The Dairy Industry in the United Kingdom

The dairy industry in the United Kingdom spends millions in advertising various products every year. Similarly, industry players are focused on producing new brands every year to be able to outdo their competitors. The most popular product in the industry is yoghurt. Recent statistics indicate that the industry used at least £54.2 million in advertising the yogurt alone, which is about 44% of the total money used in promoting dairy products. Since 2011, the cost of advertising dairy products has been skyrocketing. Statistics indicate further that the money used in dairy advertising increased by £17.5 million between 2011 and 2012. On the other hand, the British Dairy Council and the Dairy UK have also been engaged in promoting the sector with an aim of empowering farmers. The industry regulator has developed four major strategies to ensure the sector performs to the expected levels. One of the major strategies aims at promoting the positive perception of dairy farming, a sector that many people consider old-fashioned. The government, on its part, has set up measures that aim at subsidizing the operations of various industry players.

Arla Foods UK

Arla Foods UK is a subsidiary of the Swedish-Danish Arla Foods Group, which is currently based in Leeds. The company came into place following the merger between the Express Dairies and the Arla foods in 1980. Back at home, a group of farmers from Sweden and Denmark own the company. The parent company, Arla Foods Amba, owned at least 51% of the shares. In 2007, just after the global financial crisis, the parent company acquired the rest of shares. The major operations of the company in the United Kingdom entails supply of milk to a number of retailers and production of an assortment of brands for the households, which include Anchor Butter, Lurpak, Castello, Lactofree, and Cravendale.

Regarding the position of the company in the UK market, it is rated as the largest supply of fresh milk and cream. The recent data indicate that it produces at least 2.2 billion liters of milk each year that is mostly consumed locally. The most successful brand is the Lactofree. This has encouraged the company to produce other products that are mostly lactose free, such as cheese and yoghurt. The production and distribution of Lurpak and Anchor butter brands have been met with mixed results.

Arla’s Success/Survival in the Industry Sector

The company has continued to be profitable in the highly volatile dairy industry. In 2010, for instance, it was able to register in increased turnover of at least three billion DKK whereas the rest of the companies were registering losses following the global financial crisis. The management confirmed that recession did not affect it so much since it was in control of its costs. The earnings generated to its shareholders indicate clearly that the company is able to survive even in tough economic situations. The strategic decisions that the firm makes are critical to its success. For instance, it was able to put up the best dairy in the United Kingdom. It has also continued to invest heavily on its ingredient business rather than distributing the money to its shareholders the way a number of cooperatives would do. While the rest of the companies were struggling to sustain their operations, Arla was able to register a profit of six percent.

The second important strategy that helps Arla to thrive while others are struggling is its principle on organic growth. The company is extremely flexible in the sense that it would be willing to acquire other small businesses with similar ambitions. For a number of multinationals, they would want to open new branches and bring in new people to run the operations. Arla has a different strategy that focuses on forming stronger partnerships with performing local businesses. Through this strategy, the company has been able to expand its operations globally. The Chief Executive Officer together with the Chief Financial Officer confirmed that they were going to merge and acquire new businesses in Germany rather than setting up new manufacturing units.

The company’s third strategy is development of strong global brands, which have the capacity to compete favorably with the rest of the brands. During the recession period, quite a number of customers preferred products with discounts. At this time, Arla products registered low sales, but the management was able to sensitize the customers on the quality of its products. The slogan, “Closer to Nature” helped in improving the positioning of the brands in the market.

The UK Overview

The company was able to register a turnover of about 1.5 billion pounds. The management claimed that this was a good indicator for strategic growth. The company’s strategy of merging and acquiring other firms worked perfectly. Within the same period, it entered into a joint venture with Milk Link and First Milk. This allowed it to start manufacturing and distributing packet butter. Again, it went on to invest close to 150 million pounds in the Ayslesbury dairy facility jointly with other small firms within the area. The company implemented its second strategy of launching strong brands in the market by initiating the production of cottage cheese in the UK market for the first time ever. To increase efficiency of production, the company invested 70 million pounds in expanding the dairy unit at Staunton, Leeds. Rather than setting up a new distribution line, the company chose to collaborate with Sainsbury to start supplying it with fresh milk. It chose to start distributing Starbucks chilled coffee to the UK customers.

The strategy worked in the company’s favor because of its three major brands: Anchor, Cravendale and Lupak increased in volume and value within the same period. If the company could have chosen to introduce so many brands, it could not have enjoyed the successes it registered. For the first time in the company’s history, its products were ranked as the top 100 UK’s grocery brands. Following these successes, the company was inspired to modify its Lurpak brand to a lighter unsalted spreadable, which was later hailed as the launch of the year because of the market reception. The management wanted to develop a brand that would rank highly among the grocery brands. It therefore commissioned the construction and extension of blow molding facility at Staunton. This would have allowed efficient production of Cravendale product.

After experiencing a few challenges with suppliers, the company employed a new strategy of engaging farmers directly rather than relying on brokers. The management adopted a similar strategy that was being applied in Sweden and Denmark. It entered into partnership with other small firms that produce and supply milk directly. Since farmers were complaining about the prices, the management was able to engage them directly to determine the best solution going forward. While they parties agreed to increase the price of milk, farmers were also tasked with the role of ensuring that they only dispose their products to the company. The company has also been in the forefront in complying with the government’s policy on environment and taxation. In 2010, for instance, it stepped up its efforts towards preserving the environment. The first decision regarding environmental conservation was embracing zero-carbon emission in its various processing plants. The management adopted and launched the farm-to-store environmental strategy, making it the first in the industry to apply such a strategy. The company has so far set aside some funds to help in conserving the environment jointly with other state and non-state actors. For instance, it supports the on-farm carbon assessment for its members (Scott and Kesten 117). It also offers workshops for its members on how to reduce carbon emission in their farms and small facilities.

The Strategy of Arla Foods UK

The company’s corporate strategy is based in a solid foundation of its mission, identity, and vision. The main objective of the firm, as indicated on its website, is good growth 2020. The objective is a guiding principle as regards the ways in which the company seeks to create value to its farmers, stakeholders, and customers. The major aim is to develop its role as a global food company, whose major focus is to add value to the lives of many people by providing natural nutrition and responsive operations. For this to happen, the company has set up a few strategies. The first is to perform strongly in the eight dairy categories. The second pertains to focusing on the six geographical areas and the last is to win as a united entity through efficiency.

The company is seeking to create a single global Arla food. To achieve this ambition, the company has a designed a strategy that is based on its character of leading, sensing and creating. It strives to have a leading mindset, having a sensing approach, and creating a strong organizational culture. The strategy should define the operations of the company in every aspect. About leading, the company intends to be on the driving seat always as far as its actions are concerned. It pertains to being passionate, providing adequate leadership in the industry, and empowering its employees to be individuals of the highest potentials. Regarding sense, the firm seeks to be responsive to the wishes and desires of its closest stakeholders, which include employees, customers, and suppliers. It seeks to show integrity, approaching issues with open mind, identifying opportunities, and empowering employees. Creation strategy is about acquiring special skills that would play a role in developing new products, driving the market, and establishing relationships given the fact that the company relies on mergers and acquisitions to prosper (Abosag 34).

Concerning excelling in eight dairy categories, the company has already done mapping in the market and has realized that it has some strengths in some dairy categories. Since the firm has several strengths in the identified areas, it seeks to develop innovative products, create an excellent supply chain, and develop partnerships to ensure these brands perform superbly. Among the eight categories, the first is milk and powder. The company aspires to be a leader in providing nutritious, value added products. The table below summarizes the strategic ambitions of the company as regards each brand category.

Powder and milk

Leading and shaping the market with nutritious as well as value added products

Milk-based beverages

Shaping the market for on-the-go products, which are manufactured from natural components

Spreadable cheese

To be a leader in both cream cheese and processed cream cheese that is manufactured from natural ingredients

Yoghurt

Building a stronger position that is beneficial to people’s health

Butter and Spreads

To be a global leader with excellent products made from natural components

Specialty cheese

To be a leading player with creativity

Mozzarella

Creating a global foodservice position with excellent quality

Ingredients

To be a global leader in value addition

The company’s strategic decision is to focus on the six regions only rather than expanding into new areas that it does not have knowledge. The management believes that it has a stronger potential in these six regions. In this regard, the company has the potential of establishing a sustain businesses that would run for several years while satisfying suppliers and customers. The first of these regions is Northern Europe, which include United Kingdom. In this region, the company rates itself as the best because its products are the most preferred. The second region is the Middle East where the company brands are the strongest in the food industry. These two regions are of great interest to the company. In fact, it seeks to build on the successes achieved here to expand to other regions, such as China, Nigeria, United States, and Russia. By the end of 2020, the company expects to generate at least 50% of its profits from Europe, with the remaining 50% coming from regions outside Europe (Ghemawat 30).

The final strategy is putting in place measures that would ensure the company wins as one Arla. In the past few years, its growth has come from Europe through mergers and acquisitions. In particularly, it has acquired or merged with at least four other companies. The partnerships have come mostly from Central Europe, the United Kingdom, and Sweden where it started as a small farmer cooperative. Once it acquires or merges with another company, Arla has been aligning its operations to be consistent with the demands of the market. The acquired human and capital resources have played a critical role in propelling the operations of the firm. With the acquired unity, the firm seeks to strengthen its position in the market. The firm is seeking to strengthen its global category of brands as well as building additional ones if necessary. It seeks to rely heavily on innovation and creativity to improve its performance in areas where competition is stiff. In the near future, it intends to go global as far as marketing is concerned. Its expenditure is going to be more effective whereby the overhead costs are going to be reduced significantly. By the end of 2019, it intends to develop a single supply chain in Europe (Worthington 19). It has placed a side over 400 million Euros for the supply chain harmonization exercise.

Competitive Rivalry

The competitors are the firms that produce the same products of another industry. In order to remain relevant, competitors use a variety of moves for example advertising, price cuts and new offerings. Such an intense competitive rivalry is experienced in the restaurant businesses such as subway and McDonald’s. Arla Company has use competitive rivalry for good growth 2020.

Internal and External Environments

Internal and external environments must meet halfway in order for the firm to build a strategy that can lead to competitive advantage and make high profits. External environments can create opportunities and some threats to competitive advantage by utilizing the firm’s capabilities, unique resources.

Internal Environment

Internal environment in an organization is composed of all the elements within an organization, which include the corporate culture, structure, objectives, and resources (Worthington et al.). Resources are the assets owned by an organization, which it uses to carry out whatever work activities relative to its business definition. These resources include human resources, physical assets, structural-cultural resources, and financial resources. Organization’s core competencies are the major value-creating skills and abilities shared across the business. Competitive advantage is what sets the company apart from its competitors giving it a unique position in the market.

How internal environment contribute to the success of Arla Foods

Innovation moves

Arla opened a global innovation center inArhus, Denmark which employed 150 experts from all over the word. Arla made this its central hub for innovation aimed at developing new products, creating new packaging methods, and exploring new sales channels. This is in line with their strategy to make the company one of the leading dairy products producers globally.

Arla, which is in a strong position to build ventures based on their ever-growing finances, has created ventures and strategic partnerships all over the world. In 2017, it penetrated into the Nigerian market where their product innovation, brand and retail knowledge and understanding the local market resulted in a reach of more than ten thousand retailers.

External Environment

Enterprises do not operate in a vacuum. It has to act on what happens outside the business and these are known as external environmental factors. The external environment factors are competitors, suppliers and consumers.

Competitors

Due to the open nature of businesses, they all experience some form of competition from other businesses. Some of the top competitor of Arla is Amul foods ltd, which is a private owned company, founded in Gujarat India. It has seen a fast expanding market base especially in the Indian market. One of the strategies, which have been used by Arla to reduce competition, includes acquisition of other dairy product companies for example Allgauland-kaderein and its merger with Hansa-Milch in Germany as well as Milko in Sweden.

Suppliers

Arla depends on their cow farmers for supply of their milk. The competition of milk made Arla to look for alternative ways of retaining their suppliers in Sweden and Denmark. In 2007, Arla Company in UK began a dialogue with their milk suppliers, Arla Foods Milk Partnership, which was aimed at finding a solution to the co-ownership of the company. This has been a successful operation which has seen Arla’s supply base increase by 80% (Arla UK - Let in the Goodness).

Consumers

Arla realized that there was high supply of milk products in the market making their customers to have a wide range of options to choose. This made the company to come up with something unique to offer their consumers, which included organic products. After a thorough research on consumers preferences based on organic products, Arla discovered that consumers prioritized consumption of natural foods and beverages. Consumers are attracted to organic products; however, many of the customers are not aware of how these organic products are. Arla started a training initiative to educate their consumers on organic products which from their financial report, contributed to an increase in their revenue

Porter’s five forces

The threat of new entrants

A profitable market yielding high returns normally attracts new firms. In a market, which is not controlled, this result in many new entrants in the market, which eventually leads to a decrease in profits for all the firms? Unless the new firms can be blocked from joining by the incumbents, the profit rate will trend towards zero, normally referred to as perfect competition (Sismanidou et al.pg 57).

The threat of substitute products and services

Customers are most likely to switch alternatives in terms of their products purchase whenever there is a product outside the realm of the common product. For example, tap water may be considered a substitute for coke, whereas a product like Pepsi is a competitor’s similar product. Another example is replacing an old traditional phone with a smartphone. Some of the potential factors include:

 Buyer’s propensity to substitute

 Switching cost

 Ease of substitution

 Products, which are substandard

Buyers bargaining power

The bargaining power of buyers could also be described as the market of outputs, which means the ability of customers to put an organization under pressure, also affecting the buyer’s sensitivity to price changes. The buyers bargaining power is high when there are many alternatives to choose. Some of the measures that a firm can take to reduce the buyers bargaining powers include implementing a loyalty program (Ventin).

Bargaining power of suppliers

This is also referred to as the market inputs. Whenever there are few substitutes, raw materials suppliers, component labor and service expertise can be a source of power (Marburger).

The intensity of competitive rivalry

This is the major determinant of the competitiveness of the industry. Companies have been known to attract customers by cutting their prices and increasing their marketing strategy whenever there is intense competition (Hanson et al.). Some of the potential factors include:

 Degree of transparency

 Sustainable competitive advantage for example through innovations

 Powerful competitive strategies

Limitations of the analysis

There is however some limitations of porter’s five forces analysis. This model assumed that there is a classic perfect market. It also does not take into account that there is never a static market structure especially in today’s market. The model also is only based on competition; stating that companies try to achieve a competitive advantage over other players as well as over their suppliers and consumers. In order to make the model align in today’s market, it should be tailored to take into account the new business models and dynamics of markets.

PEST analysis

PEST stands for political, economic, social, and technological. It is used to analyze the external environment.

Political-These include the specific regulations and policies set by the government for example, taxes, tariffs and environmental regulations. Currently, Arla is not facing any challenge regarding political factors because it complies with all governmental regulations.

Economic- These are the economic factors that have an impact on the organization’s operations for example, inflation, exchanges rates and capital markets. During recession, the company went through several challenges, but it managed to emerge victorious mainly because of its strategic decisions.

Social- Refers to the social impact an industry makes to the surrounding communities as well as demographics and trends in their fashion and social movements. The company is well placed in the market in the sense that the products it manufactures are preferred.

Technological-This incorporates the advancements and developments that makes an impact on the way the organization operates for example the internet. The company is coping up with the new technologies even though it is expected to do more to keep pace with the market

Critical Appraisal

With the recent innovation carried out in Arla it is prove that it is aiming at attaining the set strategy which is having a good growth 2020. As one of the world’s largest dairy companies, Arla has taken that opportunity to influence millions of their consumers on the benefits taking their healthy dairy products. Some of the survival factors adopted by Arla in their growth are:

Value Creation

Arla is a responsible organization which creates sustainable growth opportunities for their farmers. This in return creates livelihoods for the farmers and workers within the surrounding society. Therefore the organization creates a value for their consumers by offering products to fulfill their demands.

Success Factors

Innovation

When creating the future of the dairy industry, Arla collaborates with many stakeholders in the value chain. The organization in return responds to the ever growing demand for healthy, sustainable and affordability, the company is coming up with stronger innovations in technology.

Consumers in the Society

In terms of consumers and customers relationship, the firm makes sure the needs of their consumers are well met by providing safe, healthy, nutritious, and natural products. The organization also inspires good food habits, support their consumer in making informed choices and sharing their knowledge of the origin of their products.

For sustainability, Arla has focused on the following.

Nutrition criteria branded products

Arla introduced a nutrition criterion in 2016 which was meant to be a healthy strategy extension. Milk has naturally beneficial nutrients for example calcium, vitamin B and high proteins level. By having their products labeled on nutrition criteria, they communicate a lot of information to their consumers and place it above other products in the market. Showing the contents on their brands also attracts consumers since it shows a low quantity of cheese in their product, which has high fat contents.

The Culture, Systems, Structure, and Human Resource of Arla Foods

Culture

The organizational culture of Arla Foods is based on higher performance and collaboration. The company is of the view that entrepreneurship is meant to unite people from different backgrounds. The company is known to pursue growth as well as generating value. For the company to achieve better results, the management encourages its various staff members to work together. It is believed in this company that every person has something to offer. The idea of the bosses imposing decisions is highly discouraged. If an employee thinks he or she has an innovation, he or she is allowed to bring it forward together with the colleagues. The aim is to ensure that an individual achieves both personal and professional ambitions. Since the company is a market leader in the dairy industry, employees are supposed to be focused and develop a clear purpose in order for the company to remain relevant in the industry.

Systems

Since the company is known to embrace innovation, it also relies heavily on technology in undertaking its operations. It has an automated material flow that facilitates efficiency. Apart from having the best machines, the company has the best systems as well. For instance, customers need not to visit the stores to make purchases. They can order the products online and they would be delivered in their doorsteps. On the side of human resources, workers are supposed to make applications online. They are expected to create their portals where they would be receiving information from the human resource department. For clients and customers, the company has created an online platform where they can raise their complaints and communicate directly with the top executive (Laszlo and Zhexembayeva 110).

Structure

A chief executive officer, currently Henrik Andersen, heads the organization. The second in command is the financial director who is Klaus Kristiansen. Currently, he is the head of information technology department, the legal department and is in charge of the general operations of the businesses. The person in charge of supply chain and logistics is Povl Friss. His other role is that of production and procurement. The research and development director is Niels Ostergaard whose major function is ensuring the company adopts the best systems and technologies. The commercial director, who is in charge of customer care sales, is Luis Cubel. The final director is Lars Pertou Vestergaard who is in charge of human resources.

Human Resources

The company has several employees who work in its various branches in the six regions it operates. The human resources are outsourced directly through the competitive processes. They are driven by four major principles: high performance and embracing of collaborative culture, commitment to professional development, appreciating and accepting the role of the market leader, and having a clear purpose for good health in the world.

Conclusion

Arla Foods is the market leader in the dairy industry in the United Kingdom. It managed to achieve its target through acquisition and mergers. Looking at its organizational culture, structure, systems, human resources, and systems, it is evident that the firm is likely to continue being the market leader. Again, the SWOT analysis indicates, even though the firm is facing a few threats, it has several opportunities in the market. Looking at its strengths against the weaknesses, competitors are likely to struggle to topple Arla Foods from its current position.

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