The UK, Arla’s largest market, performed strongly against a tough backdrop by increasing its market share across most of its categories. It achieved this by launching a wide range of innovative products, achieving its highest rate of branded products to date1 and working closely with our retailer customers to maintain a leading position in own-label.
Overall revenue in the UK decreased from EUR 2.5 billion in 2015 to EUR 2.2 billion in 2016, a direct result of lower global market prices and unfavourable exchange rates. As with the Arla Group, the UK business was not immune to challenges facing the global dairy industry but with the growth from its branded portfolio, this enabled the UK to play a positive role in the Group performance.
Arla Foods UK delivered its ambitions of growing its branded business with a focus on its three strategic brands; Arla, Lurpak and Castello. In line with the UK’s Strategy 2020, the organisation’s most ambitious business strategy, Arla aims to create the Arla brand into a top household name by 2020, grow Castello to become the best known premium cheddar and speciality cheese brand3 and establish itself as the champion of British dairy.
The Arla brand, launched in the UK in 2015, underpins its focus on healthy and natural into its key categories including milk, milk based drinks, yogurts and cheese. Arla branded products achieved volume driven growth of 7.6% compared to 5.2% in 20154.
Key growth highlights in 2016 include (all figures volume driven growth4 unless stated otherwise):
• Arla’s relentless focus on adding value to milk is demonstrated through its fast growing Arla branded milk portfolio. In 2016, Arla branded milk grew 12%, and added £95m5 to the milk category with successful launches of the award winning Arla B.O.B6, Arla Farmers Milk, Arla Organic Farm Milk and for the on the go consumer, Arla Cravendale 250ml.
• Arla works closely with its retailer customers to provide greater choice for consumers within the milk aisle. Developed by Arla in 2016 and launched in January this year, ASDA Vitamin D milk, fortified fresh milk, helps customers obtain their recommended daily allowance. In addition, Morrisons Milk for Farmers, launched in 2015, accounting for around 15% of sales within the categories that it competes in7.
• Arla Lactofree product range has had another year of double digit growth with +18% growth (23% in 2015).
• Arla yogurt category, which the business first entered in 2015, has more than doubled year on year (+116%) resulting from the success of Arla skyr and Arla Protein both receiving prestigious awards in 2016.
• Arla’s speciality cheese brand Castello accelerated its growth in 2016 to 18%, driven by the success of the award winning Castello Tickler Cheddar (6.7% in 2015). Arla produces award winning own-label cheese for most of the major UK retailers. It won over two hundred industry accolades during 2016 and the overall cheese business grew 5.1% (2.8% in 2015).
• Lurpak (+4.9%) and Anchor (-3%) continue to outperform the market in value and volume in a category that is in decline. Consumers continue to move towards more natural products, benefiting Lurpak and Anchor who maintain their number 1 and 3 positions and the overall Arla butter and spreads business that includes own-label.
Tomas Pietrangeli, managing director, Arla Foods UK, said: “In a year of continuing changes in the grocery market as well as political uncertainty, we were able to deliver a strong set of results by driving growth in the UK through our portfolio of popular products, and delivering efficiencies and cost savings in our supply chain8.
“We maintained our commitment to innovation with a number of new and exciting product launches which achieved listings and consumer impact early on, and are performing well.
“Despite these exciting developments we are, however, conscious of the longer-term context and potential impact of Brexit. That’s why we’re working closely with the wider food and farming industry, and with Government, to try and maximise opportunities of Brexit, whilst mitigating potential risks.
“In 2017, we will focus on implementing our UK Strategy 2020 and continue to champion British dairy to help generate greater returns for our farmer owners.”
Europe is Arla’s core commercial zone, contributing to 66 per cent of Group revenue in 2016. The UK is the largest market within the Europe Zone, contributing 35% of that zone and comprises 25% of the Group revenue.