Branded business boosts Arla Foods UK

Related tags Arla Arla foods uk Milk

A focus on strong brands in a market dominated by own label
products helped Arla Foods UK post impressive growth figures in
2004. And with increasing pressure on milk suppliers from the
multiple grocers likely to curb profitability, branded goods are
likely to play an increasingly important role, suggests Chris

Sales at Arla Foods UK reached £1.7 billion in the 18 months to 30 September, and while this was inevitably higher than the previous year due to a change in the company's reporting date following the merger with Express Dairies, it was also built on a solid performance from branded products.

For example, Cravendale - the only major milk brand in market dominated by own labels - continued to expand, posting sales in excess of £60 million in the 18 months and offsetting lower profits from the supermarket business, particularly affected by external factors such as high fuel and packaging costs.

Yet Cravendale accounts for just 2.9 per cent of the total UK market for fresh milk, underling the brand's ongoing potential, especially in a consumer climate increasingly ready to pay more a product perceived as better - a factor crucial to the success of Cravendale when it is sold alongside cheaper own label milk in the multiples.

Arla has also been quick to react to the demands of the market, developing an Atkins-branded low-carb milk to tap into the current diet fad. Rival Robert Wiseman also has a 'diet' milk brand, called The One, which has proved extremely successful, but Arla's decision to tie-up with Atkins could mean its long-term potential is more limited. In the US, where the low-carb fad epitomised by Atkins originated, sales are already slowing, and the UK market is likely to follow a similar pattern.

But Arla has the capacity to innovate and experiment, with some of the most modern and efficient dairies in the UK under its control, and indeed it has already been at the forefront of pushing the British dairy market into new areas.

The spreadable butter sector, for example, was created by Arla Foods UK, and the company still leads this sector with strong performances from its core Lurpak and Anchor butter brands. Lurpak Spreadable is now worth £116 million, accounting for the majority of the brand's total sales of £151 million.

Butter is another market where own label products dominate (though not to the same extent as fresh milk), but here too Arla Foods remains confident in the strength of its brands.

For example, the company has taken the conscious step to reduce the number of products it sells on special offer - just 12 per cent of its butter, spreads and margarine volumes, compared to around 20 per cent for the sector as a whole - again counting on the consumer understanding that more expensive products are of higher quality.

One branded area where Arla is less strong is flavoured milk, a market dominated by Dairy Crest, which accounts for 28.7 per cent of the market with its Frijj brand, and Dutch group Campina with 24 per cent (Yazoo and Superlife. Arla (Cafe Met, Gulp! and Breaktime) has a more modest 10.7 per cent, the same as Masterfoods (Mars), according to market analysts Mintel​.

Yet this market is another with signficant growth potential, driven as it is by impulse sales through forecourts, CTNs and foodservice outlets, where Arla's Breaktime and Gulp! are well positioned.

Frijj is the market leader with sales of 17.8 million litres in 2003 according to Mintel, well ahead of Arla's leading brand Breaktime with 10 million litres, although the latter is a long-life product and does not necessarily compete directly with Frijj.

Nonetheless, it is Arla's Café Met which has demonstrated the strongest growth (36.7 per cent between 2003 and 2004) helped by its adult positioning, and sophisticated glass packaging, and this could be another key brand for the company in the future.

With an uncertain future for all of Europe's dairy processors, faced with the reform of the Common Agricultural Policy, Arla Foods UK will be keen to focus more than ever on its more profitable business streams. The company's parent, Scandinavian Arla Foods amba, reported a drop in profits in 2004 as a result of lost export subsidies related to CAP reform, and the next few years could see a major shift towards branded dairy products by companies which have traditionally focused on the broader dairy sector.

Leading companies such as Nestlé and Danone have successfully shown that branded dairy products (albeit yoghurts and desserts rather than milk or butter) can be big business, and focusing on this end of the market provides a certain amount of protection from commodity price fluctuations and the impact of reforms.

Related topics Manufacturers Arla Foods

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