Dutch dairy concern Friesland Campina (FC) has reported that branded cheese sales in 2011 were hit by European consumers trading down from brands to cheaper products, and Middle Eastern turmoil.
In its Annual Report 2011, FC’s executive board reported overall net revenue up 7% to €9.6bn in 2011, although profits fell 24% to €216m, due to factors such as infrastructure investments, economic difficulties in Europe (66% of group sales) and negative currency effects.
New ‘global category teams’ were set up in 2011 for infant nutrition, branded cheese and dairy-based beverages, and FC said it was accelerating growth and NPD in these three key areas, which it regards as “value drivers” under its route 2020 strategy.
However, FC’s €2.822bn cheese, butter and milk powder group (26.6% of total FC sales) reported an increased loss of €97m in 2011 (€-92m: 2010) due to difficult market conditions.
Shift to cheaper products
Positive commodity price movements begun in 2010, due to increased demand (including from Russia) reached a peak in mid-2011, benefiting foil cheese and milk powder sales, but in H2 of 2011, sale prices fell to the same levels as at the end of 2010.
“The negative economic sentiment led to a shift to cheaper products, at the cost of the position of branded articles,” FC’s board said.
“Declining consumer confidence and economic/political developments in a number of countries led to pressure on margin development and sales of branded cheese, and a slight drop in operating profit,” it added.
Profitability was also hit by a performance payment and registered reserve being charged to the business group in regard to volumes of member milk received, management said.
Declining consumer spending levels in Europe meant that branded cheese sales suffered, and that “necessary price increases” [due to volatile commodity costs] could only partially, and after a delay, be passed on in selling prices, FC said, leading to a drop in operating profit.
Jan-Willem ter Avest, FC's corporate communications manager, told DairyReporter.com that economic pressures in Europe had been the main problem, and could be temporary, although it was hard to predict the future.
He said: "We export a lot of cheese to Russia and other countries. Of course, we have some problems with Milner in Greece...due to the turmoil over there, but we compensated with exports to Russia. If economic situations worsen, people tend to move more towards products sold by the retailers - that happens with cheese."
German retail consolidation
Retail consolidation in Germany - where FC described 2011 performance as disappointing - and consequent lower prices was one reason why it was difficult to sell branded cheese within Europe, ter Avest said. "But all the regions we export to, such as Russia, people are also very interested in branded cheese - so these are important markets to export to."
In Holland the Milner and Noord-Hollandse Gouda brands were hardest hit, while Milner’s market share suffered in Greece due to the growth of prvate label and full-fat cheese.
Exports under the Frico brand grew in Russia, but the board said that “political unrest and payment problems in several countries including Egypt and Libya put sales in these countries under pressure. During the last months of the year there were, however, signs of a recovery.”
FC also pointed to a strong 2011 for infant and toddler nutrition, where it invested €376m in 2011 (€261m: 2010).“In anticipation of an increasing demand for high quality infant and toddler nutrition, especially from Asia, in 2010 FC formulated an investment plan within which production…would be doubled in the coming years.”
€130m was spent last year expanding Friseland Campina Domo facilities in Beilen and Bedrum, while activities in infant and toddler nutrition were expanded in China – including activities under the Frisco brand – where a sales company was also established for infant food ingredients.