Some business failures are loud. A major scandal, a crash, a headline in the news for all the wrong reasons. A2 Milk couldn’t have been farther from that category of failure. The process was slow and quiet, stretched over the course of more than a decade. It lost millions, saw both of its co-founders die months apart from each other, had its operations in Australia fall over and sold off cheaply before leaving farmers unpaid. Things went wrong almost everywhere you looked. The astonishing fact is that it survived at all.
The Company and the Idea
A2 Milk is an Australian-New Zealand milk company founded on a simple premise: all milk is not equal. The milk from most cows has both A1 and A2 protein. The produce from cows that have the A2 type is stated that this milk does not irritate our stomach. Particularly for those who experience bloating or discomfort after drinking ordinary milk but have never been diagnosed as lactose intolerant.
The company now sells throughout Australia, New Zealand, China, the U.S., and the U.K. The company makes its fortune under a billion-dollar formula brand and has had great success on the Australian Securities Exchange. However, none of this was easy or a quick fix.
The Two Men Who Started It
Founded in 2000, A2 Corporation formed in New Zealand by scientist Dr Corran McLachlan’s research into health effects of the A1 protein and Howard Paterson, one of New Zealand upscale dairy farmers with significant ties to major Aussie dairy player Fonterra. McLachlan had the science. He had the cash and connections with farmers. And together they thought they had found something real. The issue was converting that theory into a functioning organization, and they ran out of time to do so.
On a business trip in July 2003, Paterson was discovered dead in his hotel room. He was 50. McLachlan died of cancer the following month. He was 59. In the same year the product finally launched in New Zealand both founders were gone within weeks of each other. The company they left behind was young and struggling with cash but now, most importantly, just without the two people who had built it from a vision.
Blocked at Every Turn
A2 Milk needed farmers, because it couldn’t sell anything without them. Finding farmers was not easy. Fonterra was contracted for 98% of New Zealand dairy farms, and these contracts were protected by law in the country. The cows A2 required produced only A2 protein but the farmers with that kind of cow were under contracts to this country’s largest dairy company. Lot of work went into it for the company to get around.
Frustrated, Paterson launched a court case against Fonterra. He sought a New Zealand High Court injunction preventing Fonterra from selling conventional milk without putting health warnings on it, and requiring it to publish all documents relating to the dangers of A1 protein. Needless to say, not exactly a piece of crafty journalism, it backfired big time. At the time Fonterra was responsible for 20 percent of New Zealand’s total exports so the case generated widespread public concern and regulators in both Australia and New Zealand reacted by publicly stating that conventional milk was safe. A2 are so far removed from having to make their opponents appear good, that they made them look perfectly acceptable. The company had quietly dropped the lawsuit and reentered negotiations by late 2003.
The Health Claim They Were Unable To Make
A2 Milk was supposed to be and actually better for you. However vocalizing it, in an ad, on a label or to a shopper peering down supermarket aisles, proved complicated on the legal level.
Food Standards Australia New Zealand reviewed the evidence and ruled it inadequate to allow A2 to advertise health claims or call its milk better than standard milk. Research was similarly evaluated by the European Food Safety Authority in Europe, which concluded that there was insufficient evidence to implicate A1 protein as the cause of adverse health effects, including heart disease, diabetes or autism.
The company had already exacerbated its woes. McLachlan had linked A1 protein with serious diseases such as heart disease, childhood diabetes, and autism well before the science could accurately support that link. It lost that trust at the moment it needed people’s credibility most when the company had to walk those statements back
In the absence of being able to make its core health claim, A2 Milk had no solid grounds on which it could justify a higher retail price for shoppers. When really it was just a well priced milk with a better back-story.
In Australia: Penalties, Collapse & a Fire Sale
The other side of the business, the Australian one, wasn’t just struggling it was crumbling entirely.
In September 2004, A2 Dairy Marketers (a subsidiary of Australian company National Foods) was fined $15,000 after pleading guilty to six counts of conveying misleading health claims about food. And within weeks after that, the company was defunct. Had struggled both financially since it began trading in May 2004. In October it went into administration and was fully wound up the following month, leaving farmers and processors missing tens of thousands of dollars. It also saw the loss of a $1.27 million government grant secured only months earlier.
The farmers who signed up, some of whom had exited Fonterra contracts in order to do so, received very little relief. The government cash that might have kept the enterprise afloat vanished with the company.
A fire sale ensued after that A2 Corporation then sold its remaining interests in Australia to one of the largest Asian food companies, Fraser and Neave, for approximately $1.1 million. It was a rude awakening for a company on a mission to change the dairy space, yes, but selling out for just above a million dollars was far from what they had envisioned.
| Year | What Happened | The Cost |
| 2003 | Both founders died; lawsuit against Fonterra dropped | Company left without leadership or momentum |
| 2004 | Australian arm fined, collapsed, liquidated | Farmers left unpaid; $1.27M grant cancelled |
| 2004 | A2 Corporation lost $1.3M | Same loss as the year before |
| 2005 | Australian operations sold to Fraser and Neave | Fetched just $1.1M |
| 2005 | Total losses hit $9M | Revenue nowhere near enough to cover costs |
| 2006 | Losses dropped to $1M; revenue doubled | Shareholders told not to expect profit for three more years |
| 2004–2011 | Continuous losses as the company struggled to turn its idea into a real business |
A story nobody understood right away
Beneath all of the financial and legal issues was a more fundamental reality. A2 Milk was completely unknown for most people, and even less known as to why it mattered.
It was asking shoppers to consciously learn something new about a product they’d never stopped to think twice about, accept that it might have been causing them problems their entire lives, and then pay for the alternatives. That is a hell of a lot to ask of someone staring into a dairy fridge with thirty seconds on the clock.
With no approval to come out and just say its milk was better for you, and with no money to run big advertising campaigns, the message remained imprecise. The people who could have benefited from A2 Milk mostly didn’t hear about it in a meaningful way. A great product in a bad communication market is still no one but a good no sale.
It Did Turn Around
A2 Milks red ink did not flow forever. Two rounds of collapse in Australia, years of losses and the death knell shifted gradually. The company was making forays into Australian supermarkets from about 2011 and would go on to be the most popular brand of fresh milk by sales nationwide. The company’s story was completely transformed by its infant formula range, and the associated demand from China. That is a whole different story.
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