While relatively new categories such as energy drinks catch the attention of the FMCG community, food and drinks that are an established part of people’s diets often seem to go unnoticed. Milk is perhaps one case in point. Yet despite its status as a staple part of most peoples diet, the milk sector is undergoing rapid transformation in the Middle East.
Indeed, sales of fresh milk and value-added products such as laban have experienced strong growth in recent years while other sub-sectors such as powdered milk and UHT milk have declined in some countries. These changes have been driven by a rapidly growing population and advances in technology, with far more stores having good quality refrigeration units.
Executives at Al Ain dairy, the UAE’s largest producer of fresh pasteurised milk with a 33.5% share of the market, according to market research company MEMRB, is certainly no stranger to these trends. Shashi Kumar, sales and marketing manager at Al Ain estimates that liquid milk, as opposed to its powdered counterpart, is growing by about 9% a year. Long life UHT milk is growing even more rapidly in the UAE, at up to 17% a year. Kumar thinks this is mainly owing to a large number of single male expatriates from the Subcontinent who may prefer the convenience and slightly lower cost of UHT milk.
This however contrasts sharply with milk sales in KSA, where pasteurised milk is enjoying the strongest growth, at 33.5% a year and sales of UHT milk are declining at a rate of about 5% a year, according to MEMRB. Indeed, more than 138 million litres of pasteurised milk were sold in 2006 in KSA, according to MEMRB. But while UHT milk is in overall decline across the GCC, despite solid growth in the UAE, powdered milk is managing to compete effectively with its fresh counterparts. Indeed, powdered milk sales rose by 2.7% in 2006, to reach sales of the equivalent of more than 505 million litres.
Koren Tahan, of UAE-based dairy producer Milco, also points to some interesting trends in the region’s milk sector. One is a gradual shift towards healthier, lower fat products. While regular full fat products remain the best seller, Tahan said that sales in the UAE seem to be following patterns in Europe, with more people demanding healthy products.
“Lower fat is coming up, mainly because people are becoming more health conscious,” he said. “We have not done major efforts in milk as of yet but we have a lot of products coming up soon in 2007 that are milk related, health oriented niche products.” He added that the company recently introduced a range of Captain Nemo flavoured milk products with added vitamins.
“We will try to increase sales by getting people to consume differently. It’s a market that follows trends in Europe and the West. The Western population is growing in Dubai and the UAE, so they are bringing with them the habits. There is a move towards healthier products.”
Dr Prakesh, a brand manager at Al Rawabi Dairy Company agrees that people in the UAE are starting to show more interest in low fat products. “People are just starting to understand the importance of consuming less fat,” he said. But this trend is relatively tame compared with the company’s overall growth rate, which Prakesh said stands at about 25% a year. He attributes this mainly to population growth and the overall development of the UAE.
George Abi Najem, country manager in the UAE for Al Safi Danone, points to the importance of advertising and marketing campaigns by dairy companies in the GCC. He estimates that the overall milk sector in the GCC is growing by an average of 8% to 9% a year, although this varies massively according to the category and the country products are being sold in.
“The GCC countries are developing rapidly. The purchasing power is high and the awareness is growing due to the marketing campaigns that have been done by dairy companies,” he said. “The mix of cultures in the GCC and the increasing population is also having an effect. Plenty of expatriates are coming to the GCC countries and this is helping the industry in general.”
Value added milk products, the company’s speciality, are performing particularly well. Abi Najem said that products such as Activia are growing fast across the GCC.
Al Safi Danone will build further on its reputation for value-added products this year. “We have a leading brand in each category. New SKUs will come aboard and there are definitely plans for new launches. Will see some new products during 2007,” he said.
Abi Najem also points out that rapid growth in the dairy sector is not only a Middle East phenomenon. The pattern is similar in many parts of the world. “World wide the dairy business is growing and the demand on milk is becoming higher and higher. Sometimes, what we feel in the Middle East is that the demand is growing faster than the capacity available. We see a positive trend in the coming few years.”
But the industry is not without its challenges. For example, Al Ain’s Shashi Kumar said that the modern trade has lowered producers’ margins. “They [the modern trade] are more organised and because of the way they do business more efficiently they are in a better position to leverage more money out of manufacturers,” he said.
Increases in rents are also putting pressure on dairy producers, and indeed other food companies. “One of the major driving factors that impacts on the business of FMCG in general, and not only on milk producers, is that the rentals and the real estate prices have gone up,” Kumar said. But he admits that the modern trade does also bring benefits, such as giving producers an enormous outlet for their product that they would be unable to achieve as efficiently through smaller grocery stores.
“It is easier for us to deal with big retail groups because it is a single window approach.
“You sit and negotiate something with a purchase manager of a Carrefour or a LuLu or a Union Co-op and you are sure that you will be supplying a set amount of volume straight away. This is definitely a huge reduction on man power and distribution costs,” he said.
Having a presence in modern retail outlets can also help strengthen brand awareness among consumers.
“If your products are on display in a Carrefour or a LuLu it is probably telling the consumer, ‘Look I have passed the standard.’ If the product was not doing well, then these companies would de-list the product after three months. It is another way of establishing your credibility.”