Tue | Dec 12, 2017

Blue Power to ink co-packaging deal with Seprod

Published:Wednesday | August 30, 2017 | 12:00 AMSteven Jackson
Chairman of Blue Power Group, Dhiru Tanna, holds up a sample of Cannon laundry soap that the company expects to produce on behalf of Seprod, during a tour of the Blue Power factory at Victoria Avenue in Kingston on August 29, 2017.

Blue Power Group Limited is finalising negotiations with Seprod Limited to co-package two laundry cake soaps mainly for export.

The deal slated for signing in September will see Blue Power manufacturing Diamond and Cannon brands of laundry cake soaps. Seprod would then distribute the soaps to clients based mostly overseas.

Blue Power already makes soaps for itself, GraceKennedy, Lasco, Cari-Med, and Pay Less Soaps, among others. The pending Seprod contract would utilise excess capacity on Blue Power's soap lines based at Victoria Avenue in downtown Kingston.

"We hope to manufacture Seprod brands of laundry soaps. These include the Diamond and Cannon brands, both of which are for export, with a little bit for the local market," Blue Power chairman Dhiru Tanna said in a Gleaner Business interview.

Blue Power hopes to start making the soaps in October, test batches of which were seen at the factory on Tuesday, but Tanna did not disclose the volumes to be produced.

Blue Power's factory on Victoria Avenue recently underwent a $65 million upgrade, resulting in new mixtures, a rolling mill, stamping machine, floor concreting, air conditioning, and new forklifts. In addition, the company late last year rented property at 8 Victoria Avenue, which was retrofitted especially for storage of soap raw material. Consequently, the overall factory and warehouse now seamlessly connects three lots at numbers 4, 6 and 8 Victoria Avenue under one roof. It resulted in increasing warehousing space by 9,000 square feet to some 29,000 square feet, said Tanna.

Blue Power began making soaps in 2002. Tanna said he transformed a "hobby" into a business. Profit from the soap division now accounts for the more than half of group profits with, lumber accounting for the rest.

In the company's first quarter ending July, the soap division made nearly $20 million net profit on revenues of $109 million, while the lumber division made profit of nearly $19 million on revenues of $272 million.

Fifteen years ago, Blue Power's shareholders question-ed the efficacy of entering the soap business. That's because the lumber import business was already profitable. At that time, Jamaica had just emerged from a manufacturing meltdown of the 1990s, which led to an influx of cheaper imports in most sectors.

"I said there must be something Jamaica can make that it doesn't have to import. Maybe not everything, but something," Tanna recounted on Tuesday during a factory tour with Gleaner Business.

Tanna in his research recognised that Jamaica imported 95 per cent of blue laundry soaps. It was an opportunity for the island to make its own, he said. Consequently, he set up a small soap line with equipment built around 1908. It was a micro operation, but the quality was on par with competitors, he asserted. Still nobody wanted his soaps, not even on consignment.

"I couldn't sell even a case," Tanna said, recalling the rejection by wholesalers in downtown Kingston, which represents a core buying market for laundry soap.

For two years, the naysayers were proved right and the soap operation racked up losses. Back then, most of the imported laundry cake soap came from one supplier. The breakthrough came from a wholesaler called Mrs Lyn. She bought a few cases and on-sold them to street vendors downtown, Tanna said. From there, the soap sales started to gain traction.

It was the beginning of what Tanna said would become his key street-side distribution network throughout downtown Kingston. Today the company also sells the product to supermarkets and mega stores including PriceSmart, which orders up to 500 cases per month. The company also exports to the United States and Guyana.

Its financials indicate that export sales, up 27 per cent year on year, continue to outpace local sales.

Overall, the July quarter of the new financial year reported an overall improvement in total sales from $339 million to $381 million, an increase of just over 12 per cent, while profit inched up from $43 million to $44 million, an increase of less than 3 per cent.

Blue Power's balance sheet now reflects the early repayment of a Development Bank of Jamaica loan for the installation of the solar system at Victoria Avenue. The company's assets are valued at nearly $760 million.

steven.jackson@gleanerjm.com