lion capital expenditure programme at the liquid dairies. “We have our dairies positioned around the country in what we think are strategically the right locations,” he remarks. Dairy Crest’s priority is to remain competitive on cost, as well as from a quality and a service perspective. “If we don’t carry on investing in those sites, we won’t remain competitive in those areas,” he adds. The focus on efficiency right across its business activities has allowed Dairy Crest to invest more in brand marketing and innovation, while simultaneously limiting the increase in input costs that it has to pass on to customers and consumers. Brand Building In line with its strategy of increasing the “We are happy with Dairy proportion of added value sales and Crest as an independent plc. improving the qualiWe think we are performing ty of its earnings, Dairy Crest is conwell in a difficult market and tinuing to develop its five key brands - there is no reason why we can’t spreads Clover and Country Life in the go on doing that.” UK and St Hubert Omega 3 in France; Cathedral City, the UK’s leading cheese brand; and Frijj flavoured milk drinks. Dairy Crest invests constantly in these brands in terms of marketing spend, TV advertising and innovation. During the past four years sales of these five brands have grown by 57% and by 7% last year. In its Dairies business, Dairy Crest has been increasing its sales to major retailers, which rose by 9% last year including the resumption of liquid milk supply to Tesco after a lapse of six years, while refining its doorstep operation and restricting its presence in the troublesome middle ground of the market. Innovation Innovation has played a crucial role in helping Dairy Crest Eyes Yoghurt Market Dairy Crest is reported to planning to move into the £1.2 billion UK yoghurt market either through developing its own business or by acquisition. Dairy Crest had been a key player within the UK yoghurt market through a joint venture with French dairy group Yoplait before selling its stake in 2009. A condition of the deal was that Dairy Crest would not compete in the yoghurt market for two years. That exclusion period expired in March. “We want to develop a yoghurt business over time - that means developing a brand or going out and acquiring one,” says Mark Allen, chief executive of Dairy Crest. “In terms of our aspirations for the group, we are also looking at other businesses across our dairy categories.” Dairy Crest is involved in the cheese, liquid milk and spreads categories of the UK dairy market and also has a spreads business based in France. According to Mark Allen, Dairy Crest could easily manage to pay £100 millon for the right acquisition without compromising its internal net debt targets.
Dairy Crest to build its added value sales. Over the past five years Dairy Crest has successfully launched ‘lighter’ variants of its three key UK foods brands – Clover, Cathedral City and Country Life. Other innovations include milk&more, its Dairies online doorstep delivery business. Dairy Crest’s goal is to generate 10% of annual sales from products developed within the past three years. “That is a very challenging target. It means that £160 million of our sales each year need to come from new products. For a business, like ours that is a tough ask,” says Mark Allen. In its last financial year, Dairy Crest reached the 9% mark. “I would hope that over the next couple of years we can get to 10% and then keep it at 10%,” he remarks. Positive Outlook “We have a very fragile consumer base in the UK at the moment,” the Dairy Crest chief executive points out. “Set against this background we have to make sure we do the right things for the business. The right things for the business are making sure we are as efficient as we possibly can so we can minimise the impact of inflation on consumers, and to make sure we advertise, promote and innovate our brands to ensure they continue the good growth seen over the past few years. But we also need to make sure that we invest in our facilities to drive improvements in quality, service and cost.” He adds: “If we carry on doing those things, we have a very positive future for this business.” Acquisitions Acquisitions are unlikely to play a part in this development in the short-term. “We have said over the last twelve months that we would like to find an appropriate acquisition. We are out there looking but it has to be at the right price and bring synergies into our business. The fact that we have no announcement to make says that we haven’t found one.” Mark Allen is unconcerned about recent media speculation about a possible takeover of Dairy Crest. “All good businesses are speculated about and I guess we are no different,” he comments. “We are happy with Dairy Crest as an independent plc. We think we are performing well in a difficult market and there is no reason why we can’t go on doing that.” J
Dairy Crest’s goal is to generate 10% of annual sales from products developed within the past three years.
FOOD & DRINK BUSINESS EUROPE, JULY 2011
23