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Lactalis milks regional demand with Czech buy

By Neil Merrett , 03-Jul-2007

Lactalis has acquired a majority stake in Czech dairy Mlekarna Kunin as it looks to tap into the potential for dairy products in the country.

The deal, which will grant Lactalis control more than a 50 per cent stake in the company, will allow the group to add liquid milk, cheeses and other fresh dairy production to its operations in the country. The company was unable to reveal financial details of the acquisition.

 

 

 

With prices for raw dairy products like milk on the rise, processors within the industry are looking to tap new emerging markets to boost earnings amongst increasing competition in regions like Western Europe.

 

 

 

A spokesperson for Lactalis said that move was a vital step in the helping the company to realise the potential of its brands the Czech dairy market, along with the wider Central and Eastern European region.

 

 

 

"Compared to western countries, [Central and Eastern Europe] have relatively low cheese consumption, at approximately half the consumption in France or Germany," they told DairyReporter.com.

 

 

 

"With the increase in purchase power due to economic growth in the zone, we will find opportunities to promote and develop our brands, Président and others."

 

 

 

Besides simply expanding production capabilities in the Czech republic, the company added it would work with different factories throughout the region to exchange products to ensure greater competitiveness.

 

 

 

The market for Cheese in particular within the country, could prove a significant stream of revenue for the company. Cheese is expected to undergo significant growth within the country in the coming years, according to consumer analyst Euromonitor.

 

 

 

The group predicts cheese retail sales in the Czech Republic will grow by 10,000 tonnes to nearly 98,000 tonnes by 2010, with only flavoured dairy drinks expected to grow faster in the dairy sector.

 

 

 

Cheese market value is expected to grow a little faster than volume, at a rate of nearly 20 per cent to CK16.67m from CK14m (€493,000) in 2005, suggesting a move into the Czech market could benefit profit margins as Czechs trade up for pricier products.

 

 

 

Euromonitor says quality has become increasingly important on the Czech cheese market, and has greatly improved in the last few years. Czech consumers, it adds, are very demanding: "The have many [cheeses] to choose from. They do not come back to products they were not satisfied with."

 

The threat from private label, however, could help to hold down prices in processed cheese.

 

Private label has a 16 per cent share of the Czech Republic's food market, according to AC Nielsen.

 

 

 

"Customers will still buy anything, as long as it is cheap. An environment like this holds great potential for private label products, which are not perceived as second-rate goods any more," says Euromonitor in its report, though adding that brands may combat this with higher marketing spend.

 

 

 

The battle between locally produced cheese and imports is also expected to hot up over the next few years.

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