FrieslandCampina has had a presence in the Middle East for over 50 years with its condensed and powdered milk products. Regional director Maurits Klavert says the market, despite it making a small contribution to the Dutch dairy giant's pot, has huge potential, which the co-operative is looking to exploit in a big way with a launch into cheese. Hannah Abdulla learns more.

Dutch dairy giant FrieslandCampina has had a long-standing presence in the Middle East. It began business in the region, via exports initially, in the early 1950s. Today its Rainbow brand resonates so strongly with consumers they've even given it an Arabic nickname.

The Middle East accounts for a small part of FrieslandCampina's overall business but the importance of the region to the co-operative is growing. The Middle East's dairy market has been growing at a rate of about 5-6% per year, says regional director Maurits Klavert, which is a "healthy and robust growth". And so, in 2011, the company moved away from dealing with the region's trade out of the Netherlands and set up its Middle East hub in Dubai.

"We realised we needed to change. The market is changing, it's becoming a lot more competitive, you can no longer run the business out of Europe and that's why we created this office," he tells just-food.

The Dubai office, located in the business location of the emirate's Jumeirah Lake Towers is "the face of the company for the market," Klavert says and allows FrieslandCampina to deal with the developing modern retail channel in the region – including the likes of Carrefour, Spinneys and LuLu Hypermarket. "They need to be dealt with in a certain way, and so we started to capture all the business risk in the region locally," Klavert says.

The company has a pretty strong range in the region with much of its Middle East offering including condensed milk and powdered milk being shipped over. Long-life milk however is produced locally from its factory in Jeddah in Saudi Arabia.

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However, the market is not short of competition. Dairy, being a staple, attracts many companies, be they local or global. Locally, FrieslandCampina is fending off competition from the likes of Almarai and Al Ain who, Klavert concedes, have "managed to develop their businesses and carve a certain position in the market". He agrees the market is growing, becoming more competitive and fragmented but adds: "It's becoming a lot more advanced too in terms of product propositions," he says.

Accordingly, FrieslandCampina has considered its own position. Many of the local players are leaders in fresh and chilled dairy products but Klavert says it is not an area the group would consider "an interest" because of supply chain complexities.

"We will focus on long-life milk where we can add a lot more value and come up with innovations. To do that we have equipped ourselves with a very strong R&D setup. Last year we created an R&D setup in Holland where we have hundreds of experts working on dairy – first of all understanding milk – there is so much that has not been understood and unlocked with milk. That will become a unique competitive advantage for us. So innovation, brand and focusing on certain product categories."

FrieslandCampina's recent results in the Middle East have been encouraging but Klavert wants more. Announcing its 2014 results earlier this month, which saw a fall in company profits and only slow growth in group sales, FrieslandCampina said its business in the Middle East – which takes in Saudi Arabia, the UAE and Oman – posted improved revenue and operating profit when compared with the previous year. Rainbow's market share apparently "increased still further".

Klavert, however, is realistic. The Middle East falls into its EMEA zone, which also includes Europe and Africa. Speaking of the Middle East, he says the contribution into the rest of the business is "not that high" in terms of numbers. Operating profit for the segment increased 5.3% during the year but Klavert says FrieslandCampina's operations in the Middle East could be offering more to the division.

"In terms of potential, I think this part of the world has a lot more to offer. In terms of numbers it's not that high if you look at EMEA – the Middle East at the moment is not contributing as much as it could."

Klavert is reluctant to divulge the size of FrieslandCampina's market share in the Middle East. It's "big enough to have some muscles but it's not big enough if you look at the potential in the region", he says.

The plan is to go after that potential in a big way. In the near term FrieslandCampina is planning the roll out of cheeses in the market. The cheese range will include harder cheeses such as Edam. "We have a lot of knowledge and competitive edge around this – consumers like it – this is one area we are going to focus on a lot more and develop," says Klavert.

Of course, there are a number of global heavyweights in the cheese category within the region, including Arla, Fonterra and Bega Cheese. Competition is always going to exist, he says, but it's a "good thing and makes you more agile."

"It's proven that whenever there is competition the total category grows faster because there's a lot more investment in the market, consumers become more educated and the category grows.

"I think the key is really to differentiate ourselves and to understand where our strength is and carve out a certain position based on that. Cheese is an area, which if you look at all the players you have named they don't have strong business here [Middle East]. We are very, very strong in this kind of business – the natural hard and semi-hard cheeses."

To start, FrieslandCampina will be introducing cheese products that already exist in its portfolio. But there is a lot of room for product innovation in the medium-to-long term, Klavert says.

"Cheese has big potential. I'm not sure if you are aware but in this region the single biggest dairy category is cheese and we are such a small player in that because until now we've not focused on developing it, and haven't invested in it."

Despite the Middle East not being big for the company in terms of the amount of money it brings in compared to some of other markets, it is still an important market, Klavert stresses. Population growth and economic growth make it attractive, especially for global dairy players. "This region is not self-sufficient in terms of dairy, so, for companies like ours, dairy co-operatives owned by farmers, this part of the world is very attractive," says Klavert.

"We plan a lot more focus in the Middle East. The market is growing. It is never going to be self sufficient where dairy is concerned. To produce one litre of milk, if you look at the total chain, you need around 700-1000 litres of water. This part of the world is not rich in water so there is always a space for imported milk like ours.

"Also, Europe is not growing, so yes in this part of the world there will be increased focus and increased investment".

Whether that means FrieslandCampina will be looking at M&A in the region in the near term is a question dependent on what opportunities come its way.

"M&A is something we will always look at but things may happen, things may not, depending on what is available in the market. However, we will definitely have a lot more focus, investment and innovation in this part of the world."