Interview with Mr. Tom Seepers, CEO of Dodoni

February, 2018

What key, underlying characteristics of Dodoni and the broader Greek market made the company so attractive to SI Capital Partners at the time of the investment in 2012?

Mr Seepers: At that time the global trend in healthy eating and more consciousness about what you are eating was gaining force. There was particular interest in Mediterranean cuisine as a whole and specifically Greek cuisine. Alongside this there was also an increasing interest in quality dairy products such as cheeses and yogurt. This awareness is part of a new trend in food where people indentify themselves not only with who you are or what you do, but also what you eat. People can identify with healthy eating: they buy healthy products; use and exchange healthy recipes; support sustainable companies that produce their products in ethical and sustainable ways.

There is a lot of pressure on costs for food manufacturers now, in order to meet consumer price expectations. This has driven some producers to “cut some corners” in their supply chains. That is why it is important for consumers to trust where the product is coming from.

There has been a trend in retail towards private labels. There are some big retailers who have been very successful in using private labels and can deliver quality standards in their products. But we are also seeing certain cases where the consumer is interested in specific brands, which they associate to quality. This is the case when we speak of an authentic product that has a story behind it.

In Greece, Dodoni is a household name and has been so for many years, enjoying 90% brand awareness. The brand has always been known for producing high quality products from the region of Epirus, which is in fact one of the poorest regions in Europe. Part of this is due to its geographic conditions, being a landlocked region in northwestern Greece. Prior to 2009 there was no proper road access to the region from Athens or Thessaloniki. The motorway was then built in 2009 reducing the journey from nine hours to just two. As a result, there wasn’t much industry developed in this area. Because there was no industry, there was little economic development and few jobs. Also, there was practically no pollution. 54 years ago, the government decided to establish Dodini in the region to stimulate the locals of Epirus to begin sheep farming to create economic means. Dodoni became the lifeblood of the region and still continues to be.

The sale of Dodoni in 2012 was in fact the first privatization that was executed under the requirements of the bailout program. The company was owned through the state agricultural bank, which at that time was bankrupt and needed to liquidate all assets. The company is relatively small, but politically important. Dodoni is supplied by 5,000 individual farmers, which in political terms, means 5,000 votes. For many years Dodoni was a political instrument and suffered frequent changes in management any time there were changes in governors or at the agricultural bank. The company went through many changes over the years and lacked proper management based on basic competitive economic drivers.

When we bought the company in 2012 it had been suffering a decline in sales for the previous five years and had a procurement system which bought the most expensive milk in Greece. The company had very high costs in logistics needing to travel to over 600 different villages to buy the milk. The factory had very old machinery as it did not have the cash flows to invest in new equipment. Dodoni had very high debt both to the banks and to the farmers. We believe that if we had not bought the company in 2012, it would have gone bankrupt. At the time of the sale, about 50% of the local population was for it and 50% were against it.

After two or three years, most people began to realize the new value of the company, and respected our long-term vision and our growth plans, which in the end means procuring more milk from the farmers. We are growing our purchases but continue to pay the highest price for milk in Greece, but now we do this for quality reasons. We have an incentives scheme whereby we pay the farmers bonuses for better quality milk. This all translates to more support for the local communities.

Dodoni has traditionally been known as a feta brand. It was the first dairy company to begin exporting, focused mainly on the Greek diaspora, those who wanted to have a piece of home with them. The Dodoni sales practices at the time were not very sophisticated: practically nonexistent customer service; no marketing; outdated packaging; supplying markets through middlemen. These are all things that we have changed.

At the macro level, Greece is showing signs of recovery in 2017, with positive economic growth, exports and investments are up and unemployment has fallen. As a business leader and foreign investor in Greece during some of the most challenging years, how would you gauge the evolution of the economy and how do you predict the upcoming 2-3 years panning out?

Mr Seepers: From outside Greece, there is limited understanding on what is really happening here on the ground. The macro indicators which are being highlighted in the media do not necessarily correspond with the reality. The positive effects have not reached many of the average Greeks on the street. Likewise, for the first few years of the crisis, things weren’t as bad as people from outside would have thought. There was still a lot of cash in the economy that could provide a buffer. The recession has been going on for such a long time – almost 10 years – that it has really cut deep into the heart of the nation. Every little bubble of air has been squeezed out. People have suffered tremendously during this time. The recovery is still not visible for the man on the street. Employment is still very slow in coming back and youth unemployment is still extremely high.

The after-effects of the crisis will continue to weigh heavily. Last year the largest retailer here in Greece filed for bankruptcy which has put huge pressure on the system. The retailer owed suppliers over €750 million which they have had to absorb as a loss. Retail sales have been consistently declining by an average of 10% every year, even last year. That is indicative that the whole sector is still being squeezed.

What we need now is a period of stability. The banking system is slowly starting to recover. This is the most important driver that we see now, that we can access credit from the banks. Three years ago the banks were not able to operate normally and this hampered our own development since acquiring Dodoni such as financing working capital or financing capex pogrammes. Things have changed since then and it is now easier.

If you come to Greece, you must have a long-term outlook. I believe Greece has hit the bottom and is going to recover. But the recovery will take some time. What Greece does have in its favor is that people are highly educated and hardworking. At Dodoni we have hired a lot of new, young people and created new management levels. We now have 500 people working at the company which has increased by 25% since we took over.

Is there a movement in Greece for the young and unemployed to consider looking at agriculture, despite any stigmas that may exist, as an option for careers and professional development?

Mr Seepers: Not enough in my opinion. In Cyprus, where Dodoni also has a factory, the government has been very focused on developing the farming sector and has designed incentives to attract young people to farming. We have not seen this in Greece as of now. Greece still has a very fragmented farming sector and over the last years people have been leaving it. There is most definitely the potential to stimulate movement of young people to farming and needs to be done, especially because it is a pillar for export-oriented industry.

One of the problems is that the Greek farming sector is not that competitive because it is comprised of small-scale farms. In order to compete with large-scale farms in other parts of Europe, you must produce something that you can sell at a premium value. It is not only about developing the farming sector, but also the whole value chain.

What makes Greek dairy products, particularly things like Greek yogurt and feta cheese, so healthy and delicious, as compared to those produced elsewhere?

Mr Seepers: It has to do with the fragmented market. Dodoni buys about 70,000 tonnes of milk from 5,000 farmers, some of which are very small. The farming sector and supply of dairy in Greece is not industrialized. The animals which supply our milk, they graze out in the wild; the milk is as organic as organic can be. We can’t label our products as organic because many of our farmers lack the resources to obtain the certification. The flavour and the nutrition of our products are at the level of organic products.

With feta for example, for it to be called feta, it must be from Greece and be produced from a specific and regulated process. There are other cheeses out there which are similar, but cannot be called feta. The consumer must choose if they prefer the flavourful and nutritious, high-quality product, that is also more expensive, or the other. Retail chains have become very powerful in recent years and apply a lot of pressure on prices for the supply of goods. In order to reduce prices, then the supply side must industrialize. The procurement managers must buy in huge quantities and producers use cheaper ingredients that result in a less expensive product, but it won’t taste as good. This is the ongoing debate for consumers. If you look at the numbers, the amount that people spend out of their total income on groceries has declined in Europe.

The challenge for companies like Dodoni is engage in marketing in order to explain the story to the consumer, to make them aware of why the product tastes better and is more nutritious, which is because of the pure ingredients, authentic recipes and less industrialized way of producing the cheese. We are relatively small only a €100 million company, but we are up against multinationals with billion dollar budgets. We compete in quality, though and we must invest in marketing to help the consumer be aware.

What are you ambitions for Dodoni in the UK market? How much growth is there currently in feta cheese and Greek yogurts?

Mr Seepers: I think growth in feta may have leveled off. Yorgurt and haloumi cheese continue to show strong signs of growth. Haloumi is not a Greek cheese per se, as it is made in Cyprus, but around the world, it is known as the second-most popular Greek cheese after feta. Growing demand for haloumi is the reason we decided to invest in a new factory in Cyprus which began operations one year ago (2016). We are currently supplying the UK with haloumi under a private label for one of the big supermarket chains.

Dodoni traditionally was known as an exporter of feta cheese. It is very challenging for a small brand in a competitive market like the UK. You must support the brand with continuous marketing activities and liaise with the retailer. This is an ongoing struggle for Greek food exporters. What happens normally is that retailers take you in as a private label and every year you need to jump higher to maintain the contract, but you are not creating value for yourself. It is a similar situation for producers of Greek olive oil. Much of it is sold in bulk to Italy where it is repackaged and marketed as high-quality extra-virgin olive oil, and sold at a premium. So it is a challenge for the smaller players to build their brands.

We identified that building the Dodoni brand just with feta would not be broad enough. This is why we have invested heavily in boosting our yogurt production and brand. Five years ago our yogurts were mainly consumed around Janina, and today we are the number two Greek yogurt in Greece. Now we are ready to push our exports of Greek yogurt.

So after feta and Greek yogurt comes Haloumi cheese, our third product. By offering a broader package, the Dodoni brand is more supported in a market like the UK. The UK is a very competitive market. We have been selling for many years in the UK, but in specialty stores. The haloumi cheese is under a private label in Co-op supermarket. Our challenge is now to move Dodoni toward a brand proposition in retail. The UK is also a sophisticated market, where consumers value high quality and good tasting products. Our focus for the UK is to take our niche brand and make it mainstream. The reality, though, is that we have a higher cost picture than most industrialized players, so we will always have a slightly higher price. Even though UK has overcome the recession, people still watch their expenses closely.

Dodoni is the perfect example of Greek-UK partnership, where a British foreign investor came in and transformed a traditional industry facing a challenging future. What kind of advice would you pass on to other UK investors currently eying opportunities in Greece?

Mr Seepers: Five years ago, in 2012, when we invested we were probably the only foreign investors in Greece. In fact, even Greek companies were not investing at that time. Since then, we have probably invested about €50 million. And every year, we pump about €80 million into the local economy of the Epirus region.

People abroad would always question our move to come to Greece, but if you have a long-term approach you can create value here. You need to be committed to working and investing locally, to develop good relationships and support the local economy. Greeks are very positive towards their own locally-manufactured products. They would prefer to buy something that was produced in Greece than something that was imported. Greece is a country whereby if you pick the right sector, there are a lot of opportunities

On behalf of Dodoni, this is your opportunity to share a powerful message with the business and investor community of the UK.

Mr Seepers: There has been a lot of uncertainty in the business world in Europe, whether we are speaking about Grexit or speaking of Brexit. At the end of the day, what is important is for companies to stick to their basics, make sure they produce quality products and stay focused on their consumers. Whether you are part of the EU or standing on your own feet, the key is to remain competitive.