Milking profits

Dairy products are big business in the Gulf, with local firms such as Almarai and Al Rawabi exercising a stranglehold in the market. But Australia’s biggest producer, Murray Goulburn, is planning to break the mould
Land of milk and honey Murray Goulburn CEO Gary Helou says the Australian dairy company wants to double its business in the Middle East
By Courtney Trenwith
Sat 30 Mar 2013 11:58 AM

The Middle East is the second largest consumer of dairy products globally. Australia is the world’s third largest exporter of the same goods. Yet the two are barely connected, with Australian products representing just 8 percent of the region’s imported milk, cheese, butter and milk powder.

But that is about to change according to Gary Helou, CEO of Australia’s largest dairy company, Murray Goulburn.

“We should have been here a long time ago but we’re here now and we have big ambitions and big aspirations to achieve,” Helou tells CEO Middle East on the eve of the company opening its new Dubai office that it hopes will put it on a better footing to penetrate the market.

“We want to double our business in this part of the world. We want to enter the three big channels of ingredients, food, service and retail. We think we have the products, the brands and the quality to win here in the long-term.”

But it’s the short term that Helou has on his mind. Within six to twelve months, he wants to see Murray Goulburn’s key products on the shelves of Middle Eastern supermarkets for the first time, starting with cheese and butter, as well as in more restaurants.

The company, a cooperative of Australian dairy farmers, already provides ingredients such as bulk powder, cheese and butter to food manufacturers including Nestle, Hines and Saudi Arabian company Almarai, which reprocess it to make their own products.

It also supplies powder and butter to Dubai-based airline Emirates but it is pushing to expand that to include cheese and long-life milk. Emirates’ soon-to-be approved alliance with Australian flagship carrier Qantas may give the dairy supplier extra weight to encourage more of its products onboard.

“We’re talking to Emirates now [and] we’re eyeing international hotels and other institutions,” Helou says.

“We’re a big supplier of ingredients products and we’re determined to expand that business, but also add to it the food service and retail [sectors].”

The Middle East imports a combined 1.2 million tonnes of dairy produce a year, valued at $3.95bn. Australia accounted for just $296m of that total during 2011-12.

Helou is confident the Aussie farmers will be able to reach their target of a 20 percent share of the market in just a few years. With Murray Goulburn making up half of the country’s dairy exports, it stands to raise more than $150m annually if it is successful.

Article continued on next page...

“I think we should do it within three-five years,” Helou, who has been at the top of the Australian dairy industry for more than a decade, says.

In Australia, Murray Goulburn’s key brand Devondale is synonymous with fresh milk and a branding that features two charismatic cows in a pasture. The launch of Devondale milk on Middle Eastern supermarket shelves will likely be welcomed as a little piece of home by the thousands of Australian expatriates living in the region. But how will the practically unknown brand not only break into the market but outdo its competitors who have been here far longer?

Saudi Arabian dairy company Almarai has the strongest hold on the market and is the leading consumer choice for dairy products across the entire Gulf. Last year it launched an international arm in conjunction with PepsiCo.

The company sold more than SAR5bn ($1.3bn) worth of fresh and long-life dairy in 2012, according to its annual report. That represented a nearly 20 percent increase on 2011, excluding exports.

Sales of fresh dairy, including locally-produced fresh milk and laban, plain yoghurt, fruit yoghurts, cream and dairy desserts grew by 16.9 percent in the year, to reach SAR4bn ($1.06bn), representing 41.1 percent of the company’s total sales.

Long-life products such as UHT milk, evaporated milk, whipping cream, cooking cream and sterilised cream saw an increase in sales of 33.5 percent in 2012 compared to 2011, to SAR 1.2bn ($319.98m), representing 10.3 percent of the company’s total revenue. It also sold SAR1.6bn ($ 426.64m) worth of fresh and jarred cheese, butter and ghee products, up 10.7 percent.

“Despite the very competitive environment for this category, Almarai, through its diversified product offering, successfully increased its market share during the year,” the 2012 annual report says.

Another Middle Eastern company, Al Rawabi, based in the Dubai desert, also is a leading producer of milk products in the region. Since being established more than fifteen years ago, it has expanded to include laban, butter, cheese and yoghurt, and the company is a key supplier across the UAE, Oman and Qatar.

But Helou is adamant the Middle East needs Australian products.

“Firstly [the Middle East] population is large. Secondly, dairy foods are a large component of the Arabic cuisine and they are very much dependent on imports because they can’t produce a lot of foods, particularly dairy,” he says.

“Australia is a large dairy exporter; we are the third largest, behind only the EU [European Union] and New Zealand, so this part of the world needs Australian product.”

Article continued on next page...

He has a point. For a desert region that struggles to grow enough grass to feed a significant herd of cows, dairy heavily features in most Arabic recipes, particularly yoghurt, white cheese, butter and cream. Where Westerners use sugar-laden jam, Arabs will use labneh, a spread that is essentially strained yoghurt, while salads and pastries such as fatayer are often topped with cheese.

Meanwhile, the population of GCC countries is growing faster than most others as expatriates are brought in to help exploit the region’s oil and gas wealth, construct the billions of dollars worth of construction projects in the pipeline and meet the high demand for more human capital.

Helou says there is plenty of room in the growing market and Australian produce is in a better position than others to take advantage of that.

“If we are to grow we need to be in the growth markets so that’s why we’re here,” he says.

“Australia is a very proven supplier so that’s important from a food security point of view but we’re also a very clean, green food producing nation. There’s a lot of trust in what we produce; we tend to be a very trusted source of food products and particularly dairy. That’s our core point of differentiation.”

The country is also capable of expanding production to ensure sufficient product to fulfil Australia’s needs and expand in the Middle East simultaneously.

“We have the ability, we have the supply of the milk and we have the processes and capacity,” Helou says. “We’re making big investments in state-of-the art dairy food manufacturing facilities, in cheese, UHG and butter so we’ll have great capabilities.”

Despite only a limited presence in the region, Murray Goulburn will push its Australian heritage when marketing here, using the slogan ‘Australia’s number one dairy company’.

“That’s what matters to consumers here. They want to buy from the big Australian company, which is us,” Helou says.

But the products won’t necessarily be the same. “The market is made up of expats mainly, as well as locals. We will be targeting both sets,” Helou says.

“Obviously the expats will be used to the products we produce day in and day out so there’ll be a product offering there. For the locals, there’ll be Arabic packaging, there’ll be size configurations that suit them; so we’ll be catering for all consumer segments.

Article continued on next page...

“[The Arabic] cheese portfolio is quite different to us in the West; they’ve got a lot more white cheese than yellow but the rest of it is pretty similar. They like packaging to be in their own language, they like sizes that are slightly different. It’s just tailoring the products to their needs.”

Helou says exporting has become more detailed, as emerging markets increasingly demand products specifically for them. They are no longer satisfied with the leftovers from the source country, forcing suppliers to often create entirely new lines of product or packaging. And it’s not just changing the language.

“The previous doctrine of exporting was you always sold your excess capacity, so Australian made product for Australians and you have excess capacity that you end up exporting to other markets,” Helou explains.

“Those days are gone. Consumers in emerging economies such as this are demanding that they get the products that they want, specifically made for them, packaged for them, providing solutions for them.

“The reason we have people on the ground here is to understand the market a lot better, connect with the consumers and customers, so we’ll be developing products specifically for the consumers of this great region.

“We’ll be marketing the quality and safety aspect of Australian produced foods but also it’ll be manufactured and packaged in a way that makes sense to consumers of this part of the world.”

It’s an opportune time for Murray Goulburn to attempt its Middle Eastern expansion, not only because of the growing market here.

The high Australian dollar, persistent pressure from farmers to increase the price of dairy at the gate and highly volatile international dairy prices has made creating a wider customer base a key solution to slimmer profit margins.

International dairy trading prices have been rising since October last year, except for slight dips at the beginning of October and December, according to Global DairyTrade’s weighted index. But the higher dollar in Australia, as well as New Zealand, has wiped the cream off the top for farmer returns.

“It’s the right time to be branching out because we’re looking for new growth markets that can create more value and this is a very prosperous, fast growing part of the world with a massive demand for dairy now and for the future,” Helou says.

“It is fundamental for us to be here, to ensure that we have a bit more shield, a bit more buffer away from these cycles of commodity prices that always rise and fall.”

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.