Fresh milk loss sees Dairy Crest pursue brand strategy
half trading performance this week, but conceded that its second
half results could be adversely affected following the loss of a
fresh milk supply contract to leading UK supermarket chain Tesco -
and that it would invest more time and effort on boosting brands,
writes Tom Armitage.
In a trading statement issued earlier this week, the company gave no concrete sales figures but claimed that first half growth had been in line with expectations across all its dairy categories.
But intensified competition and challenging market conditions in the desserts, yoghurt and fromage frais sectors have made it increasingly difficult for dairy producers to operate with a satisfactory trade margin, according to Dairy Crest, prompting a change in strategy for the group.
Earlier this year, the group announced the closure of its Yoplait Dairy Crest plant in Enfield, which produces fresh and cultured cream products including own label yoghurt and soft cheese, a move which will allow Dairy Crest to consolidate production of its strongest brands, which include Cathedral City cheddar cheese and the St. Ivel Gold and Country Life spreads.
Early signs indicate that this strategy is already working well - the Dairy Crest yellow fat spread unit has performed particularly, and both St.Ivel Gold and Country Life are strong contenders for future growth.
In fact, such has been the success of the Country Life brand that Dairy Crest has also announced the acquisition of the outstanding 44 per cent stake in the English Butter Marketing Company - which owns Country Life - from its erstwhile partners, The Cheese Company and Associated Co-operative Creameries.
The first half also saw strong performances from the company's added value dairy products, such as Yoplait's Frubes, Wildlife and YOP, and it is these products - smaller in volume terms than cheese or butter, but with greater margin potential - which are likely to be prioritised in the rest of the year.
The loss of the Tesco milk supply contract - announced last month - will undoubtedly come as a blow to Dairy Crest, given that this deal alone accounted for £60 million of its annual revenues, and chief executive Drummond Hall said that the top priority of the second half would be "to address the ongoing profitability of the fresh milk business" - a clear indication that the company sees future potential in the branded business.
The most successful added-value dairy product companies in latter years have been those which have focused increasingly on marketing products - giants such as Nestlé and Danone, for example, have farmed out much of their production to other companies, preferring instead to invest in advertising.
With a rather more parochial reach than either of those two companies, Dairy Crest may not feel it has to go quite so far from its traditional milk processing roots, but with the future of its liquid milk business under serious threat, some change in priorities is all but inevitable.
