1. Advance Competitive Position Assignment – Arla at the UHT market
Introduction on UHT Market
The increasing urbanization level and lack of refrigeration space are the key growth drivers for the global UHT milk market.
The shifting consumer trends towards milk consumption and school milk programs in certain countries are laying growth
opportunities for the market during the forecast period. The economic slowdown in Europe has been a major setback for
the market in the region. However with the recovering economy, the consumer confidence is being reinstated, which is
also expected to improve the market conditions for manufacturers in the region.
UHT milk has seen large success in much of Europe, where across the continent as a whole 7 out of 10 Europeans drink
it regularly. In fact, in a hot country such as Spain, UHT milk is preferred due to high costs of refrigerated transportation
and "inefficient cool cabinets". Although Arla Foods has the UK dairy industry’s largest milk pool, comprising 3,200
farmers, spread geographically throughout the country, UHT is less popular in Northern Europe and Scandinavia. It is also
less popular in Greece, where fresh pasteurized milk is the most popular type of milk.
According to a new market report published by Transparency Market Research "UHT Milk Market - Global Industry
Analysis, Size, Share, Growth, Trends and Forecast, 2013 - 2019," the global UHT Milk market was valued at USD 60.8
billion in 2012 and is expected to grow at a CAGR of 12.8% from 2013 to 2019, to reach an estimated value of USD 137.7
billion in 2019.
Arla Foods is an international dairy company owned by 12,700 farmers from Denmark, Sweden, the UK, Germany,
Belgium, Luxemburg and the Netherlands. It is one of the strongest players in the international dairy arena, with a wide
range of dairy products of highest quality. The liquid milk business (UHT) was then built up from acquisitions since 1990,
complementing the existing cheese, powder and butter business.
Internationalization Strategy
The major milestone in Arla Foods plc and Express Daries plc's more recent history was on 22 October 2003 when the
two companies merged and formed Arla Foods UK plc. Of the shares in the new company 51% were owned by Arla Foods.
The first year of trading as Arla Foods UK plc saw the company continuing to build its popular dairy brands, forge closer
relationships with its milk producers, Arla Foods Milk Partnership, develop leadership in technology and provide growth
potential for its customers, which included the opening of Stourton dairy, one of Europe's most technologically advanced
dairies.
Another milestone can be found on Arla-Juhayna. Arla Foods and the Egypt-based dairy company have agreed to form a
joint venture which will sell Arla’s products across Egypt. Juhayna Food Industries is Egypt’s leading manufacturer of UHT-
milk, yoghurt and juice. However, the company has a very limited production of butter, cheese and cream, which Arla
has specialized in across the Middle East and Africa. Therefore the two companies will now form a joint venture company
that will sell Arla’s products in Egypt. Juhayna owns 51% of the new joint venture company, while Arla owns 49%.
However, Arla will be in charge of the daily management of the joint venture. The ambition is for the company to also
start up local production in Egypt.
Egypt is experiencing economic growth with a population of nearly 90 million people, and much like the population the
purchasing power among consumers is increasing. Consumers are currently going from eating less and less homemade
dairy products produced in their own neighborhood to eating more and more products that are processed and packaged
at a dairy and purchased in a store. The retail structure in Egypt is characterized by a limited amount of supermarket
chains and countless small one-man shops that need goods delivered straight to the door. Consequently, Juhayna has
developed a neatly-masked distribution net, which covers the entire country.
Both UK and Egypt scenarios has been foreign direct investment by acquisition. By 2017, US$113 million will be invested
in production for Arla’s strategic growth markets outside the EU – Russia, China, the Middle East & Africa – which is a
third of this year’s production investments (compared to US$71 million in 2013).
2. Competitive Life Cycle Analysis
In general the milk market has been in the mature phase in the CLC, however, there has been a disruption in the entire
industry. The industry has been very volatile in terms of competitive environment in the past few years due to large
number of mergers and acquisitions. Presence of private label companies has increased price competition in the market,
especially in European countries such as Germany, France, Spain, Italy and the U.K. Please refer to Exhibit 1.
The market in China, which imports large quantities of UHT milk, is growing at a faster rate, thus attracting market players
to increase their investment in the country. Some of the other major milk markets in Asia-Pacific region, such as Australia,
India and Pakistan are also expected to witness increasing demand for UHT milk, though the current consumption levels
in these countries are very low as compared to the overall milk consumption in these countries. Increasing urbanization
and the apartment culture has led to the growing demand for UHT milk. Weak global economic conditions is yet another
factor boosting the consumption of UHT milk as consumers are switching to UHT milk from pasteurized milk due to
cheaper price. Also, while the total milk consumption is declining in some of the developed countries of Europe, the same
is increasing in Asia-Pacific. This is expected to give healthy growth opportunity for the UHT milk market.
Competitive Landscape
The consumers' concern about less nutritional composition of UHT milk is one of the biggest restraints for the market
growth.
There are few constraints associated with this market including presence of unorganized milk market in the less
developed countries and perception of consumers in some countries about the low nutritional value of UHT milk. There
are large number of unorganized small dairy farmers supplying raw cow and buffalo milk to households in some countries.
Most of the people buy milk every day. However, the increasing income levels and increasing influence of western culture
is expected to reduce the impact of this restraint to much extent in the near future.
The new dietary trend of consuming milk outside home, i.e. in schools, on the sports field, and at the gymnasium is
catching up. In many schools, milk is provided to children in order to make drinking milk a habit and here lies the
opportunity for UHT milk.
Diversification Strategy
Arla Foods has been moving on a Related Diversification Type for a Strategic Reason through Vertical Foreclose. This kind
of diversification may guarantee a regular supply of materials with better quality and lower prices. Strategic Reason infer
that they diversify to protect market power, eliminate duplicate costs, and reduce transaction costs.
Although entered on many countries with dairy milk, as we’ve observed, Arla Food had expanded their portfolio and
market share on UHT trying to leverage its position in one market to garner economic rents in those regions. Some
scenarios has been approached with merging acquisition. Merging could be a strategically sound reason to diversify.
Please refer to exhibit 2 to see some merging that allowed Arla’s worldwide expansion.
Threats? Diversification might necessitate significant expanding of human and financial resources, which may detract
focus, commitment, and sustained investments in the core industries. When investing in foreign countries Arla must
consider the fact that currency exchange rates can change the price of the asset as well. Country risk applies to stocks,
bonds, mutual funds, options and futures that are issued within a particular country. This type of risk is most often seen
in emerging markets or countries that have a severe deficit.
Opportunities? Complexity and difficulty of coordinating different but related businesses.
3. Stakeholder Analysis
Arla Foods has been able to develop a competitive position that allows it to create value to their key and secondary
stakeholders. The business strategy had aligned stakeholder’s need as it is referred on Exhibit 3.
On January 1, 2014, Arla Foods almost doubled the number of British farmer owners following a further 1,300 taking up
the offer of becoming co-owners of Europe’s largest dairy cooperative. The firm were able to create value through some
of their management practices: share, develop, and farm talent across the different business that they create.
Synthesis of Findings
As we’ve seen on the course, enterprises only diversify when being positioned across multiple markets creates value and
helps you garner these economic rents within the individual markets that you participate in. Instead of presenting the
simplistic eggs in one basket concept Arla Foods has garner great rents that comes from creating synergy that benefits
each individual lines of business as they corporately build a long-term relationship with customers with many choices for
each day activity.
Arla Food has entered UHT market with a business model that’s granted them relatively strong position so far. However,
significant vulnerabilities like low price local offers, currency exchange rates variations, market fight might undermine
their attempt to fight off competition.
5. [Exhibit 3]
Stakeholders MAP
KeyStakeholders
Consumers Every day, Arla seeks to improve and refine what they deliver and develop solutions
for the future. These may take the form of new products and new inspiration for the
consumers. New technologies and more effective ways of working.
It is essential that consumers can trust the quality of food products. Arla make every
effort to avoid artificial ingredients and additives, and to adjust the content of fat,
sugar and salt to match the needs of consumers.
Firm want to be an inspiring partner for their customers in the retail sector and within
the industry by cooperating and developing concepts and products that will help them
to increase businesses together.
Employees Have a high employee satisfaction and are proud of the company. Also have a job that
is just right for anyone. It’s a company where growth is on the agenda and dynamics
and changes are part of daily work.
The Arla Foods Board of Representatives is the company’s supreme body comprising
179 members of whom 169 are cooperative members while 10 are elected among the
employees of Arla Foods in Denmark and Sweden.
Firm build business on openness and employee influence. This means that employee
can voice their opinion and expect to be heard. Each one will meet a talented leaders
who challenge, develop and involve employees.
Community Participate actively in developing the dairy structure of tomorrow and creating new
trends in dairy consumption. Milk producers and colleagues have worked together to
create a common future in the dairy industry.
Arla Foods have developed an initiative called Community Challenge which gives
colleagues a say in how they utilize the community involvement budget. There are two
ways Community Challenge will help local communities, either by match funding
money colleagues raise for causes close to their heart or by providing Community
Challenge funding to causes at which colleagues volunteer.
Suppliers The business has a yearly combined milk pool of circa 3.2 billion liters and a turnover
in excess of £2 billion.
Will do it naturally, and respect for nature in the entire supply chain from the farm to
the table.
Financiers The Board of Representatives and the Board of Directors make decisions relating to
long-term strategic decisions. The Board of Representatives decide on the distribution
of the profits for the year. The Board of Directors’ responsibility to monitor the
company’s activities and asset management, to maintain the accounts satisfactorily
and to appoint the Management Board (CEO and Vice CEOs).
SecondaryStakeholders
Government Produce many natural products and have high standards for the environment and
climate, responsibility, and food safety.
Firm are committed to taking even more responsibility and seek to be the most natural
and sustainable global dairy company.
NGO’s Arla and Dairy Farmers of America (DFA) have agreed to enter into a joint venture that
includes the construction of a small dairy plant in the U.S. for cheddar cheese
production. In their first collaboration ever, the two farmer-owned cooperatives plan
to explore opportunities to build premium-quality standards in the cheddar category,
in the world’s biggest cheese market.
In the UK, Arla is also a corporate partner to Marie Curie Cancer Care, which sees us
support branches of the charity local to our sites.
