Dairy closures show difficult state of industry
largest dairy company, Dairy Crest, are closing operations in order
to cut margins and concentrate on key brands.
Arla for example has announced it is to cease operations at one of its Danish cheese warehouses as a result of flagging sales of its hard and semi-hard yellow cheeses.According to the company, the decision to close the Vejle packaging facility, which will come into effect by May 2006, has been taken in an attempt to improve efficiency and lower costs at a time of heightened competition across the Danish multiple retail sector.
Dairy Crest on the other hand has announced the closure of its Yeovil factory. The closure of the site will allow the company to focus its future activities on the value-added branded product sector - namely its Petit Filous, Frubes and Yop brands, all of which Dairy Crest claims are showing "good growth".
Arla claims that the closure of its Vejle site is due to the fast pace of consolidation in the Danish market which has reduced the need for smaller, less profitable distribution hubs. "The packing function in Vejle dates back to the time when our dairy structure was characterised by many small dairies," said Arla's production director Niels Lange Jørgensen.
The closure of the packaging plant will result in the shedding of an estimated three hundred jobs, although some work will be transferred to Arla's Taulov and Hjørring dairies. The Vejle site packages around 26,000 tonnes of hard and semi-hard yellow cheeses per year, including Arla's successful Rosenborg brand.
Arla Foods, whose cheese division currently accounts for 25 per cent of its total turnover, said that it "expects to break even in two and a half years," in Denmark and although it declined to give an exact indication as to how much the plant closure would save in the long term, it estimates it to be "a two digit million figure per year."
Dairy Crest's decision to shut its Yeovil factory marks the closure of the only remaining factory dedicated entirely to the production of fresh dairy products, following the disposal of its plant in Enfield, Middlesex, last year, which similarly manufactured a number of Yoplait Dairy Crest branded products, as well as own label yoghurt and soft cheese.
The company claims that its attempt to move away from commoditisation into the more lucrative branded consumer dairy product sector has already proved highly successful, with its Clover, Cathedral City and Frijj products, as well as Yoplait's Petits Filous brand, all appearing as best-sellers in their respective categories.
The decision by both firms to close certain operations shows just how much competition has intensified within the sector. This has made it increasingly difficult to operate with a satisfactory trade margin.
There is certainly intense pressure on milk suppliers in the UK, with retailers calling the shots. Tesco's decision last year to cut the number of suppliers from three to two mirrors Sainsbury's recent decision to deal with just two suppliers as well, while Asda jettisoned both Dairy Crest and Robert Wiseman in favour of an exclusive supply deal with Arla.
This trend towards supplier consolidation, say farmers, is bad news for an industry already in decline. UK suppliers have complained about their relationship with the four main supermarkets, prompting an audit by the Office of Fair Trading.
