By Roger Field
Since its introduction to the Middle East in the 1960s, Lurpak has become a key player in the region’s butter market.
|~||~||~|Since its introduction to the Middle East in the 1960s, Lurpak has become a key player in the region’s butter market. Arla, the Danish co-operative behind Lurpak, Three Cows, Puck and Power Cow brands, now has a turnover of some US $450 million in the Middle East, and has gained a strong reputation for maintaining and increasing consumer interest in its brands.
Jacob S Mikkelsen, general manager, Arla UAE and Oman, and Laurent Ponty, marketing manager, Arla Foods UAE and Oman, told RNME about the company’s rapid growth and its strategy in the region.
RNME: What type of business is Arla? How big is the company?
Mikkelsen: Arla is a cooperative owned by Danish and Swedish Farmers. It is the biggest dairy company in Europe, with about 12,700 Danish and Swedish farmers. The company as it is today was formed about five years ago, when MD Foods, a co-operative of Danish and Swedish milk farmers, merged with Arla, which was the biggest Danish dairy co-operative at the time.
The group’s head office is in Denmark. The group as a whole has got three home markets; Denmark, Sweden and England. We export to many countries, and also have subsidiaries in many countries. We produce all dairy products; butter, milk, yogurt, cheese, milk powder.
RNME: How long has Lurpak been in the Middle East?
Mikkelsen: Lurpak has been here for about 40 years. In the Middle East, we have four main brands; Lurpak, a processed cheese brand called Puck, and Three Cows, which is market leader in mozzarella and feta cheese. We have a fourth brand, Power Cow, which is big in some countries in the region but not the UAE. It’s aimed mainly at children. These four brands account for 90% of our volume.
RNME: How big are your operations in the Middle East?
Mikkelsen: We employ 1500 people across the Middle East. Growth has been fantastic. We have launched a lot of new products and consolidated many categories, and we have gained market share.
RNME: Where are your main distribution centres in the UAE?
Ponty: The main warehouse is in Abu Dhabi. We also have warehouses in Sharja, Al Ain Fujeirah and Murdiff. It’s one less than we should have; we should have one in Dubai. With the growth in Dubai, we have to be very localised and on hand. It also gives us opportunities of gaining more knowledge about what’s going on in the market.
RNME: Are all of your products manufactured in Denmark?
Mikkelsen: Some of the products are manufactured at our factory in Riyahd, Saudi Arabia. The others come mainly from Denmark. Some of the cheese products are manufactured in Saudi Arabia, but all of the Lurpak butter is made in Denmark. Obviously, the more we can produce locally the better, even if we have a good supply chain.
RNME: Arla has far more brands in Europe. Is there a plan to introduce some of them to the Middle East?
Ponty: I don’t think so. Launching a new brand is always very difficult in GCC countries. I have experience from various countries in Europe, and the rules of marketing apply here as they do there. Launching a new brand is very costly and difficult.
Introducing a new brand to the consumer costs a lot of advertising money and is a big risk. So we will probably be looking at consolidating our brand portfolio and launch new products under the current brands wherever it fits, whether it’s Lurpak, Puck or Three Cows, to minimise advertising costs. If the consumer is loyal to a brand then this is a big asset for a company like us.
Mikkelsen: It’s important to introduce new products under our existing brands in the Middle East. We either create enough products to keep us interesting or move into other areas. We have to grow at the same speed as our customers.
RNME: How strong is the market for your products in the Middle East?
Mikkelsen: Dubai, the UAE and the region as a whole has growth much higher than Western Europe, but the brand position is also very strong. Nowhere in the world do we have the brand position we have here, combined with the growth as a whole. This is a very strong base, which is why the GCC and Middle East is a focus area for us. This combination of strong brand position and big growth is unique.
We dominate the butter market and we’re head-to-head with Kraft on the cheese market. The market share varies a bit from country to country but on butter we are number one. Saudi Arabia is our biggest market, mainly because it has a population of about 26 million people. If you are able to have a good distribution network, which we have, then Saudi Arabia is the biggest market. The UAE is the next biggest market.
RNME: Are consumer tastes and buying habits very different from in the West?
Ponty: There’s an interesting mix of people in the UAE, with local Arabic people that have one type of butter and cheese consumption, and Indians and people from the subcontinent who have another type of consumption. And there are about 200,000 Europeans, which adds another dimension.
As far as the UAE is concerned, we consider it a market that is more advanced than the others in the GCC. If we launch new products, we might want to use UAE as a test market. It’s something we’ve discussed for the future. For example, we sell almost as much Lurpak Spreadable in the UAE as in Saudi Arabia, despite the population difference. It’s because the UAE market is more advanced, is more ready for new products and new types of consumption.
RNME: Is competition strong?
Ponty: The competition is tough just like anywhere else in the world. We have a number of competitors, including international brands such as Kraft, Fonterra and Nestle, and also some high quality local Middle Eastern companies.
Of course we are looking at our competitors but the starting point is ourselves. We just want to make sure we operate the way we want to. We want to manufacture products that are in demand and we want to market brands that will attract consumers. All of these things are combinations of our success. Product launches will continue in the future. We’ll be launching between seven and ten products next year.
RNME: You have a number of products in the Lurpak range. What are the most successful products?
Ponty: Growth of Lurpak Spreadable is taking the butter category to a new level that is more convenient. Spreadable is still a small part of the butter market but growing very strongly. It has a growth rate of more than 100%. Of course, it’s taking some business off our mainstream Lurpak butter, and also off other manufacturers.
RNME: What do you put Lurpak’s success down to in the Middle East?
Mikkelsen: The main reason for Lurpak’s dominance is that it’s been here for many years. Lurpak was here before the others and that’s the key to its success. We’ve managed to continue to support the brand with a very special advertising campaign. The advertising for Lurpak in the Middle East is very different from the UK. Our advertising here is based on a character we call Spoilt Cow. It’s a famous campaign and we’ve shown the ability to sustain the message for many years.
Part of the success is also down to our ability to launch new products under the Lurpak brand. It’s available in many different sizes. You have the big packs, right down to the small 10g convenience sizes. We also have some new products we’re preparing for launch in 2006.
RNME: What challenges do you find operating in the Middle East?
Mikkelsen: Operating in the Middle East there are many challenges, especially on the employee side. Many companies in the Middle East are being managed in an old fashioned way. It’s always been our philosophy here to take on experienced Arla trained people in order to make sure that the management style and values of Arla are implemented.
We work to keep agreements, deadlines, internal agreements, external agreements. There are some grocery stores that don’t care if you deliver today or tomorrow, but big supermarkets expect us to deliver on time, so the shelves are full when the customers come in.
Consumer tastes change rapidly. There are many different nationalities in the UAE with different consumption patterns. We consider the UAE to be in front of the region in terms of consumer development, which is why we consider it to be a test market. We see developments before they happen in other places.
Some of the tests for new products are being conducted here, to get opinions and research about the market. There’s a link between changes in consumer buying habits and the rapid consolidation of supermarkets is greatest in the UAE. When consumers come to these outlets, they also expect more variety.
RNME: Is it part of your strategy to work closely with retailers?
Mikkelsen: We realised that with the growth and consolidation in the retail market we needed to be more professional, closer to our end consumers. The people handling the inventory most are the retailers, so we have to work with them. We have to find a way to be able to ask questions directly to the retailers and get answers, not through a distributor who might not know what we want to know.
It’s obvious to see that the consolidation is moving at a fast pace at the moment. We’re seeing some strong local accounts open up with the likes of Carrefour, Geant, Panda Hyper, Emke Group. This consolidation will happen very quickly and we must be able to service retailers everywhere when they open.
Muscat is an excellent example, because within two years, it has changed completely. Before, there were a lot of groceries and a few supermarkets, while today there are a lot of big supermarkets. The area has gone from having maybe 500 outlets to about 250. The share of trade has reduced in 18 months. If we as a supplier were not able to change fast, then we would be doomed.
RNME: Is it difficult protecting the Lurpak brand in the Middle East?
Ponty: On the FMCG side, protecting our brands, design, registration and trademarks is something we always look at. We have experienced problems with people trying to copy our designs to make them look like our products, particularly with the Lurpak design, in the Gulf and around the world.
If we can do something about it we will. It can vary a lot from case to case, because we can’t stop people from using silver foil with blue writing, but if it’s too close we have a big intellectual property department that looks at these things.
RNME: Are you optimistic about the Saudi Arabian market?
Mikkelsen: It’s experiencing rapid growth and there’s a lot of population growth there as well. But there is also a lot of unemployment, which can make certain products less attractive because of the spending power of the consumers. Saudi Arabia is a very interesting market and one that we are watching very closely. We have great expectations for it.
RNME: What is Arla’s annual turnover in the Middle East?
Mikkelsen: It’s about US $450 million a year. That’s worth about 4% of Arla’s business. When you look at the region, including Egypt, the population will grow from 200 million to maybe 600 million in the next 30 or 40 years. It’s a big consumer market, and it will be bigger than Europe eventually.
RNME: Arla makes its butter in Denmark. Are there plans to start producing Lurpak locally?
Mikkelsen: Lurpak has not only to be based on Danish milk, but it also has to be produced and packed in Denmark. This will not change in the near future. On the rest of the business we cannot deny what’s happening in the Middle East, which is one of our focus regions in the world, and to that end we remain open to any new production or packing opportunities that will arise in the region.||**||