EWOS – The Global Innovator in Aquaculture
WE ARE WHAT WE EAT… BUT WHAT DOES THE SALMON ON YOUR PLATE EAT???
EWOS is an example of a company that has been highly effective in aligning its differentiated business model with an operating model that helps capture value to drive outperformance.
Business overview
EWOS is one of the world’s largest suppliers of feed and nutrition for farmed fish. In particular, EWOS holds a market leading position and sells >1.2m tonnes p.a. of feed for the salmon farming industry, one of the most advanced and professionally managed segments in global aquaculture. In what was traditionally a commodity industry, Ewos pioneered a business model and culture of innovation, to differentiate itself from the competition and to drive value.
Innovation Led Business Model within the Value Chain
As seen in Exhibit 1, salmon feed production is sandwiched between the raw materials (fish oil, fish meal etc.) and the fragmented farmers who each will have hundreds of large farming nets along a coastline. Traditionally, fish feed success was characterized by low cost through efficient raw material sourcing, combined with manufacturing and distribution efficiency. Feed manufacturers would produce a variety of feed pellet sizes and ship them farms along the coastline.
EWOS has differentiated itself by tailoring it business model heavily to innovation and R&D. Innovation is ingrained in the leadership team and culture of the firm. Einar Wathne (Ewos CEO), is a former feed researcher and has a doctorate in fish nutrition. “EWOS Innovation” (the dedicated R&D business unit) has consistently made bold investments in R&D. In 1996 it built a feed technology centre in Norway, and in 2015, EWOS spent $9.5m on the world’s largest aquaculture research facility in Chile. This facility accelerates EWOS’ existing testing innovation by 4-5 times.
The business model of EWOS Innovation is to take industry challenges and find innovative solutions which can benefit themselves and their customers. Breakthroughs include:
- Problem: Raw Material Shortages
- High demand of marine ingredients (fish meal, fish oil) has resulted in shortages and higher prices. All raw material prices are contractually passed onto customers, so improving feed composition by using cheaper and more sustainable raw materials has significant savings for farmers. EWOS has innovated products with lower marine mix but has maintained the level of nutrition and feed performance. Since 2002, EWOS’ volumes have grown almost 70%, but marine usage has remained flat (see Exhibit 2).
- Problem: Sea Lice
- Sea lice is an ongoing issue as infected Salmon cannot be processed and sold. EWOS developed a new product called Robust, which is unique because it contains components that make the fish less attractive to sea lice and strengthens their immune system. See the following video: http://ripplesofinnovation.com/robust.html
- Problem: Low Sophistication of Farmer Analytics
- Salmon farmers are often fragmented and unsophisticated. However, many variables impact salmon farming productivity; fish type, water temperature, geography, salmon price etc. Ewos developed COMPASS, an analytical tool used to design and choose the optimal feed mix. Customers now provide their data to EWOS who uses its COMPASS IP to tailor design feed needs to optimize farmer performance. See the website: http://compass.ewos.com/practice
- Salmon farmers are often fragmented and unsophisticated. However, many variables impact salmon farming productivity; fish type, water temperature, geography, salmon price etc. Ewos developed COMPASS, an analytical tool used to design and choose the optimal feed mix. Customers now provide their data to EWOS who uses its COMPASS IP to tailor design feed needs to optimize farmer performance. See the website: http://compass.ewos.com/practice
- Problem 4: Sustainability and Norwegian Regulations
- Bio-hazard issues in salmon farming have led to regulations on the maximum amount of salmon allowed in the water at once, limiting farmers’ growth opportunities. EWOS pioneered a new accelerated growth feed called RAPID. Under a RAPID diet, Salmon grow 10-15% quicker, meaning they can be monetized and replaced in the water quicker (See Exhibit 3). Mr Wathne said these “are the best growth result from trials I have seen in the whole of my career”.
Alignment with Operating Model
EWOS effectively aligns its operating model to its business model with a strong sales and marketing function. New innovations are regularly released to customers in publications and promoted on specific websites. When there is clear value for farmers, EWOS effectively articulates the “Value-In-Use”. See the RAPID profit calculator in the following link: http://www.ewos.com/wps/wcm/connect/ewos-content-norway/ewos-norway/Kalkulatorer/EWOS+RAPID/
By owning the R&D and the customer data for the entire value chain, EWOS makes their customers heavily dependent on them. This means EWOS can outperform by charging market premium pricing for its products whilst still maintaining market leading volumes.
EWOS’ unique innovation led business model matched with its effective operational model has resulted in truly differentiated performance. Testament to EWOS’ success, in October 2015, Cargill paid a premium price to acquire EWOS, primarily for their global R&D capabilities. EWOS will now be the central platform for their entire Aqua-nutrition division. Quoting the Cargill Corporate VP, “We are creating the global leader in aquaculture nutrition, enabling world-class R&D, delivering innovative products and solutions and creating opportunities for the industry, our customers and our employees”.
Other References:
http://www.ripplesofinnovation.com/index.html
Discussions with Einar Wathne (CEO) and Brent Baumbush (CFO).
Interesting business and operating model. The RAPID calculator is sheer marketing genius. It seems as though EWOS products are well protected by IP and that the company is well positioned to grab a large share of the salmon feed production market if it’s products are superior to the limited amount of competitors out there.
I do wonder how far one can innovate in feed production though? At some point the marginal returns of improving salmon feed are going to be so small that competitors might be able to play catch up if they manage to invest in R&D and attract brilliant scientists such as Wathne. This risk is even more obvious if IP expires. Other than with machines, there might be biological limitations to how fast you can make Salmon grow that in the end cap your growth model, even with a strong partner like Cargill backing you and investing in R&D?
It is an interesting product group…I’ve seen these dynamics elsewhere, specifically in HVAC (I know, weird parallel). Essentially they take a product that is treated as a commodity (vents) and throw a bunch of R&D testing at it and demonstrate small product improvements can change their overall energy consumption. The ROI is staggeringly obvious and they grew like crazy throughout the states selling a “commodity” product.