European dairy co-op Arla Foods will spend $850 million this year to expand its business.
The co-op also expects its 12,700 farmer owners to ramp up milk production in the coming years.
Unveiling its 2020 strategy last month, Arla Foods says the extra milk provides the business with opportunities for global growth to create value for its owners.
Since 2007 Arla's milk volume has grown from 8 billion kgMS to 14 billion kgMS thanks to mergers and since April 2015, through organic growth in the milk production of Arla's farmer owners as EU milk quotas no longer exist. It is anticipated that Arla's farmers will grow their milk production by another 2.5 billion kgMS by 2020, giving Arla more growth opportunities than ever before.
Its new strategy sets out to grow its business in eight global dairy categories and six market regions around the world, as the company moves towards 2020 as one effective and unified cooperative.
Arla Foods chief executive Peder Tuborgh says while it is launching a new strategy, there is no radical change of direction for Arla.
"Over the past years we have prepared for this moment by expanding our size and our competencies. In Strategy 2020 we will focus even more on organic growth and growing our brands through innovation that focuses on what consumers and customers want and need. This will help us create the most profitable growth with our farmer owners' milk," says Tuborgh.
Consumers around the world are looking for ways to make their everyday lives healthier. Arla has now identified eight product categories that will be the central focus for the company's efforts to shape the dairy market by offering new products with natural ingredients, great taste and good nutrients that make it easier to live a healthy life.
The eight prioritised product categories and Arla's aims are:
◦ Butter and spreads: Be global leader in butter and spreads with world class products made from natural ingredients
◦ Spreadable cheese: Lead in cream cheese made from natural ingredients and high quality processed cream cheese
◦ Speciality cheese: Be leading player in speciality cheese with creatively crafted products and concepts
◦ Milk-based beverages: Shape market for nutritious milk-based beverages made from natural ingredients for people on the go
◦ Yogurt: Innovate to build a strong 'natural goodness' position for yogurts
◦ Milk and powder: Lead and shape the milk and powder market with nutritious value-added and cost-competitive products
◦ Mozzarella: Build global mozzarella position with high quality and cost-competitive products
◦ Ingredients: Be the global leader in value-added whey
"The global dairy industry has developed by a speed seldom seen before, with millions of consumers changing their daily habits and preferences," he says.
"We have analysed consumer needs and trends across dairy categories worldwide and have matched this with our own biggest strengths. This has led us to pursue eight specific categories where we feel Arla can grow a leading position globally or regionally. Our strategic innovation and best resources will be poured into these categories."
Arla will pursue growth in these eight categories primarily through its three global brands of Arla, Lurpak and Castello.
It will also focus on six regions.
Over the years Arla says it has built a strong position in Northern Europe and the Middle East, where Arla is the preferred dairy company for consumers and where Arla's brands are among the strongest in the food industry. It has also begun to build a business in new growth markets such as China, sub-Saharan Africa and Russia.
Arla will continue to build on these market positions as it focuses its growth ambitions on the following six markets: Europe, the Middle East, China, Russia, Nigeria and the USA. In Europe, Arla's lead markets are the UK, Sweden, Denmark and Germany.
"We have identified the markets in which Arla has the biggest potential to grow a long-term profitable business for our farmer owners. We are stepping up our efforts in the United States and Nigeria, while continuing to build on our positions in Europe, the Middle East and China. We also remain hopeful that Russia will re-open for business, at which point it will still be a very attractive market for Arla," says Tuborgh.
"We are not pulling out of any markets that are not mentioned, but we will focus our innovation, investments and competences on those lead markets. Over the coming five years we expect about half of our growth to come from outside the EU as we grow market shares while the other half will come from within the EU as we grow in key categories and add value through innovation," Tuborgh says.