Arla braced for challenge of maintaining consumer loyalty

The Scandinavian cooperative is one of the biggest private sector employers in Leeds, with 1,300 staff at its Stourton complex.

Annual results out yesterday showed flat turnover in the UK of £1.5bn, while group turnover rose six per cent to £5.5bn.

Lurpak, Cravendale and Anchor, the group’s key brands, all increased in both UK sales and value during the year.

Peter Lauritzen, chief executive of the UK business, said: “Despite our many successes, 2010 was a year of many challenges, several of which will continue to impact the business in 2011.

“For example, the own label milk market remains highly competitive, the economic environment is very unpredictable, due to low consumer confidence, and the prices of utilities, plastic packaging and fuel are rising.”

Mr Lauritzen said that consumer confidence is predicted to drop even further, which in turn affects shopping behaviour and consumption patterns.

“Consumers are increasingly buying products on promotion so one of the challenges for our brands is to maintain consumer loyalty and attract new consumers,” he added.

Increasing costs of production also affect the group’s farmer suppliers. Arla UK recently raised the milk price by two pence per litre in an effort to “deliver a long-term sustainable milk price”, said Mr Lauritzen.

The country represents Arla’s largest market, accounting for a quarter of group revenues. Its UK operations are headquartered in Stourton, next to the national distribution centre and flagship dairy. Both saw volumes increase during the last year.

The group has invested £70m in the dairy, allowing it to expand its UK portfolio. Last year, it began commercial production of cottage cheese for the first time in the UK, leading to an immediate gain of 50 per cent market share for the category. The company has since launched flavoured milk and custard at the dairy.

The year also saw Arla start supplying Starbucks chilled coffee drinks to UK customers and begin its new fresh milk contract with Sainsbury’s.

The brand values of Lurpak, Cravendale and Anchor increased by 9 per cent, 6 per cent and 13 per cent respectively during the year.

Mr Lauritzen plans to increase supply chain efficiencies, increase market share, exploit growth opportunities to cope with the tough economic and market conditions.

At group level, Arla Foods said it delivered “significantly improved” earnings for its owners last year, compared to 2009. The group is owned by a cooperative of Danish and Swedish milk producers.

Peder Tuborgh, group chief executive, said: “The result shows that we have put the recession behind us, and that we’re in control of our costs.” He added: “We’ve committed to a number of investments that demonstrate the company’s focus in the long-term and our readiness to exploit the opportunities offered by the markets in which we operate.”

He cited the decision to build the world’s largest fresh milk dairy at Aylesbury in Buckinghamshire as an example. This will have a capacity of one billion litres.

Frederik Lotz, group chief financial officer, said: “The key issue for us is that we strengthen organic growth in 2011. We want to grow through acquisitions, partnerships and mergers. Nevertheless, organic growth is key to our strategy and it reflects our ability to expand our existing business.”

The group said organic growth contributed half of the six per cent increase in turnover last year. General price rises and foreign exchange rate developments also helped increase turnover.

The group, which is headquartered in Arhus, Denmark, is continuing talks with the Arla Foods Milk Partnership (AFMP), which represents UK suppliers, over increasing their size of shareholding, which currently stands at 3 per cent in the UK business. A decision on this is expected in the first half of the year.

The group said: “The recent two per cent per litre milk price rise to AFMP members demonstrates the success of Arla and AFMP’s partnership way of working and what can be achieved when farmers and processors work together.”

Arla also hailed 2010 as a landmark year for stepping up its environmental agenda. Its forthcoming Aylesbury facility aims to be the first zero carbon fresh milk processing plant.

Arla is funding a programme to work with AFMP members to reduce the environmental impact of their operations.

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