Arla wants to be the big cheese in China

Arla wants to be the big cheese in China

Arla Foods has a sizeable presence in infant nutrition and long-life milk categories in China and the company is now working to develop the long-term potential of cheese in the country. To this end, the European dairy cooperative is opening a cheese innovation facility in Beijing. Senior vice president Frede Juulsen, who is responsible for Arla's business in China, spoke to just-food about the company's plans in the market.

In 2013 Arla generated sales of DKK1bn (US$185.8m) in China and - in line with its strategy 2017 which targets expansion in global growth markets - the dairy cooperative plans to step up growth in the market.

"Our sales last year achieved... DKK1bn in our export to China. We have a target of achieving DKK3.5bn in 2017," Frede Juulsen who oversees the company's China business tells just-food. "Whatever area you are looking at you see potential for growth in China. Especially in dairy products, you see it across the range. You see it in baby nutrition, you see it in long life milk, you see it in cheese. Demand from consumers is increasing across all dairy categories."

Juulsen says that "there is nothing yet to indicate" that Arla's sales targets are "not achievable" but also concedes that competition in the market is intense as dairy manufacturers battle it out for a share of sales.

"The competition is extremely tough. It is a growth market but everyone in the dairy industry wants to have a position in China. Everyone is really fighting hard to win the heart of consumers, to get their brands into the eyes of the consumers.

"For our brands, the [greatest competition] is from international players because it is a distinctive importer profile that we build at Arla and there are other big and strong competitors that are primed to do similar things. And also China is really a country that for the next many, many years will need to import dairy products because it is not self sufficient. We see mainly the international companies as our big competitors."

Arla operates a distinct model in China, working in close cooperation with the Chinese authorities as well as local dairy giant Mengniu Dairy Co.

Initially, when the group entered the market in 2012, much of its focus was on helping Chinese regulators build a safe and secure dairy supply chain but the group has now shifted its focus to developing consumer products, Juulsen explains.

"When we started out in China in 2012 we set up a cooperation with the Chinese and Danish governments, exchanging knowledge transfer and technology to China's dairy sector and milk production. We have had a lot of projects focused on the farm. Now in this cooperation... we will see more and more of our of our initiatives go towards developing new products for the consumers."

On the company's partnership with Mengniu, Juulsen says the European company intends to support the development of Mengniu's local operations while also importing goods from Europe. Arla has no plans to establish local manufacturing.

"We have a very strong partnership with Mengniu Dairies. They have very good local production and brands. We see the role of Arla supporting Mengniu in that development and then also cooperating with the authorities. When Arla brings products, it will be import products."

Arla's "initial focus" in China has been on importing long-life milk and infant nutrition products from Europe. "These are the biggest categories in China," Juulsen says.

However, the company is now turning its attention to less developed areas of the Chinese dairy sector. "We believe very much categories like cheese are going to grow. The experience if you look at places like South Korea or Japan shows typically you start off with milk and then you get more and more influenced by western diets and you start to have pizzas and burgers and stuff like that. You start to see increased demand in the market for cheese coming from food service and then into consumer products."

According to the Arla executive, cheese consumption is currently focused on the foodservice sector in China with green shoots starting to take hold in retail. Total cheese sales are growing at around 40% year-on-year, all be it from a "fairly low" base, he adds.

Arla aims to be the market leader in the Chinese cheese sector. "We believe that we have a very strong assortment of cheese, going from cheese for the very young - high nutrition cheeses for children - to advanced cheeses, whether that is cheddar that we produce in the UK or some of the blue cheeses that we produce in Denmark or even the very special cheese we produce in the south of Germany. We have a whole range of cheese."

In terms of consumer demand, Arla believes that two key drivers will propel growth: nutrition and occasions.

"The nutrition part is very much focused on kids - good in protein, high calcium, etc - and the other part is what we call "perfect moments". When you have a gathering of friends, a glass of red wine, together with some very nice cheese. That is really the consumer angle of it."

Arla will offer cheese products in China under the Arla brand, which represents imported dairy from Northern Europe.

The company has invested DKK10m to establish a cheese R&D facility in Beijing to develop products exclusively for the Chinese market.

"Initially [the facility] will focus on cheese because this is a very new category. It has two tasks: one is to try to train, develop, educate Chinese customers and consumers in how to use cheese - and also how to use cheese in relation to Chinese cooking. We will develop cheese that has a special design for the Chinese diet, Chinese cooking," Juulsen reveals.

"If you look at the Chinese palate it is slightly sweeter. We bring some new cheese this year, we will launch a strawberry flavour and a banana flavour. I think these have been tried in Europe but not with great success. Chinese consumers want cheese that is slightly sweeter, slightly more indulgent, more pleasurable - and a more fruity taste."

In developing products that meet the needs of consumers, Juulsen is confident that Arla will be able to drive category growth. However, he is under no illusions that the acceptance of cheese as a mainstream category in China will require some fundamental shifts in the country's food culture.

"It will take time. If you look at red wine it took 15 years. I think we will constantly grow in cheese, but when it will become a significant category I think we are looking five or ten years ahead. It is a fundamental change in the diet of Chinese consumers."