DEAR FELLOW SHAREHOLDERS:
LBIX MONTHLY NEWSLETTERProduction in our Edmonton plant is virtually sold out for the balance of Spring and Summer! Vancouver is not far behind. We have never been in that position before. Given the new level of efficiencies and throughput we reached over the past couple of months, that is quite a statement.
Our business is focused on the ‘premium’ or ‘healthy refreshment’ beverage industry. It is one that continues to experience considerable, sequential annual growth. In sum, people are seeking healthier products to complement their healthier lifestyles and our products are designed to fit that need.
We participate in industry-wide expansion in three distinct and diverse ways: (i) development of our own brands; (ii) concepts that we source from others; and (iii) our third-party co-packing business.
The following graph shows a comparison of revenue growth over the past 11 years, compared against our plant volumes. Whereas revenue may fluctuate from one year to the next - due to changes from time to time in the way we bill our customers – annual increases in plant volume have been consistently explosive. This reflects increased overall market share and the absolute growth in this industry.
The other way we have expanded our business is geographically. In 1996 – the year we decided to concentrate on this sector - almost 100% of Leading Brands’ business was in Western Canada. In that region, consumption of juices, bottled water and new age beverages totaled 153 million litres (approx 38 million US gallons) . That year, LBI produced and distributed 45 million litres, or 30% of the total consumption in that market. There was really very little growth potential for us if we continued to focus on the 10 million people there.
By 2003, we had expanded across Canada and into the United States and Mexico. Last year we produced and distributed more than 200 million liters of juices, water and new age beverages; an increase of 450% since 1996. In 2004, the wholesale value of all products bottled and distributed by our subsidiaries should exceed $200 million US.
Another important aspect of our evolution as a company is the way in which we do business. From the development of our proprietary Integrated Distribution System (IDS™), to the creation and marketing of our own brands, Leading Brands has made significant strides. As late as 1999 we were primarily bottlers and distributors of other people’s products. Most of that distribution was done with our own trucks. It was a lot of heavy lifting for each dollar of profit margin.
In comparison, we now primarily distribute our own brands – sometimes mixed strategically with those we license – and where appropriate use the facilities of others to help us reach a broader market. What does that mean? More control over our own direction, more net margin for our company and a more valuable business.
This type and level of expansion comes at a financial cost, the vast majority of which has now been spent. We believe that we are well positioned to take full advantage of that investment this year and for many thereafter.
In the US, we are making a concerted effort to establish our products in the explosive and lucrative natural foods market. Over the past 18 months virtually all our energy was spent on the more price-competitive convenience market. Much of that was driven by the prior experiences of our US sales team, which we have now adjusted. So, you will continue to see our products in many of the outlets where they have been, but not others. You will also start seeing them pop up in many new locations this spring, such as these:
( click to enlarge pictures )
Soy20™ will be available in Canada within two weeks and ‘Zero Net Carb’, ‘Zero Calorie’ Soy20™ is being finalized for both markets right now. In addition to those exciting products we have two new carbonated beverages in development. We hope to see one out by the summer, but the other will likely follow this fall. These initiatives are possible because of installation last year of the high-speed carbonated glass line in our Vancouver plant. That new capability provides several interesting new branding opportunities for us.
Thank you for your continued support.
LEADING BRANDS, INC.
Ralph D. McRae
Chairman & CEO
We Build Brands