Kosher Food (WILC)

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Say cheese, says Danish dairy giant

12.3.06 | 09:01 By Ayala Tsoref

Ever heard of Arla Foods?

The company has yet to attain brand-name recognition in Israel's dairy market, but that will change if its Middle East regional director, Jan E. Pedersen, gets his way.

"The year 2006 will bring the breakthrough in the Israeli cheese market," Pedersen told TheMarker last week.

Arla Foods produces dairy products including milk, cheeses, yogurts, and butter, under dozens of brand names. It sells to more than 20 countries.

The company is actually one of the largest dairy concerns in Europe. Here, it distributes its products through G. Willi-Food International.

Until recently, its lone product on local shelves was Lurpak spreadable butter. (Ah, you say, you've seen that.) A few weeks ago the company introduced its first cheese brand, Fetina, which is also the first to bear the name Arla.

Pedersen knows the local dairy market. In recent years he has been in negotiations with two major dairy producers, Tnuva and Tara.

"Several years ago we spoke with Tnuva about the possibility of cooperating in the Israeli market, before they signed a deal with Yoplait," he explained. "We quickly understood that we and Tnuva were not a good match.

"The goal of Tnuva's managers is to maximize the dairy producer's profits. If Tnuva were representing Arla, it would first of all worry about Tnuva's products, and afterward ours."

So Arla decided to link up with an expressly small distributor, Willi-Food.

Arla also talked with Tara, after its recent acquisition by the Central Bottling Company (Coca-Cola Israel). "I met with the Tara CEO several times. Tara underwent a revolution, both in the manner its management works and regarding their decision to downsize the number of brands and to focus on a smaller product portfolio. They are less diffuse today than they were two years ago, and they have started to put together a clear product profile. I had pleasant conversations with him. We seriously considered making them Arla's dairy products producer and marketer in Israel, alongside Willi-Food." The CEO of Willi-Food is Zvi Williger.

Why didn't the partnership with Tara pan out?

"It simply didn't happen. As far as I know, they are on the verge of signing an agreement with Emmy" - a major Swiss dairy - "As of today, our contacts with them have ceased."

What did you learn about the Israeli market in the work you did before the negotiations with Tara?

"We know the Israeli market well. We started studying the country five years ago when Israel signed a trade agreement with the European Union. It's an important market for us to be in, even though it is small population wise. Israelis are wonderful consumers of dairy products. They spend a lot of money buying dairy products, yogurts, cheeses."

Why did you decide to extend your contract with Willi-Food and not to continue looking for a larger partner to produce for you in Israel?

"Our strategy in a country the size of Israel is to be in the center of the agenda of the local company marketing and distributing us. Currently, Arla's products are at the center of Willi-Food's business, and after we expand more, we'll turn into the most dominant brands of Willi-Food's portfolio."

Arla faces two main problems. First, the shelf life of its imported cheeses is shorter than those of cheeses produced in Israel. Second, Israeli consumers don't recognize its brand name.

"We'll enter the white and yellow cheese market this year under the Arla brand. We'll invest in television advertising. As we made Lurpak the second biggest player with a 15 percent market share, our quality cheeses will grow at the expense of the Israeli players. Our goal is to be one of the three largest players in the quality cheese market."

According to Pedersen, Arla won't be marketing yogurts in Israel. "Their shelf life won't allow us to send them at a quality that would compete with the yogurt products they have in Israel."

Pedersen is referring to the market in which mainly Gad Dairies operates, with its salty cheeses, feta, and cream cheeses.

"Kashrut was the reason that held up our entry into the Israeli market, but it's a matter whose solution draws near. We'll invest more in marketing and advertising this year so Israelis will come to recognize our brand. It's likely to take not a year or two but more, but we're patient."

Arla, being a Danish company, currently has to deal with the Arab boycott in the wake of the caricature of the Prophet Mohammed published last year in a Danish paper. "We feel a sharp decline in sales in some Middle East countries," said Pedersen. "Arla heads are lobbying the Danish government to reach an agreement a quickly as possible. We feel like an innocent victim of a conflict unrelated to Arla," he bemoaned.

What are you doing to solve the problem of declining Middle East sales? "I am visiting different countries, mainly in the Arab states, and talking with our distributors, explaining things to them. But, it doesn't help. As long as the solution doesn't come from the government, the problem won't be solved."

Arla's position as an international dairy allows it to also deal with different trends in the world. "The organic products trend is really strengthening in the milk market," he related. "Lately, we released a product in Denmark that is branded according to the geographic region in which the cow producing the milk grew up. It's like mineral water - the place where the cow was raised and the way in which it was raised have become relevant to sales of the brand."

http://www.haaretz.com/hasen/spages/693088.html

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