Discount dairy retailers are our ‘key competitors’ in Europe and the US, says Arla

By Ben Bouckley

- Last updated on GMT

Related tags Milk

Arla launched Castello as a global brand in 2011 to drive category growth
Arla launched Castello as a global brand in 2011 to drive category growth
Dairy processor Arla has revealed plans to save at least DKK 500m (€67m) inside 18 months, and says that success demands the ability to reduce production costs, given tough competition with retailers.

Reporting on progress midway through its ‘Strategy 2015’, in its 2011 Annual Report, Arla claimed to have delivered on targets set, but said there was “ample room for improvement and a need for special efforts” ​to ensure it reached its targets.

The firm said it needed to make this move to establish a competitive cost position, since a “growth agenda demands cost control”​, and said it would identify areas for savings and start making changes this year, based on “operational excellence, procurement and simplification”.

European retailers had aggressively pushed own-label discount products in the dairy sector in 2011, said Arla, which added that “with dairy products being a price sensitive commodity, success for dairy companies in this environment depends greatly on the ability to reduce the cost of production”.

“In Europe and the US, consumers showed increased price sensitivity during 2011. In this context, retailers are key competitors, many having launched their own private label dairy products, offered mostly in the low price segment.”

Branded business growth

In 2012, Arla said it aimed to accelerate innovation – increasing volume growth of its branded business using its existing cost base – and build momentum around its ‘Closer to Nature’ campaign (applied three years ago to both the company and products), “leveraging consumer acceptance of the commitment to being the most natural dairy company in the market”.

Reporting on progress towards the ‘Strategy 2015’ goals, established in 2008, Arla said it had already made progress towards key goals, which included strengthening its German market presence.

Arla said its aim to be the ‘best dairy in Northern Europe and the UK’ by 2015 had been strengthened by its merger with Hansa-Milch in Germany, the acquisition of Allgäuland-Käsereien, its merger with Milko (Sweden’s third-largest dairy) in October and its UK ‘super dairy’ build.

CEO Peter Tuborgh said the Hansa-Milch merger gave Arla a strong position in German raw milk production, “a necessity to accomplish a credible German strategy”,​ with the firm now broadening its retail scope across fresh products, butter, spreads and cheese.

Faith in quality

During 2011 sales Arla said its 'Arla' brand rose in some markets, but fell in others, mainly due to consumer demand for discount products, but the company said that, “despite temporary setbacks"​, it believed its positioning as a quality brand (via House of Castello, Lurpak and Arla) would pay long-term dividends.

Tuborgh said that Arla expected global dairy product demand to grow 2.4% per year over the next five years, with growth mainly driven by the likes of China, Russia and the Middle East and North Africa, due to lower short-term demand within mature markets hit by the EU recession.

Between 2011 and 2020, developing regions were expected to show general consumption growth of around 30%, with dairy gaining a share of this, he added.

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