The Irish Dairy Board is a co-op that generates sales of EUR2bn and exports products including its Kerrygold brand to over 80 countries. Dean Best caught up with Fergal McGarry, the IDB’s global marketing and innovation director, to discuss the company’s targets in emerging markets, R&D and Ireland’s push to promote its food industry overseas.
just-food: After the Irish Prime Minister’s visit to SIAL to give his public support to the country’s food industry, do you believe it could have a tangible impact in boosting the sector overseas?
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McGarry: I do. I think it’s critically important the government supports, for example, the Origin Green sustainability initiative. Bord Bia, the Irish Food Board, is a government agency and the Origin Green initiative is government-funded, so it’s important the goverment is seen to be supporting industry.
just-food: It seems Ireland is among the more bullish and proactive in getting its message across to the big emerging markets that are going to be the drivers of economic growth and possess great spending power.
McGarry: Ireland has always been export-focused and food is massively important to Ireland so it’s not surprising the government would be backing it in such a big way. With the abolition of EU dairy quotas in 2015, the potential for Irish exports is massive. We would expect close to a 50% increase in dairy production post-2015. The government has to be seen to be supporting it and in reality supporting it, which is what they do through Bord Bia and Origin Green.
just-food: The emerging markets aren’t just markets for Western firms, they are building their own sizeable agri-food industries. Western markets need to be on the front foot, shouting about their products.
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By GlobalDataMcGarry: The Irish dairy industry is very much doing that. My own view is Ireland is always going to be a relatively small producer so we need to make sure we differentiate on quality and that’s what Origin Green is all about. Sustainability is all about quality, whether it’s animal welfare or water. Emerging markets will develop their own dairy industries but will China be able to compete with us on quality? My own view is no, they probably won’t. They won’t be grass-fed by and large, it probably will be irrigated as opposed to rain in our case. And I think that quality message is quite different.
just-food: Where are the main target emerging markets for The Irish Dairy Board?
McGarry: Africa. We see that as a big potential growth opportunity for us. In some of the African markets we are not yet in, we need to repeat the model of what we’ve done in the Democratic Republic of Congo, for example. A second priority market for us is Russia, which is probably the biggest importer of dairy products in the world.
just-food: That’s interesting. When people talk about the BRICs, often the R part of the BRICs is talked about least.
McGarry: It can be a difficult market to operate in. Legislation can change quickly, which can make your life difficult but it’s a big market and a massive opportunity for Irish dairy. They have an appetite for quality and we have a quality product so it should be one that works for us. We’ve just incorporated an office in Russia in the last two months and we’ll continue to build on that. They’ve recently signed up to join the WTO, which will make a difference we hope.
The third market is China, largely because of its scale. Our initial entry was using traditional products like butter and cheese, with such a huge ex-pat market in some of the bigger cities. It was an easy enough beachhead for us to est a brand presence. Now we’ve expanded into liq milk, which is a rapidly growing cat in China.
just-food: Any concerns about the slowdown in China?
McGarry: No, no. From an Irish dairy point of view, I’m certainly not too obsessed by growth within markets. The size of the market is still absolutely huge. We have less than half of one per cent of UHT milk in China. There’s still mass opportunity for our brand. The burgeoning middle class is looking for safety and quality-assured products.
just-food: Walking these aisles at SIAL and talking to companies like FrieslandCampina, it is clear all major dairy companies are targeting these markets. How do you position your products to compete?
McGarry: In Ireland, we do have a different product because of the grass-fed production method we use. If you ask consumers ‘what do cows eat?’ 99 out of 100 would say grass. The reality is different. Very few of the world’s cow population eats grass but in Ireland we’re predominantly grass-fed. Cows will be on the land more than 300 days a year and for most of the time they don’t come indoors. The company you mentioned, for example, will talk about grass-fed but qualify it by saying it’s 120 days on the land, for six hours a day. What cows eat determine the quality of the product. Grass-fed does have a measurable difference in the product that comes out at the other end.
just-food: Do you charge a premium for these products? Are you seeing a push-back from consumers, even in China, where some analysts say consumers are buying fewer premium products?
McGarry: We do. It is true Chinese consumers are buying fewer premium products but in food that’s not the case. I don’t perceive that as an issue for us.
just-food: What role could acquisitions play in your international expansion?
McGarry: It can be a very effective way to get into a new market to quickly build infrastructure. We’re constantly on the look-out for acquisitions and we continue to do so until they firm up.
just-food: Markets closer to home intuitively would provide with you the cash to expand further east. What has your performance been in the West?
McGarry: In Germany, we are the number one imported butter brand, with a 12.5% market share. Our business continues to grow in Germany. Another hugely important market for us is the US, where we’re posting double-digit growth for the last number of years and will continue to do so.
just-food: The US has its own strong domestic dairy sector. It is interesting imported brands can carve out a niche.
McGarry: Quality, imported brands can carve out a niche. Kerrygold is the second most widely distributed butter brand in the US and holds a position with consumers because it is an exp product in US terms and is quite different to the US products on sale. It is grass-fed, with a noticeably different taste and quality.
just-food: What are customers visiting your stand here at SIAL demanding from you?
McGarry: They are looking for the best quality they can get for the best price they can get. It’s not enough to say we have the best quality product. You have to make sure your pricing is appropriate as well. We have to focus on the cost of production and that’s part of Origin Green. That talks about sustainable farming practice and part of that is the cost effectiveness of that practice. In Ireland we are very well placed to do that. Think of the input cost of grass versus grain. Grain prices are only going to increase. We saw what happened in the US this summer. That’s going to continue. Grass, particularly when you don’t have to irrigate it, can make you very cost effective. It’s important to match up that quality message with cost-effectiveness.
just-food: What innovation trends are visitors here mentioning?
McGarry: The themes are fairly consistent here at SIAL or other shows. Consumers are looking for convenience in packaging formats, health is a big platform and cuisine is, too. In the US, Kerrygold would be seen as a high-end cuisine product. A lot of the use of the product is in baking. That’s an area consumers are looking for innovation on. This is my first SIAL. I joined IDB six months ago from the pharma industry.
just-food: A number of food companies are looking towards pharma and integrating some of those trends and innovation ideas into their products. Was that one of the reasons you were hired?
McGarry: It was possibly one of the attributes they were looking for. In Irish dairy, we know we have a fantastic product, we know there’s definite demand for innovation. The pharma industry is not just about product innovation but also claims innovation, really understanding the science behind your product and being able to translate into a claim motivating to consumers.
just-food: Does having such a strong brand mean you can grow without the need to invest heavily in innovation? NPD has been under pressure amid the downturn. Heinz recently said the number of new products launched in the UK this year fell 30% this year compared to two years ago.
McGarry: Yeah, because the failure rate is quite high and the cost to develop new products increases all the time and it is very very competitive. To answer your question innovation remains important. The butter we produce is the same we have been producing for hundreds of years. Part of the job is to bring that message to more and more consumers and as their desire for premium products increases, Kerrygold is there to satisfy that need. That doesn’t mean we shouldn’t innovate within the brand. For example, in Africa, we sell powdered milk within the Kerrygold brand. That category is a bit more innov-friendly. If you look at Germany, we launched a Kerrygold Extra product three years ago and that has done very well.
