How to Grow A Salt Company?

The salt industry has witnessed an increase in salt demand due to demand in deicing. As the length of the highways grew and the speed of travel increased, the amount of salt required also increased. The chemical industry needs a substantial amount to salt too.

By the year 2000, 29 firms were operating 66 salt-producing establishments in the USA. Establishing a new salt-producing facility would be highly expensive, so the firms often focused on upgrading existing firms (Henderson, Streman, Nanda,2009)..

While salt usage has increased, the chloride component in salt is toxic for human and animals. The chloride gets mixed with rainwater and then soil and killed plants. And finally, pollutes rivers and other water bodies. While salt usage is regulated in Canada, there is a possibility that it gets regulated in the USA too, to control freshwater ecosystem pollution.

But salt does not really have a ready substitute. The industry can expand into the preservative industry and salt can be used as “Sealing” material. These are the opportunities Compass Minerals has.

Some strategic movies this firm can take is, developing a research and development center and develop preservatives for consumers and the food industry. And “seal” for consumer and industrial usage. They need a marketing team to do the research and see if they can take first-mover advantage or if they can implement a blue ocean strategy in the market with new preservative and sealing products.

They can research the market and if there is not any competitor available they can launch their products, once ready. Or simply start selling retail or industrial products wherever they are present geographically. But I believe they will get a first-mover advantage. As any other firm is yet to launch such products. While the competitors start copying them, they will have to create an economy of scale, so they become the lowest-cost producer of the products. When competitors launch their products, they will have to reduce the price of their product to remain competitive. To remain profitable, it is best if they can become a lowest-cost producer.

While the market is already developed for Chemicals, deicing, consumption of table salt etc. Compass Minerals can expand in other geographies by cooperation with other companies. Or they can simply create new products in new categories. There are a few ways they can expand using cooperative methods –

1.     Tie up with smaller salt firms and supply salt to them to reach that geographic region

2.     Take over smaller firms which are profitable and generate more return than the cost of capital

3.     Team up with research firms which are working on creating preservatives from salts

4.     Team up with research firm which is working on making “Seal” with salt

5.     They can tie-up with the research team and create different salt categories for consumption, such as low sodium salt, salt with iodine etc.

Competitive Move would be something the company will do on its own. There are few things Compass Minerals International can do.

1.     Go international – move to countries where they can supply to deice highways. This will give them a first-mover advantage.

2.     Develop table salts with health benefits. For example, salt with minerals or less sodium. Which will be a blue ocean strategy. As salt with health benefits would be a new category.

3.     Develop preservatives and “Sealing” material with salt and marketing them all over The USA to get first-mover advantage. Moreover, they will need to scale fast, to become the lowest cost producer.

4.     We do not have much details about the financials about the company. But from the stake sale of the company in IPO, the money they will get, they can acquire a smaller salt firm in regions where they do not exist. The return should be more than the cost of capital though, to make it a successful takeover.

With so many unknowns, I think it is best for the company to work on creating new product categories such as preservatives and “Seal” material. They can hire research and development division who can work on those. This will be a blue ocean strategy until they face any competition. They can patent their technology which will provide them some level of cushion against competition.

A high concentration of salt, which is 20%, kills organisms that decay food and cause disease. Lower concentrations inhibit microbial growth until you get down to the salinity of the cells, which may have the opposite and undesirable effect of providing ideal growing conditions (Helmenstine, 2019). Based on this theory Compass Minerals can develop products that consumers and industries can use.

While they develop a market by marketing, advertising and educating potential customers, the patent will create an entry barrier for the competing firms. And hopefully, they will capture a large market and generate enough money to offset all research and development costs.

The other options have too many unknowns. Like, if they cooperate with other firms, even with a non-compete agreement, that will come with an expiration date, after that firm might compete against them.

Another research firm who develops preservatives or The sealing material can compete against them too. As they can sell them technology to another firm.

Going international would be risky too, unknown market with fear of regulations due to environmental reason make this move risky.

As the USA can regulate the deicing salt industry too, so expanding in that area might not be wise. That sector can be regulated and profits might drop sharply. So it is best to create new category of products. And take patent on the invention. Developing technology inhouse protect them against competition.

That is why I believe; the firm should develop preservatives and “Sealing” material from salt. Patent the technology and market those products to retail and industrial consumers.

References –

Helmenstine, A.M. (May,2019). How Does Salt Preserve Food? Retrieved from https://www.thoughtco.com/why-does-salt-work-as-preservative-607428

Henderson, R.M., Streman, J. , Nanda, R. ( July,2009). Ventures In Salt: Compass Minerals International. Retrieved from https://my.uopeople.edu/pluginfile.php/515767/mod_workshop/instructauthors/U6%20Compass%20Minerals.Henderson.pdf