Arla Foods, the dairy giant behind Lurpak butter and Castello cheese, warned today (5 March) that it expects to see consumers continue to trade down in 2010 after a year when demand for cheaper products hit its sales.
The firm yesterday (4 March) released its annual report in which it conceded that 2009 was “tough year” for the company and the dairy industry as a whole.
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Arla booked profits ahead of budget boosted by cost cuts and rising prices for bulk industrial products. Profits for 2009 totalled DKK971m (US$176.9m), DKK71m higher than the firm’s budget, exceeding the expectations of the business.
However, Arla’s turnover was “significantly dented”, the company conceded, as customers and consumers reacted to the global recession and bought fewer and lower-priced dairy products.
An Arla spokesman said he believes the demand for “value” dairy products is likely to continue through 2010.
“It’s what we’ll see in 2010. A slow movement out of the scenario that we had in 2009, which is a lot of consumers who normally buy products from the “middle segment”, trading down, preferring discount products. This is something that has affected our turnover.”
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By GlobalDataBrands such as Buko and Kaergaarden in Germany and Lurpak in the UK had bucked the trend, the spokesman said but he added that the “middle” segment will continue to suffer in 2010.
“Consumers prefer to trade down to discount products,” he said. “We see this in pretty much all of our markets. Our predictions is that this is still something that we will see, particularly in the first half of 2010. However, we do expect that, as the various economies begin moving towards lighter times, consumers will again grow in confidence and be looking again to quality instead of price in their dairy products.”
Despite that weak consumer confidence, Arla plans to invest in markets where it has identified “good future growth opportunities” – Denmark, Sweden, Finland, as well as the UK, the Netherlands, Germany and Poland.
The spokesman highlighted Poland as a potential “core” market for Arla, even though it accounted for just 0.5% of the company’s net turnover in 2009.
“If you look at the situation here now, it is not a core market but we have maintained our priority there to make it a core market, which is to grow in our local presence there with production but also to team up strategically with the right partners there,” he said.
“There is nothing specific there yet. We put it on hold in 2009 but we will pick up this process of looking for business partners in Poland in 2010.”
