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Dairy players look beyond ‘short-term’ private label pressures

By Neil Merrett , 14-Jan-2009

As European consumers reportedly flock to own brand products in a bid to offset fears over the global economic downturn, dairy processors are bracing to adapt their operations to meet short-term demand challenge at the very least.

Arla Foods, one of Europe’s leading dairy cooperatives, told DairyReporter.com that while it was having to concede to growing consumer demand for discounted products, the group remained committed to its long-term strategy of supplying added value and branded goods.

The claims follow press reports suggesting Germany-based discount retailer Aldi has continued to make inroads in the UK retail segment with full-year sales in the country up by 24.8 per cent to £2.15bn (€2.3bn).

The announcement reflected wider troubles for more mainstream companies like Tesco, the country’s largest retail group, which has suggested that surging interest in so called ‘discounter’ brands highlights consumer spending worries.

Andrew Higginson, chief executive of retailing services for the group, told the Financial Times newspaper this week that Tesco expected a difficult final two fiscal months in January and February as consumers cut down on ‘indulging in finer brands.’

Private label goods - or own-brand products as they are also known - are made by a company to be sold under another group's brands, usually in the case of retailers.

They tend to be viewed by consumers as cheaper alternatives to leading branded food and beverage products.

Industry benefits

However, industry association Dairy UK suggested that British dairy processors could benefit from own-brand demand with a wealth of private label products being released in the last month alone.

Association director Jim Begg claimed that while more and more dairy groups were expected to launch new private label products, especially liquid milk, onto shelves, value had long been a major factor in UK retailing as in other markets.

Begg claimed that value dairy products were not simply just ‘cheap option’ though.

“Value is a measure of the balance between the cost of a product and its benefits to the consumer,” he stated. “The UK’s high quality food and its growing array of value-added products puts it in a very strong position to respond to consumer demand.”

Dairy UK said that concerns over cut backs in the addition of nutritional and functional qualities were unfounded with a number of private label products being designed to include added value benefits.

Begg claimed that while the apparent shift towards own-brand products had created short term challenges for the global dairy industry, their could also be benefits for producers and processors in the wider scale.

Begg stressed that in looking at medium term and long-term dairy prospects the shift was likely to provide a bright future for competitive businesses.

“Recession is a challenge for all sectors of the economy, but the food sector is one of the best equipped to withstand it,” he stated. “Demand for dairy products is relatively inelastic in the UK, because people want their milk, cheese and yogurt.”

Arla Focus

Despite some potential challenges, Arla Foods said that it did not fear growing consumer interest for more value focused dairy goods would dent its long-term aims of pushing branded and functional products.

Late last year, the cooperative outlined a new global strategy to overhaul the types of goods it would be focusing on, including attempts to double its current global sales of whey protein products.

This drive will be backed up by a 100 per cent increase in the co-op’s existing development budget, targeting both high growth areas such as dairy health, along with potential breakthroughs in product taste, Arla claimed back in November.

In the current market though, Arla spokesperson Theis Brøgger said that it remained committed to its plans, even with rising consumer interest in own-brand goods. “[The private label demand] does put some weight around our ankles,” he said.

Brøgger conceded that while the company was looking to meet demand for private label goods, interest in its added value products remained strong, though maybe not as much as it could be.

Looking ahead though, he claimed that Arla was certain its long-term strategy remained the best way to adapt to a changing market.

“Demand for discount goods won’t end tomorrow, but our long-term strategy will help us through potential difficulties,” said Brøgger.

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