Dairy Crest leads UK added value trend

By Chris Mercer

- Last updated on GMT

Related tags: Dairy crest, Value added

As the UK's top three dairy processors cut profit forecasts for
2005, analysts say new added value product innovation is keeping
the future alive with Dairy Crest pulling ahead of the pack.

The pressure on Britain's dairy sector has become intense this year, as shown by the top three processors, Arla, Dairy Crest and Robert Wiseman, all forecasting a drop in full-year profits within the last two weeks.

High oil costs and a shuffling of milk supply contracts with retailers were the main causes. But, that said, the race is now on to add value and earnings to a sector that has been too bogged down in commodity products.

And it is Dairy Crest that appears to have the early lead. Financial advisors Goldman Sachs​ said in a recent note that it rated Dairy Crest above rival Arla Foods UK because of its "greater added-value content"​.

David Hallam, analyst at William de Broe​, told DairyReporter.com​ that it was difficult to pick between the UK's big dairy processors but that Dairy Crest had definitely moved ahead in terms of added value production.

Hallam said around two thirds of Dairy Crest's portfolio now consisted of added value and branded products and, with its recent launch of milk enriched with omega-3 under the St Ivel brand, the group was "quite strongly positioned"​.

Arla UK, the subsidiary of Scandinavian dairy firm Arla Foods, has also begun to move into added-value brands with the launch and early success of low-fat milk brand Cravendale.

Yet, Arla gets a lot of income from importing Britain's top two butter brands, Lurpak and Anchor, under licence.

Dairy Crest now does this with its Yoplait joint-venture with French dairy firm Sodiaal. But, the firm also has two domestically-produced brands, Cathedral City cheddar and Clover spreads, inside AC Nielsen's​ top 100 grocery brands in the UK.

This brand-building and innovation could lead the UK dairy sector out of its over-reliance on commodities, recently highlighted as a problem in the Milk Development Council's (MDC) Dairy Supply Chain report.

The report said Britain's trade deficit in dairy products grew by eight per cent to £744m during 2004, as the country continues to import large amounts of value-added products while exporting low-value commodity goods like powders and bulk cream.

It added that Britain still lagged behind other EU countries in fresh dairy production.

But, Ken Boyns, MDC market analyst, said the UK was starting to improve. "We are turning things around and there is some good news out there, but we probably have a fair way to catch up."

Robert Wiseman is thought to be developing a new milk brand called Pure, along similar lines to Arla's Cravendale. The market for brands has also become more favourable: branded milk sales grew 23 per cent in Britain between 2003 and 2004, while branded cheese went up 11 per cent.

Related topics: Markets

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