DENMARK: Arla Foods debuts new strategy, focus on emerging markets
Arla Foods has said it aims to double ingredients sales in the next five years as part of a new business strategy designed to increase the dairy co-operative's presence in emerging markets.
Arla said today (11 January) it wants global sales of its highly-profitable ingredients business to hit DKK5bn by 2017, up from DKK2.5bn (US$444m) currently.
The Danish dairy co-operative has replaced its current 2015 business strategy with a new plan leading up to 2017. Russia, China, Africa and the Middle East are seen as key to Arla achieving its aims.
The move comes at least partly in response to the planned end of European Union milk quotas in 2015, a development that Arla expects to result in increased milk supplies.
Consequently, the group believes it will need to find new markets for its products.
It also expects to cut costs in Europe, and is seeking DKK2.5bn in efficiency savings by the end of 2015, as part of the 2017 plan. Specific cost savings proposals were not published.
"We have an opportunity to achieve profitable long-term positions in markets outside the EU," said Arla's chairman, Åke Hantoft. "Our dairy products need to reach many new consumers as these increased global sales will help to maintain a viable dairy business in northern Europe," he said.
Arla's CEO, Peter Tuborgh, said: ”We are four years into the 2015 strategy period and have achieved many of the strategy’s objectives, and are close to the revenue target of DKK75bn. Our recent growth must deliver an even higher return to our cooperative owners, and releasing Arla’s new potential is a major task."
Over the next five years Arla will increase its focus on Russia, China and the Middle East & Africa region and aims to double sales of ingredients to the food industry. On Arla’s core markets in Northern Europe the main focus will move from expansion to increased profitability and innovation.
The significant new aspect of the revised strategy launched by Arla’s Executive Management Group today is that Arla is increasing its strategic focus on markets outside of the EU. In these markets, millions of people have achieved a better standard of living and are demanding healthy and safe food products.
”We now increase our focus on Russia, China and the Middle East & Africa region. Our export to these markets is growing rapidly, and we will work hard over the next five years to build on the massive potential that these markets hold for Arla’s products,” says CEO of Arla Foods, Peder Tuborgh.
Defining Russia, China, Middle East & Africa as strategic growth markets will see Arla increase investment in marketing, distribution networks and cooperation with local partners in these markets between now and 2017. By 2017 the overall revenue from Arla’s strategic business generated in these markets is set to increase from approximately 3.5 to 10 billion DKK.
More milk out of the EU
The abolition of EU milk quotas in 2015 is the main driver behind Arla’s Executive Management Group, together with the Board of Directors, deciding to revise and extend the global strategy despite of there being three years remaining for the current strategy. Without EU quotas it is anticipated that Arla’s milk farmers will produce at least one billion kilos of milk more each year than today. The extra milk cannot be sold as profitable products in the EU due to growth stagnating.
“We have an opportunity to achieve profitable long-term positions in markets outside the EU, and therefore it is important that the strategy sends a clear signal to the organisation that we need to further develop our sales channels. Our dairy products need to reach many new consumers as these increased global sales will help to maintain a viable dairy business in northern Europe,” says Åke Hantoft, Chairman of the Board of Directors.
Strengthening the core markets
In recent years, Arla has strengthened its positions in its core markets in the UK, Sweden, Germany, Denmark, Finland, and the Netherlands. According to Strategy 2017, these markets must continue to be developed, but with more focus on refining activities, not primarily through expansion via mergers and acquisitions.
“Our company has grown and Arla has a lot of unutilised potential that our owners expect us to put to good use. We can do this by further advancing our relations with customers and consumers, offering more attractive products, and finding new ways to inspire our customers. We will continue to focus on the three global brands of Arla®, Lurpak® og Castello®, which must all grow via their individual unique profiles. The entire company will continue to strengthen our Closer to Nature™ position, with the objective of being the most natural and sustainable global dairy company,” says Peder Tuborgh.
“In terms of our retail customers, we wish to be the best partner for them – through the development of both our own brands and theirs. We also want to improve the development of successful products and sharing ideas across business units and national borders,” he says.
Doubling sales of ingredients
One of the most profitable areas within the Arla Group is Arla Foods Ingredients (AFI), which is responsible for the production and sale of whey protein and lactose- and milk-based ingredients to the food industry. The target for AFI in Strategy 2017 is to double its revenue globally from approximately 2.5 to over 5 billion DKK.
Efficiency measures for 2.5 billion DKK
Another focus area in the revised strategy is to continue to operate a sound and effective business where everyone is focused on cost and new ways of working.
”We have launched a large number of programmes that will enable us to work faster, leaner and more simply. Our overall objective is to save 2.5 billion DKK by the end of 2015. This is essential in order to be able to invest in new growth and remain competitive,” says Peder Tuborgh.
From Strategy 2015 to Strategy 2017
The revised strategy which takes Arla to 2017 builds on the previous strategy and is a further development of Arla’s strategic direction, rather than a fundamental change. In the revised Strategy 2017 there is no overall revenue objective, which was one of the focal points in Strategy 2015.
”We are four years into the 2015 strategy period and have achieved many of the strategy’s objectives, and are close to the revenue target of 75 billion DKK. Our recent growth must deliver an even higher return to our cooperative owners, and releasing Arla’s new potential is a major task. This is one of the main elements in Strategy 2017. Even though revenue will naturally increase during the next five years, the main goal is profitability,” says Peder Tuborgh.
Original source: http://www.arla.com/service-links/press/
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