Arla Foods is taking ‘radical’ cost-cutting steps to keep pace with rivals and told DairyReporter.com that fewer suppliers might have to offer lower prices for packaging and other materials.
Yesterday, CEO Peder Tuborgh said that the Danish-headquartered co-operative (turnover 54,893m or €7.2bn in 2011) needed to cut costs by DKK 500m (€67m) as it tried to attract and retain milk volumes, to ensure attractive returns for farmer shareholders.
Consequently, the firm will also shed around 250 administrative jobs by the end of 2012, while around 150 administrative jobs will be ‘restructured’ within Arla Foods.
Fewer vendors: greater savings
Asked if Arla Foods would be asking suppliers to work more ‘smartly’, and whether the firm would be pressuring them on price, a spokesman told DairyReporter.com this morning:
“That’s part of it, but another part is looking at centralising procurement more, and maybe going through fewer vendors to achieve greater savings.
“We’ve also been researching new materials that might be cheaper and better for the environment, than, say, the cardboard box that we use to transport products in trucks, how many colours we use on packaging, all these different things.”
Market research and analysis on a per country level would also be consolidated and aligned for significant cost savings, the spokesman said, “instead of our market research departments in Denmark ordering one type of research in Denmark and Scandinavia, and our Swedish team doing the same, as well as a UK and German team.”
Quizzed as to why it was so important for Arla to trim costs given that net profit has grown steadily since 2008 (DKK 556m) to DKK 1,268m in 2010 and DKK1,311m last year, the spokesman pointed to the firm’s co-operative model.
Keeping pace with rivals
Under this the ‘performance price’ paid to farmers was the “ultimate criterion of success”, he said, not simply net profit alone, and although the former rose again in 2011 (DKøre 280.2) Arla still wanted higher returns for shareholders.
“These organisational changes are the result of thorough research we’ve done over six months on a group level. We’re competing internationally with companies, some of which have grown more in fewer, but larger mergers and acquisitions,” the spokesman explained.
“They’ve been able to make some more immediate synergies from that type of growth, whereas we have been growing very rapidly but in smaller steps – mergers here, acquisitions there.”
The cumulative effect of this M&A activity meant that Arla Foods was now at the level where it was worth the firm conducting a group-level realignment to improve efficiency, the spokesman said.
He added: “We’re growing very quickly now, especially in Europe, and this is a market where the conditions have changed in recent years. Competition is tougher, and we have to be slimmer to carry the growth well in coming months and years – cutting costs as turnover grows.”