Gossamer sheets of dried milk billow as they come off the 40-year-old roller driers in the carefully climate-controlled production room of VernDale Products of Detroit. Soon, though, two state-of-the-art driers will be added as VernDale expands into a new plant a few minutes away.
|Dale Johnson is president of Detroit-based VernDale Products, a company started by his parents in 1958.|
Dale Johnson is president of the family-owned company that was started by his parents in 1958. My dad named it after himself and me and I was only 6 so it was sort of preordained that I go into the business.
Johnson is a Michigan State business school alumnus who, in his 60s, is working on an MBA as an intellectual exercise. He, along with brother Barry and sister LaMar, continue the tradition of dried milk production that was started by their parents, Verne (with an e) and Marlene.
There wasn’t anything in Detroit like what they were doing in Chicago Johnson says of the family’s decision to move to Detroit. Both parents had been in the dairy business in Chicago and wanted to strike out on their own.
The more you’re in business the more you have to evolve, Johnson explains, and points out that the company started out as a way to dehydrate outdated dairy returns. Milk bottles (it was the 50s, remember) and cartons that had reached their expiration date were returned by grocery stores to the dairy as unsellable. The senior Johnsons evaporated the outdated milk, dried it on their roller drier, and then sold the resulting powder as an ingredient in animal feed. That ended up as our animal food operation, Johnson continues. Our food-grade milk, on the other hand, is right from the farm. In 1976 we moved to our current location, the former Twin Pines Dairy plant in Detroit.
We’re building a new plant, also in an old dairy in Detroit. It used to be Detroit Pure Milk Company and then later the Wesley Ice Cream plant.
|Barry and Dale Johnson and their sister LaMar Tannheimer, from left, are expanding VernDale Products with a new plant.
What prompted the new plant? Customer demand. We’ve been successful in establishing ourselves as a manufacturer of high quality roller milk powder to be used in premium milk chocolate manufacturers’ formulas. We’re the only manufacturer of this product in the United States, so there’s a risk-mitigation concern on the part of our customers. If something happens here in this plant, what are they going to do?
Costing about $15 million, according to AreaDevelopmentOnline.com, … the expansion, (VernDale) has been awarded a $436,000 Michigan Business Development Program incentive. In addition, the city of Detroit established a Plant Rehabilitation District for the project, along with offering property tax abatement incentives.
Using dehydration and rollers to produce dried milk powder is an expensive and time-consuming process. Most dried milk producers use sprayers in huge drums to dry milk a method that produces far greater volumes in much less time but the end product has a distinctly different chemistry than the roller process.
I can’t tell you how many times I’ve heard from a number of different sources and customers that when you use roller milk and spray milk to make chocolate, there’s a distinct sensory difference between the two different finished products. [Roller milk produces] a richer, more chocolate-y flavor. It has to do with the free fat in the process.
|VernDale’s roller-dried milk is used by high-end chocolate companies worldwide.|
When I started in the business there were maybe four or five roller plants left in the country. Now there’s just us. Why is that? It’s a small niche market. That’s the quick answer. I know why we’re the only ones left, why we survived and the others didn’t. We were able to adapt to the food manufacturing practices of today by the larger chocolatiers. We have third-party audits. We try to be proactive in our plant operations in order to be able to provide our customers with consistent, safe, quality product. Back in the 60s when the spray process became popular it was because they could make powdered milk quicker and cheaper. Roller milk wasn’t perceived as the quality alternative to spray powder. It was considered the low price brand’ but we’ve always prided ourselves as having the highest quality roller milk product and the most expensive available. That paid off.
One spray drier can make in an hour what we can make in a day with our four rollers. Ours is kind of a dying art. The art distinction is an important one as consumers turn increasingly to artisanal products. Now the premium chocolate growth niche has really developed in the United States, and our customers have really driven it. More mass-market chocolate brands Russell Stovers, Hershey, Nestle everybody’s trying to get into that upscale premium market.
Johnson recounts a recent trip on the west side of Michigan that included a stop in Cedar, a very small community not far from Traverse City. I stopped at the IGA and they had a meat shop, some groceries and a pretty wide array of chocolate all premium European chocolates this little IGA in the middle of nowhere. I think this speaks highly of this market and how widely it’s growing. It’s not just at the Somerset Collection stores, it’s way out in the country.
Management consulting firm KPMG explains why, in part, high-end chocolate is a growth market. Chocolate is becoming increasingly premiumized, and brands such as Godiva and Lindt have become almost mass market as consumers develop a taste for everyday glamour. Godiva has increased its sales from $400 million to almost $700 million in 10 years… and plans to become a staple for the health-conscious, sweet-toothed consumer.
|During the past three years, production at the current plant has run around the clock for about six months each year.
In a sidebar interview with Bert Alfonso, CFO of Hershey, the KPMG report quotes him as further reinforcing the growing trend of the premium chocolate market segment: Luxury is growing again as a segment and competition is intensifying. It could eventually account for 20 percent of the market over time.
To meet that growing demand, Johnson’s customers in that premium segment encouraged him not only to add additional capacity but to do it in a second state-of-the-art facility as part of their risk mitigation strategy.
Initially, the former Detroit ice cream plant that is being extensively remodeled will have two of the roller driers. These are new machines, he explains. We bought them in Europe because that’s where we had to go to get the appropriate equipment. It just wasn’t available here in the States. They have larger capacity so the two new ones have the equivalent of three of our existing ones.
VernDale has been operating like the automotive manufacturing sector did prior to the onset of the 2007 Great Recession. We’ve been running here [in the current facility] for about the past three years seven days a week, 24 hours a day, for about six months out of the year.
Most of VernDale’s milk supply comes from two counties in Michigan’s Thumb region.
Why only six months a year? The school lunch market has such a great impact on the price of raw milk that in summer, when school is out there’s not enough home for the milk and the prices are that much lower. The cows don’t go on summer vacation and the milk has to go somewhere, that day. It comes to us, and at a discount, Johnson explains. The new plant will allow VernDale to buy milk when it’s least expensive, dry and store it and then, as Johnson puts it, work the inventory down over time. It’ll be stored in the new warehouse, which was Wesley’s ice cream freezer. It has 18-inch-thick walls. The floors are a foot of concrete, then insulation, then concrete below that. Once you get a temperature in there it’s easy to sustain it, Johnson says.
Agribusiness is big in Michigan
Michigan’s dairy industry is the largest contributor to the state’s $91.4 billion agri-food industry, producing 4.4 percent of the nation’s milk. Johnson says, I think Michigan has fostered a good agricultural base. And it has a lot of milk, which is what we need. It’s the eighth largest milk producing state and it’s growing faster than the national average. Last year’s growth in milk production in Michigan was 3.5 percent and the rest of the country was 2 percent. So there are a lot of raw materials here and that’s a big reason why we chose to stay in Michigan for our second plant.
While VernDale gets some of its milk from West Michigan, most of it comes from just two counties in the Thumb. Our milkshed is within two to three hours drive away, says Johnson. Land is affordable, and it will sustain a lot of cows. People have actually moved in over the past five, ten years and greatly increased the milk output in the area.
Growing the business
There are only about seven or eight premium chocolate manufacturers in the country that bring in their own beans, roast them and then make their finished retail products. We have a strong presence with each of them. Our growth will come from increasing the number of formulas that we’re in as they increase their product mix.
One of the reasons chocolate manufacturers like our roller process is that it has a high free -fat value. It reduces the amount of cocoa butter they have to add to the chocolate process to get to the appropriate viscosity. The bottom line is that they can make the same flowability with less fat. In essence, it’s a way to have a lower cholesterol, lower fat product. It’s also less expensive in addition to the flavor.
We put a lot of information on our website [www.verndaleproducts.com], not so much for the large manufacturers but for the small artisan chocolatiers, who are growing in number because of the need for premium chocolate products. They’re similar to microbreweries, I think. People like to have something local, something where they can identify where the materials came from so we get a lot of smaller chocolatiers calling us and wanting to know more about roller.
VernDale doesn’t aspire to sell directly to those craft-chocolatiers at the moment, anyway. The idea is that they go to the larger chocolate manufacturers and ask them if they have any varieties made with the roller milk product. That’s a solid growth area. A lot of times we don’t know where our milk is going. We’re selling it to the big guys and they keep asking for more and more milk. When more of the smaller chocolatiers call those large manufacturers and ask for new formulas that contain our roller milk that’s a good thing.
Our growth is driven by the R&D of the large manufacturers’ customer base who are demanding this type of product.
Typically, some 30 to 40 truckloads of roller-dried milk leave the plant each week. But, Johnson says, he has had some odd inquiries directly from potential entrepreneurs. Somebody in Georgia wanted to make a milk soap for a milk bath. Did you do it, he’s asked. Sure, he laughs. They wanted just one bag, so it’s not really worth our while. But, we wanted to encourage the entrepreneurial spirit. A few years ago we got a call, and I’d never heard of the guys, but we went along with them and they’ve grown into one of our most valued customers.
Building the new plant
Johnson says he’s a frustrated engineer and he does look very much at home in a logo-covered hardhat and fluorescent yellow vest as he pours over blueprints and discusses plumbing issues with contractors at the new site. Plante Moran is advising us on our project and they told me that I was more involved than 99 percent of their clients. I replied that it was silly for them not to be.
|About 30-40 truckloads of roller-dried milk leave the plant each week.
The new facility will have an expansive viewing window that will allow visitors to see much of the operation without having to be garbed in sanitary white coat, booties and hairnets. Part of what will be on view is the two new driers. It wasn’t all that long ago that I moved the driers [on paper] for the last time, Johnson laughs. Everyone just rolled their eyes. But I wanted people to be able to see them better and I wanted to be able to add additional driers more easily. It was the right decision, but the timing could have been better.
The viewing window is one way Johnson is hoping to be adding to the entrepreneurial economy that is so vital to the area’s future. We’ll have school groups and maybe we’ll reach one kid who’ll be the next Steve Jobs or Warren Buffett.
Initially, the former Detroit ice cream plant that is being extensively remodeled will have two of the roller driers. These are new machines, he explains. We bought them in The Netherlands because that’s where we had to go to get the appropriate equipment. It just wasn’t available here in the States. They have larger capacity so the two new ones have the equivalent of three of our existing ones.
The Dutch drier manufacturing firm is sending inspectors to approve the new steel-reinforced concrete footings for the driers, and then will send them again to supervise installation.
Unlike the facility they converted from the former Twin Pines dairy, where we did it slowly, much of the equipment was used, and we did it over 30 years, the new plant is a different matter.
At the new plant we’re trying to do it in one year and get it right the first time. What’s making it hard for the architects and construction managers is me. I bring in my own ideas and I keep changing my mind. In our existing building I look at it now in a different context. I see it as an old building we’re constantly trying to get right. At the new plant it’s going to be new and it’s going to be right, so it’ll be done.
In the long run it’s good. It’s just the cash outflow in the short run. It’s not something we’ve experienced before. With the new equipment things become very capital intensive. We’re just not adding a lot of jobs maybe 13 so the state’s not all that interested.
Love and fun
Johnson talks about hearing Warren Buffett and Lloyd Blankfein of Goldman Sachs on MSNBC’s Morning Joe as they announced that millions of dollars were being allocated to Detroit entrepreneurs as a part of Goldman’s 10,000 small businesses initiative. Buffett, Johnson recalls, said we can bring in the money but you have to have that fire in your belly. I can’t provide that.’ That just really hit home. You’ve got to have that love. This has got to be fun, or don’t do it.”