Colin Thomson

Colin Thomson is the chief executive of Gold Coast food manufacturer San Diego Tortilla Factory, which stands out in Australia’s manufacturing sector as a company that is growing quickly. The business turned over $4.5 million last year and went to 24-hour production to keep up with demand.

Today, Thomson talks to us about why he had to learn all about the bowel movements of his consumers, working with the supermarket giants and why he knocked back a takeover offer 12 months ago.

Colin, let’s start at the start. How did this business get off the ground?

About 14 years ago my wife’s father, who is a retired food broker out of the US, was over here on holiday. Mexican food has been around in Australia but was probably still in its infancy, whereas out of California it’s a very accepted addition to dietary habits there. One thing that he did notice was there were no tortillas at all here in the Australian market.

Not even in imported products?

Well they were hard to find. There was a bit in food service. People had been importing tortillas for food service to cater for the Mexican restaurants that were around. So there were no real retail products that matched that criteria so we bit the bullet and bought a little piece of machinery and thought we’d set the world on fire making corn tortillas. How wrong can you be?

So what went wrong in the early days?

I guess we figured that with the Mexican cuisine that was out there, customers would embrace something more authentic – typically Americans tend to make that mistake where they can translate their experiences straight across to another country, and Australia’s seen plenty of that in its history. But in this particular occasion I was wide-eyed and raring to go, but we found that Mexican restaurants weren’t really interested in authentic Mexican cuisine. They were more interested in what they could buy at the best price and what consumers were prepared to eat. So we then set about spending the next 14 years educating Australians about corn tortillas and typically white corn tortillas.

So after that initial struggle, how did you find a market?

We were very fortunate along the way. My sister is a person who suffers from yeast and gluten intolerance and the suggestion was made that the corn tortillas that we were producing would probably be gluten free and I went ah-ha! So that really was the catalyst that kept that product alive today – it was yeast and gluten free. So we’re very enthusiastic supporters of the Coeliac Society and people who suffer from that intolerance.

Has that lead you to push out through sort of specialist health food stores?

Well it has, but surprisingly enough the growth rate of people who suffer from coeliac disease has outpaced the supply of gluten free products so we were pretty fortunate when we lobbed out there with a yeast and gluten product that was embraced pretty quickly. We see evidence of that when we go to trade shows and there’s a couple gluten free trade shows which are huge. And everybody who walks up to that stand almost gives you hugs, thanking you for giving them something that they can eat that is not quite bread but close to it. They’re very passionate about their affliction and you’ll get them spending a long time talking about their bowel movements if you’ll let them.

Those must be great conversations to have. So can I buy the products in the supermarket now?

It sure is. It’s in Coles in the bakery section. We’ve got five SKUs in there and we’ve seen some very rapid growth in the last 12 month alone. We’ve always been with Coles but typical of the majors, you go with the wind in terms of what they want to range and when they want to range it and who the buyer is at the time. So there’s a bit of that going on and you also find it at Woolworths under their Select label in the Mexican food aisle.

Dealing with those supermarket giants can be tough. Is it a difficult relationship to manage?

It creates a different set of challenges for manufacturers and wholesalers. It’s a case of making sure that you understand those challenges and manage them in the best way you can. Having said that, we’ve had some unsavoury experiences in the past, which have left a really bad taste in our mouth. So you’ve got to decide whether you’re in it or not and then you just have to manage it in the best way possible. At the end of the day, they are a customer and you do your best to manage that customer and in the best way that meets all of your requirements, theirs and yours.

Look, it’s not an easy business to be in but in this day and age in Australia, we’ve got two major retailers and both of them will tell you right up front that you should not depend on their business for your business. But when you’ve got two retailers commanding the lager part of the market you don’t really have a choice, do you?

You have to move with the times I guess.

Yes. So it’s a case of not putting all your eggs in one basket and spreading your customer base in the best way you can.

What are some of the other sort of challenges you faced?

As a small manufacturer when you start to grow quickly you try to keep pace with technology and that’s expensive, so you have funding and cashflow issues of course and staffing and properties. Where the hell do you fit all the staff in? We’ve had three moves in 14 years and the current site we’ve been at for several years now and we’ve gradually gobbled up adjoining spaces on that site. Now we’re looking at a particular property that adjoins us and of course any mug can hold you to ransom on that, it’s not hard to do. So there are some challenges. Trying to keep pace with growth and the space we need, that can be quite an expensive proposition.

We hear a lot about how the skills base in manufacturing has eroded. How have you tried to manage that?

Well we’ve tried to structure the manufacturing aspect of it so we didn’t require specialist technical skills. So comparing it to any major food chain, you know when you got to buy that hamburger or that hot dog whatever the case may be, it’s built and constructed to a specific set of rules and guidelines. We’ve tried to not go down that cookie cutter road so much but we’ve tried to remove that requirement for having to employ somebody with specialist skills. So we’ve had bricklayers through here who’ve proved to be very capable people but the work instructions are very clear and the guidelines that they follow are pretty straight forward. So the skills base has probably not been the huge issue. The volume or the availability of labour has probably been the biggest issue.

Did that improve during the downturn?

It did, our range of choices grew and we were able to select employees that we thought were better suited to longevity if you like.

As things recover are you seeing that it is going the other way?

Look, we are seeing a little bit of a shift. Having said that we’ve got a core group of people that have stayed with us for quite some time now and we’re happy to see that. We’re happy to see that employees stay with us longer than a year or two and certainly through that quiet time, there was less movement occurring for sure.

So tell us about this decision you made two years ago, after 12 years of building the business, when you received a big offer for the business. Why did you decided not to go through with that sale?

The process at the time, we were very enthusiastic about it. It was a major global player and we thought this was going to be the right move and both parties were working towards reaching agreement. In the end the decision was taken out of our hands by the fact that global player had some financial issues of their own. And I think today those financial issues still haunt them, so when that decision did come about it was probably 12 months down the track after first getting the ball rolling. We’d had meetings in the US with them and a few other things occurred at the same time and that shifted our opinion on the desirability of going down that route. So there were a couple of things that happened around about the same time which made the decision quite easy for us to stay away from it.

We came into 2009 expecting a serious downturn in trade and we were preparing for that and the exact opposite happened. So we were expecting this major global player to gobble up our business that we did have and that was certainly the understanding that we had was going to occur, and it just never eventuated. And in fact we went completely the opposite and very quickly into the year we had to switch to 24 hour production to keep up with demand.

Now that would have been a big move. Did you need to find capital to fund that decision? What were some of the other challenges?

It was funded by the increase in sales so that was pretty easy. We got our staff onboard and we initially started out with 12 hour shifts and that wasn’t going to be sustainable for very long so they were all getting a bit tired after about a month and a half. So we gradually were bringing people in to extend that out to three shifts. There was a lot of training going on and in-house work restructuring, but we managed it. We bit the bullet and that was around about February 2009. Moving into March we were able to extend out to three shifts quite comfortably. And then my wife and I had a bit of a sit down about October and we had to make a decision about whether 24-hour production would keep going. And we just made the decision then that we believed it was and we changed a few things that we were doing at the time to accommodate that. Off we went. Not easy, not easy at all, a lot of long days in the process.

Did it mean a few all nighters initially?

Yes there were. There were quite a few of those. Pretty stressful on your family and personal life in dealing with that but I guess we were looking for the light at the end of the tunnel and we could see that occurring. And even today, the benefits of getting through that period I guess are paying off because now we’ve got such skilled staff.

I know one of your big competitors, Mission Foods, recently set up a manufacturing and logistics hub in Epping. Is that a challenge for your business?
I think it is a challenge, but what we offer – and I think this is a really important message for small businesses – is to offer that alternative. That’s a message that I would like to get to the big retailers out there. If the small guys go, you’ve got no competition at all. You need to foster those smaller companies, nurture them and foster them to the point that they grow so you’ve got viable alternatives.

The retailers are out there now saying they are going to cut margins and cut prices, but that could be to their detriment. They will go down to one or two suppliers and their competitive edge will be gone, because they have no alternative. It’s an important message to get through to our retailers.