New strategy means DKK 2.3 billion investments

Arla Foods intends to grow by an average 10 per cent per year.

This is one of the fundamental elements of a plan approved by Arla Foods’ Supervisory Board at its extraordinary meeting on June 26.

The plan, the most extensive ever in the history of the Swedish/Danish company, provides for extraordinary investments of DKK 2.3 billion over the coming five years as well as marking a change in strategy for the Group and its divisions and, not least, extensive changes to the Group’s structure.

The investments aim at ensuring that, over the next five years, Arla Foods’ production machinery will rate among the best in the world. Most of the Group’s dairies are envisaged to be affected by the plan with a total of 17 dairies expected to close.

Under preparation since last year’s merger between Arla and MD Foods, the plan’s objective is to combine strategy and structure, investment and objectives, based on the merged group’s new international status and on a comprehensive analysis of international market and customer relations.

While the strategy plan has been drawn up by the Group’s executive management, assisted by Business Support, the structural plans have largely been prepared by the individual divisions.

General approval of the plan, however, does not in itself mean that the individual components have been finalised. Each project will be dealt with on its own merits and will require board approval.

10 per cent growth
The strategy plan envisages average growth for the Group of up to 10 per cent per year. Half of this will be achieved from the continued sale of added value products in the most profitable markets. International mergers and acquisitions will account for the remaining 50 per cent..

Denmark and Sweden
Particularly in the large domestic markets of Denmark and Sweden, the Group’s large market shares make further growth difficult to achieve as far as traditional dairy products are concerned. Instead, growth will be generated through the development of products which can be used at different times of the day and perhaps by different consumer groups other than those who are already large consumers of dairy products.

Eating out
As increasing numbers of consumers are now eating out, i.e. in canteens, restaurants, pizzerias, service stations, etc. Arla Foods intends to gain a leading position within this segment, too.

UK
The UK remains a key market for Arla Foods’ products. The large commitment to the UK, especially within butter and liquid milk, provides Arla Foods with a platform for continued growth. Along with Lurpak Spreadable, Lurpak, which is celebrating its centenary this year, is the leading brand in the market.

With six liquid milk dairies and 2,200 employees, Arla Foods is one of the UK’s largest dairy companies. The Group’s position with regard to butter and fresh milk will be further developed.

Focus on the Arla name
Germany remains the most important export market. However, according to the new strategy plan, strong emphasis will be put on countries such as Spain, Holland, Greece and Finland. Eastern Europe will also feature in Arla Foods’ strategy.

A new European market strategy centred on the Arla name will replace the existing multi-brand strategy for sales of cheese in Europe. Only individual brands such as Lurpak and Buko are expected to be maintained.

Beyond Europe
Outside Europe, North America, South America and Japan will continue to be large export markets.

South America will play a larger role for Arla Foods as a result of the whey protein joint venture in Argentina in partnership with the largest Argentinian cheese producer, SanCor.

In the Middle East, where Arla Foods holds a particularly strong position in the Saudi Arabian market, several countries, including the United Arab Emirates, will be increasingly targeted.

Ingredients – a world force
A substantial proportion of Arla Foods’ turnover will derive from various powder products where Arla Foods intends to be one of the world’s leading producers of milk-based ingredients for the international food industry, including whey proteins and functional caseines. In addition, the sugar component of whey may become a key item in the form of the new low-calorie sweetener, tagatose, for which Arla Foods holds the world rights. However, it has yet to be decided whether – and to what extent – the product will be produced.

Greater consolidation
In order to implement these extensive strategies, the Group’s owners, the co-operative members, will have to consolidate a greater proportion of their payment for milk in the Group in the form of equity capital. The aim is for equity capital to constitute at least 30 per cent of the Group’s total capital.