Interview: IFE: Arla to ramp up investment in UK dairy
By Katy Askew | 21 March 2013
Arla focused on growing liquid milk brands
For all the positive publicity around dairy exports, the UK dairy sector is facing some significant challenges. The domestic market is dominated by low-value own label liquid milk sales, while underinvestment means that UK producers and manufacturers operate at a competitive disadvantage to their European peers. However, Arla Foods plans to tackle these issues head-on. Arla UK vice president of marketing Ash Amirahmadi spoke to just-food on the group's plans to ramp up investment in the UK, including the launch of a new liquid milk brand.
A lot of noise is being made about the potential of the UK dairy sector - particularly in growing exports. The Department of Environment, Food and Rural Affairs (Defra) and UK Trade and Industry (UKTI) have been targeting recent industry events and trade shows to highlight the growth opportunity presented by international markets. This year's IFE event in London was no exception.
UKTI and Defra hosted a dairy forum earlier this week (19 February) with the aim of highlighting the support available to UK dairy firms that want to break into new markets.
However, speaking to just-food on the sidelines of the event, Arla UK VP of marketing Ash Amirahmadi emphasises that, while the opportunity to grow the UK sector is vast, so too are the challenges the industry faces.
In 2008, Arla Foods completed an analysis of the UK dairy industry that concluded the sector is "structurally underdeveloped" and therefore at a competitive disadvantage to its European peers. In order to take advantage of the opportunity presented in the UK - Arla's largest market by sales - the company ramped up investment in the country. The group has since merged with UK cooperative Milk Link and invested in building best-in-class facilities, including its new mega dairy in Aylesbury.
According to Amirahmadi, while some progress has been made over the past five years - as Arla and other players in the sector increase their investment levels - the industry has far from overcome the issues it faces. "I would say we are at something like a half-term report," Amirahmadi says.
He adds that one of the biggest problems the sector faces is a "lack of confidence" from farmers, who are unwilling to invest in increasing production or efficiency because they are uncertain that their revenues will rise as a result. This confidence is something Amirahmadi believes will come in time, as companies like Arla increase their own investment in order to address the structural challenges that the industry is facing.
Arla sees its investment going well-beyond building dairies. "Structural development isn't just about the supply chain, its about building a market," Amirahmadi insists. "Structural development isn't just about building dairies. It is also about how to move the category along, not just for the benefit of ourselves because it has to be for the benefit of the retailers and the industry as a whole."
In order to improve the health of the UK dairy sector, Amirahmadi says that Arla is working to change the way consumers think about dairy products, reducing reliance on promotional activity in cheeses and building strong brands in liquid milk.
"In terms of the UK, our strategy is to add more value to milk. At the moment 20% of our [UK] sales of milk are on added value products. The industry average is on 5%, so we are four times the industry value. Our ambition is to double that," Amirahmadi reveals.
In order to achieve this, Arla plans to grow its 14-year-old Cravendale liquid milk brand. Cravendale is one of the few liquid milk brands operating in a market heavily dominated by cheap own-label alternatives.
Cravendale has developed from a "technical product" based on a filtration process to a brand that consumers are able to "form an emotional attachment with", Amirahmadi observes. As a consequence, Arla is able to charge a price premium for the product, something the country's retailers are happy to leverage.
"Retailers are keen for us to do this because they aren't really making money on liquid milk. Because the consumer doesn't really care if they buy their milk at Tesco or Iceland. As far as she or he is concerned its the same thing. Then when you start having a brand, getting people to buy into a brand concept, people are actually able to or willing to spend more money. That is the key thing retailers are buying into - and they are saying 'Arla, please make it happen and we will give you more shelf space, we will push these products'."
As part of this drive to develop branded liquid milk sales, Arla is also "looking to find the next Cravendale" and plans to launch a new UK liquid milk brand next year, Amirahmadi reveals.
In its drive to improve its product mix and add value to raw milk, Arla is also stepping up its investment in the cheese side of its business.
Arla took control of the Tickler cheddar cheese brand through its merger with Milk Link. Tickler is a high quality cheddar but sales are held back by limited distribution, something that Arla plans to alter. "We can, through our strong customer relations, help to build its distribution and advertise the fact," Amirahmadi says.
Increasing distribution is only the first phase of Tickler's planned expansion. Currently, 80% of cheddar sold in the UK is sold on promotion - and for the category to improve its health, Arla believes this situation must change.
"[Our strategy] is about getting consumers used to different uses of cheese... and reducing the reliance on promotion. You can only change that when you are in it - and at the moment we aren't in it. You need to have the scale to act and be able to present a solution to the retailers. Is this really what you want to be doing? Do you really want to devalue your brand in a way that one week people will buy Cathedral City because its on deal, the next week they will get Seriously Strong?"
Another area that Arla has identified as offering the potential to expand in the UK is through the sale of more speciality cheeses. Currently the group produces Stilton, Brie and territorial cheeses such as Red Leicester. "We are absolutely looking to grow these," Amirahmadi reveals. "Stilton is the big opportunity there, it is the one hero product that we think we can growth both in the UK and abroad."
Because Stilton has been granted Protected Designated Origin status by the EU, Amirahmadi says the export potential for this product is "phenomenal". Arla UK is looking to feed these cheeses into the company's global network, he adds.
"We were over earlier in the month with our exporters in Denmark where our corporate head office is and already they have taken a listing of the Brie and they will definitively have the Stilton but the question is what do we call it, because our global cheese brand is Castello - we are just having a bit of a debate over whether to call it Castello or not because that doesn't sound very British."
In addition to growing cheese exports, Arla also aims to expand its UK-produced Cravendale product internationally. The company is currently in talks with retailers in France and Belgium, who are interested in the filtration technology because it extends shelf life and reduces waste, Amirahmadi reveals.
But, for Arla, expanding UK exports are a longer-term target. In the near-term the group believes the best way to build value from its UK raw milk supply is to focus on developing the value-added side of its UK business. Essentially, this means changing the way consumers think about, purchase and use dairy products. While this is clearly no mean feat, Amirahmadi is confident on Arla's ability to deliver.
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Interview: IFE: Arla to ramp up investment in UK dairy