It's easy to take our system of laws and consumer protections for granted. But it can actually be a competitive advantage for companies and investors alike.
Australia has an honest legal system and proper regulations of companies that make products such as infant formula, honey, and vitamins. Unlike elsewhere, Australian regulators have caught and prosecuted companies that try to sell fake honey. And Australian baby formula has never contained poison.
You might take this for granted, but in other countries, such as China, consumers can't be so sure. And Australian companies selling products such as baby formula, and vitamins have received a boost to sales, as a result.
To be more specific, organic baby formula company Bellamy's reported a 153% increase in sales last year, while vitamin company Blackmores saw revenue jump 36%. Both companies have seen their share prices soar in the last 12 months: Bellamy's is up 450%, and Blackmores is up 319%.
However, these two companies aren't the only ones to benefit from Australia's reputation for high quality products.
A tasty alternative
Capilano Honey (ASX:CZZ) has pursued its task of taking honey from hive to home, for more than 60 years. And in co-operation with its highly skilled beekeepers – many of whom are themselves shareholders – the company's brand signifies quality (every batch is tested).
This brand value has helped the company achieve steady overseas revenue growth, although impressive market share in Australia remains key to skyrocketing underlying profits, which were up 140% year on year. The company recently excited the market with its purchase of one of the largest producers of Manuka honey in Australia. Manuka Honey has proven bioactive properties, and works to inhibit bacteria, protozoa and fungi.
These health benefits mean the bioactive honey fetches a high price, both here and in countries like China. Of course, that attracts rogue operators who attempt to sell bioactive honey that is not, in fact, bioactive. That's where Capilano's brand comes in – customers both here and abroad can have confidence that they're paying for quality.
These bees can sting
Despite ample opportunity for growth, an investment in Capilano Honey is not without risk. Specifically, pests such as the Varroa mite (carried by the Asian honey bee) can combine with toxic neonicotinoids (a kind of pesticide) sold by companies like Nufarm to hurt honey bee populations. And climate change is also a key risk for the bees.
If enough harm comes to honey bees, colony collapse could occur — and that would leave Capilano in a very bad position.
Foolish takeaway
Capilano Honey faces some serious risks as bee populations are put under pressure – but then, so too do all its competitors. Scale, expertise and proactive preparation suggest that, as long as things don't get too bad, Capilano may fare better than its competitors.
With sufficient scale to remain the lowest cost producer in Australia, and the brand value required to export honey overseas, Capilano is well placed to grow profits in future years. At current prices, there's little doubt the company is priced for strong growth, but current shareholders should hang on for the ride.
