s now 79 countries in 2014.
In all these fields we can offer the milling industry practical help with our services and system packages.
WG: More mills are running their own factories for bread or pastry goods. What do you think of this development?
Kutschinski: This strategy is doubtless a way of opening up new markets. But any expansion into downstream production steps presents mills with new challenges. More and more it becomes a question of developing whole new products. One example would be a mill producing flour for making hard biscuits. Grinding suitable low-protein grain is only the first step in the process chain; the requirements continue. Perhaps the biscuits ought to have a more tender bite, or a different color, or they must be vitaminized. This, too, presents a challenge to the mill. At our Technology Centre we can go on adjusting our customers’ products until they meet the requirements in every respect. In doing so, we often draw on the knowledge of the network of companies in our Stern-Wywiol Gruppe. With 11 highly specialized ingredients firms and applications laboratories, we are exceptionally well set up to develop all-round, innovative solutions.
WG: Another form of diversification at the mills is in the direction of pasta and noodle production. Has Mühlenchemie taken account of this trend too?
Kutschinski: The market for pasta and noodles has considerable growth potential. Manufacturers are looking for a way of mixing different wheat qualities without risking a loss
We have invested in a flexible, state-of-the-art pilot plant for pasta. This equipment from Pavan makes it possible to simulate practically any industrial process. It enables us to offer our customers individual recommendations in respect of the use of raw materials and treatment of the flour. This option gives the manufacturers a certain degree of independence in the face of fluctuating prices and in some cases the limited availability of durum wheat.
WG: It’s not only durum wheat that has to contend with volatile markets; a number of other wheat varieties face the same problem. What can millers do, in general, to protect themselves against the increasing difficulty of planning the purchase of raw materials?
Kutschinski: Wheat is a natural product, and its quality differs from one harvest to the next, and in some producing countries even from one field to the next. What’s more, we are feeling the effects of climate change. Extreme heat or floods impair both the quality and the yield. And, of course, there is no way of influencing availability. It often happens that wheat-exporting countries reduce their exports for one reason or another. Or a big supplier suddenly drops away. The wheat processing industry has to be prepared for situations of this kind and develop alternatives that also take the increasing speed of the markets into account.
WG: How can companies best prepare themselves for such shifts in the market? Does the milling industry have to become more flexible?
Kutschinski: With our comprehensive service chain and product range, we help customers think outside the box or tread new ground. One example is that our automatic grinder in the laboratory makes it possible to test grain before you buy it. If a customer has always used U.S. wheat in the past and now wants to buy a lot from the Black Sea region instead, we say, “Send us the wheat, and we’ll test it.” With milling and rheological tests and through baking trials, we can provide reliable information on suitable mixture ratios and flour treatment methods. For our customers, this preliminary check means a great savings in time and costs, because all the relevant parameters have been determined before purchase or delivery.
WG: But in order to keep pace with the market, your employees have to be properly qualified, too. As it is, many mills complain that they can’t find enough trained personnel.
Kutschinski: In the long term, only those mills will survive whose employees have a thorough knowledge of grinding techniques and the assessment and treatment of flour. As partners of the milling industry, we regard it as our mission to transfer this knowledge worldwide. That is why we offer regular training modules in grain and flour analysis at our Technology Centres. Then, of course, there are the “Future of Flour” symposiums here in Hamburg and regional workshops. Another valuable contribution is the book “Future of Flour” by Dr. Lutz Popper, Mühlenchemie’s scientific director.
WG: As a global player, Mühlenchemie has to deal with companies around the globe. Have there been any major changes in business relations between mills and suppliers in recent years?
Kutschinski: Customers have become more demanding. They expect the supplier to be present on the spot, with an exact knowledge of the local situation. We have prepared ourselves for this and are systematically expanding our international network. At present we have 16 affiliates abroad, some of them with production facilities of their own and baking and rheological laboratories. In the medium term we intend to establish an affiliate of our own on every continent. Through our producing company, “SternMaid America,” we are currently preparing our entry into the U.S. market with special enzyme preparations.
WG: Mühlenchemie has been closely associated with the milling industry for over 90 years. What is the philosophy behind the company? What is the reason for its long years of success?
Kutschinski: I think the most important component of our success is the human factor. We have strict acceptance criteria for our employees and careful selection procedures. If you want to maintain long-term business relations over these enormous distances, you have to work on a basis of trust and confidence. Confidence in the quality of the product: in the company’s ability to deliver, in its reliability, in secrecy where necessary and fair dealings with each other. Mühlenchemie is a German company, and for over 90 years it has stood for competence in ingredients and excellent quality. And that is something customers throughout the world appreciate.
WG: Your FlourWorld Museum is the only museum in the world to collect flour sacks. What do your customers say to that?
Kutschinski: The FlourWorld Museum is unique in the history of milling. Our customers are delighted and regularly send us new flour sacks as exhibits. The purpose of our collection is to show the creative motifs on the sacks – motifs that relate to the region or its traditions and have a lot to tell us. I invite every miller to come and see the museum as well as our Technology Centre.