Danish dairy giant Arla Foods is fast losing retail share in its home market. Shell has already dropped Arla Foods as supplier of dairy products in its 118 petrol station shops and instead chosen a small organic dairy, Naturmælk.

Shell claims the milk from Naturmælk is of such better quality that consumers can taste the difference. Director of Shell shops in Denmark, Bjarne Månsson told Danish daily Jyllands Posten that "Arla's production is so highly industrialised that they pump and push the milk through the pipes and so unfortunately crush the fat structure in the milk. Naturmælk, on the other hand, treats the milk more sensitively, using old fashioned methods."

It is the first time a chain has de-selected Arla as a supplier in its home market. Dansk Supermarket and FDB have both chosen to buy butter and cream abroad, but have kept Arla as their major supplier of dairy products.

Shell expects to buy 1.55 to 2 million litres of milk a year from Naturmælk, which will increase the small dairy's turnover of consumer products by 40 to 50%. Shell expects that their milk sales will increase too, after the decision to switch suppliers. The new supplier's milk will be sold 1 Danish crown cheaper at retail than Arla's organic milk. This is because the distribution company, Leverland, also delivers sandwiches and other groceries to the shops, and can rationalise.

Arla hit on cream too

Meanwhile, Dutch cream from Campina has taken over half the market in FDB's shops, in just 3 months. Although the cream comes all the way from the Netherlands by truck it is still 75 øre (3/4 Danish crown) cheaper per half-litre than Arla's. The size of the success has actually taken FDB by surprise too, and now the company is considering importing yoghurt too. Torben Laursen, Director of FDB is surprised at the low Dutch prices. "Actually, we wanted to work with Arla and did offer them the cream series. But they rejected it since it was going to be sold with our own FDB logo, and Arla only wanted to sell with their own brand on the packaging."

Arla also turned down a chance to make yoghurt for Dansk Supermarked, which is sourcing its product from Germany's Nordmilch instead. "They have helped us increase sales by 20%" said Mogens Aaby, buying director of Dansk Supermarked.

By Penny Leese