AAK bolsters lead in value-adding oil and fat solutions

ROBUST product development and commitment to quality are shaping the growth initiatives of AAK, an expert in specialty oils and fats.

Premium products will be at the core of the company’s new product development programs this year. The company is keen to match rising demand in Asia markets, specifically Southeast Asia, for these high-value products.

Rising urbanization in the region and greater purchasing power among consumers will push demand for higher-quality, more indulgent products. In chocolate, for instance, appearance, texture, taste, including how it melts in the tongue, and even the snap, all contribute to the indulgence factor. 

To address the problem of bloom, the white or powdery substance that forms on the surface of chocolate, AAK has developed the TROPICAO^TM. The solution is designed to maintain the natural appearance and sensorial properties of chocolate when exposed to temperatures up to 37^oC.

The product consists of TROPICAO^TM CBI (cocoa butter improver with enhanced heat resistance and melting properties), TROPICAO^TM Seed and the Seeder Unit, which help chocolate retain its qualities and shelf life even in warm weather. TROPICAO^TM is ideal for chocolate and confectionery products sold in Asia and the Middle East.

Michael Skriver, AAK Malaysia managing director, expects many more products will use this solution in the years ahead. He emphasized, “If you have used a lot of money buying cocoa powder, say $7000 a ton, you don't want to waste it. If you invest millions of dollars in marketing, you don’t want to waste it on a product that won’t please the consumer.”

Hybrid products will also spur AAK’s development initiatives.

Li Na Wong, Marketing Manager and Michael Skriver, Managing Director, both of AAK Malaysia Sdn Bhd

According to Skriver, “Some big brands already pursue this. In the good old days, you had a wafer with a thick filling. But now you get a biscuit with cream on one side and a chocolate filling or caramel and chocolate coating or some nuts on the other. So it is not one kind of product anymore but two or three.”

Skriver notes there remain challenges in developing hybrid products, with heat being one of the main issues. Initial products have already been launched in Europe as tropical regions still pose some challenges in terms of product handling.

He expects to see co-branding at work. “Companies may do the same brands in two versions, two categories. For example, an ice cream with chocolate or a chocolate with ice cream. A lot of the global companies do this, and then the big regional players follow. If you live in a country such as Indonesia, you see one company that is the leader. It moves faster than most of the others, still protecting their brand.”

The move toward healthier products

Another strong development trend points to healthier products, boosted by the growing consciousness among buyers about health issues.

Skriver said customers in Indonesia and the Philippines look for products that are more indulgent but are also healthier. The same trend is picking up pace in Vietnam, Thailand and Malaysia.

Surveys confirm that Asians are increasingly becoming more health-conscious. This, in turn, fuels the rising awareness about issues such as transfat. Although transfat benefits production, it is seen as causing cholesterol buildup, which can lead to cardiovascular diseases (CVD).

Skrives notes that there are different statistics for CVDs. “One of these shows CVDs have ceased to be the number one killer in Denmark, although they remain to be the leading cause of death in every other country in the world.

“Much has changed in Denmark over the last 10 years. In neighbouring countries Sweden, Norway and Finland, where people smoke less and exercise and doctors are getting better, the mortality rate has declined by 8%. In Denmark, the mortality rate has dropped by 16%, with the difference being transfat. So it is obvious we should not eat transfat,” he says.

Trans fat issues

Trans fat or trans fatty acids are unsaturated fatty acids with a different bond created through the partial hydrogenation process for vegetable oils. Full hydrogenation does not produce transfat.

The US Food and Drug Administration has finalized its ruling on partially hydrogenated oils (PHOs) in 2015, specifying that the primary dietary source of artificial transfat in processed foods is not “generally recognized as safe” (GRAS) for use in human food. Manufacturers have until June 18, 2018 to remove PHOs from their products and/or petition the FDA to permit specific uses of PHOs. Companies cannot add PHOs to human food products unless they have obtained prior approval from the FDA.

But in Asia, there is no similar legislation discouraging the use of transfat.

According to Skriver, “In the real world, only partly hydrogenated fat is not good, but that is too sophisticated. Consumers understand hydro fat only.”

He added that AAK started in the 90s with some of the first non-transfat products in the market, but the products really took off only when the legislation came in 2003. “We met a lot of challenges. These include production capacity suddenly declining by as much as 30% to 40% because the fat is different,” Skriver adds.

He says: “It is difficult for us to make a healthier fat but it is also more difficult for a chocolate producer to have this more healthy fat or chocolate because it would put demand on how they run the supply chain.”

Co-Development expertise, fast time to market

AAK calls itself a co-development company, working with its customers in formulating their products.

“That is where our expertise lies. In an AAK factory, you will see so many small tanks and will probably wonder what those are for. You see, we could have maybe 15 different oils in different stages and undergoing different processes.”

Skriver admits that initially, customers would be concerned about price, thinking AAK’s products are expensive.

“But honestly, we are not more expensive in the sense that we deliver a non-hydro product that customers can leverage to double their sales. For example, if our product is 5% more expensive per kilo, this has become irrelevant if you double your sales using this product, right? If you keep on selling a killer product, a high transfat product, you will lose your business. We try to be very honest about it,” Skriver says.

One of the company’s strengths in co-developing products, according to Skriver, is its capability to shorten time to market. Companies want to leverage this expertise, which allows clients to produce and release new products faster.

The Co-Development approach, however, would entail all parties involved to work fast. 

“When we enter into a strategic partnership, we tell the customer we will deliver samples within four days. But we also expect the client to evaluate within four days. Yes, we are the supplier, but if it is not a partnership you won’t get your speed,” Skriver states.

Ensuring traceability

Part of building trust and company name is the company’s emphasis on traceability. Besides brand protection, this serves as AAK’s competitive edge.

AAK is one of the founding members of the Roundtable on Sustainable Palm Oil (RSPO), a nonprofit organisation comprising the seven sectors of the palm oil industry that develops and implements global standards for sustainable palm oil.

In addition to obtaining its RSPO certificate, the company provides customers with full traceability of its oil and fat.

“In 2014, we have 100% traceable palm back to mill. We know from which mill every part of palm we bought from,” Skriver says. “It is extremely expensive in a supply chain to know your batch management of every oil. But if you know where the oil comes from, at least you can tell. That’s traceability, although it is not per batch,” he adds.

If done per batch, the price will triple. But with increased demand for traceability, AAK has changed its palm sourcing strategy.

This year, the company plans to know every supplier for palm and even the plantation. Skriver considers this a big task as there are so many plantations and so many people from the manufacturing side travelling around the world to find out.

“A lot of companies want these ethical claims. Traceability is a tool to achieve compliance and ultimately sustainability via our commitment in our policy. If companies invest millions of dollars in branding, they want to make sure the supply is safe. They want to minimise the risk,” Skriver states.

He admits being somewhat doubtful if medium-sized players in Asia would be able to follow. While many of these companies want to penetrate the export market, they will not be able to supply the old commonwealths, or Europe, Australia or New Zealand if they fail to achieve sustainability, he said.

Broadening the market

AAK recognizes the new trend among food manufacturers to tell the story behind a product as a way to attract and engage younger consumers.

According to company marketing manager Li Na Wong, “Products come with a story, especially if they are coming from Australia or New Zealand. In packaging, the manufacturer or owner would share the story of how they started or where their ingredients come from. Storytelling on packaging is getting more popular and it is one way to communicate to consumers of the product's ingredients origins, and this is one of the trends leading to traceability in the supply chain .”

Wong says buyers are attracted by the packaging. “They don’t mind reading (it). It feels authentic, genuine and it links them to the brand.”

The road ahead

AAK has come a long way, and continues to look forward to more growth opportunities, particularly in Asia.

Skriver expects additional factories and laboratories will be set up in the region to be closer to customers. He sees AAK establishing supply chains in more countries in Asia in the next five years in line with its goal to control the most modern supply chain and enable co-development with customers in local labs.

“We have local pilot plants in many countries. The new plant in Shanghai is the largest single investment for AAK, and in the next three years there will be many more. We have one application lab in Kuala Lumpur now, and more will be coming. We have been here in the industry for more than 100 years. For sure we'll be even stronger five years from now,” says Skriver.

The company is keen to match the different product trends in its markets while also matching ethical requirements.