Danish dairy cooperative Arla believes that its collaborative approach should enable it to bounce back even stronger after the pandemic subsides. Stephen Wynne-Jones spoke to its chief executive, Peder Tuborgh. This article also appeared in ESM Issue 3 2021.
Out of every adversity comes an opportunity, and while 2020 was ‘the most challenging crisis that Arla has ever operated in’ – as the Danish dairy giant put it in a recent statement – its cooperative-led model has positioned it for a strong return to form once the pandemic subsides.
The past year has really been a double-edged tale for the Viby-based business, as its branded sales division – led by brands such as Lurpak, Arla and Puck – grew by 7.7%. At the same time, its extensive foodservice operations had a disastrous year, due to the prolonged closure of the HoReCa channel. After an initial 45% drop in revenue in the spring of 2020, the business recovered, but with a 12% decline for the year overall.
As for the net result of such disruption on the group’s performance? Total group revenue stood at €10.6 billion in 2020 – pretty much on a par with the previous year (€10.5 billion). EBITDA was €909 million, up from €837 million in 2019 – fitting, therefore, that the title of the group’s recent annual report was Creating Value in a Year like No Other.
‘Incredibly Challenging’
“The first half of last year was incredibly challenging, not just for Arla, but for the entire food and drink industry,” Arla chief executive Peder Tuborgh tells ESM. “First and foremost, we had to protect the health and safety of our people – on farms, in dairies, in logistics, and in our offices around the world. Second, we had to ensure that our supply chain remained operational, from collecting milk on farms to delivering products to customers and consumers.”
March and April 2020 were, arguably, the most challenging for the business, as Arla had to “reshape [its] business” and redirect millions of litres of milk from foodservice into retail, “to meet the spike in demand in the first months, and a prolonged higher demand for dairy throughout the pandemic,” Tuborgh adds, “all while minimising the negative impact from challenges due to COVID-19 in logistics and supply chain.”
As a global business – it generated €1.98 billion in revenue from its global operations last year – Arla was able to prepare, to some degree, for the coming pandemic, although the extent and depth of it could not have been predicted.
“We experienced the COVID-19 impact on our Chinese business at the beginning of 2020, and were therefore somewhat prepared when Europe was hit,” Tuborgh adds. “It was impossible to foresee the scale of the COVID-19 crisis, but our Chinese business is also a few steps ahead on learnings, solutions and future possibilities that we can incorporate into our overall business.”
Model Behaviour
Arla’s status as a farmer-owned cooperative has presented an additional challenge – regular meetings were halted due to the pandemic, or moved online, while some farmers were impacted more than others – but it has also underlined the importance of a collaborative structure, Tuborgh adds.
“The cooperative model is grounded in collaboration and problem-solving, with a dialogue that is straightforward, tackling issues head-on with our farmer-owners,” he explains. “The COVID-19 crisis showed us even more how closely interlinked we are.”
The business’s collaborative approach meant that it was able to make quick decisions and restructure its operations promptly and efficiently.
“It was, and is, a strength for Arla that we are owned by our suppliers of our core product: milk,” says Tuborgh. “This means that we were able to make quick decisions and changes to the business, to meet the changed consumer behaviour across the different countries we operate in.”
Working Groups
This included the establishment of nine groups working on predicting what the future of the dairy sector would be like, in a post-COVID world, examining areas like new-product innovation and consumer preferences.
“We then used the insights from these groups to create fundamental business change, to not only push us through 2020, but to future-proof our systems for similar challenges in the future,” says Tuborgh, adding that the groups will likely continue to inform decision-making throughout 2021 and beyond.
Arla’s approach has proven to be especially beneficial in tackling the challenges of the foodservice business, and the cooperative has also established a ‘rebound task force’ to reboot its Arla Pro specialised foodservice operation.
“The team has been gathering insights about changing customer needs and anticipated trends, to ensure Arla – and our foodservice customers – are well equipped for the reopening of hospitality across our key European markets this spring,” Tuborgh adds.
The fact that Arla was already two years into a comprehensive internal transformation programme, Calcium, when the pandemic hit also enabled it to meet the moving disruption with speed and accuracy. The programme generated €130 million worth of savings last year, while accumulated savings since its launch in April 2018 stand at €354 million.
Embracing The New
The pandemic hasn’t put new-product innovation on ice either, with the company entering the plant-based market with its new brand, Jörđ.
Launched in March 2020 – just before the crisis hit – the company has developed oats drinks in three variants - Jörđ Oat, Jörđ Barley and Jörđ Hemp, which it is launching in Denmark, the United Kingdom, and Sweden. It has been described as a ‘natural, Nordic range that fits into the everyday life of the European consumers’.
Is Tuborgh at all concerned that the launch may lead to internal cannibalisation of its mainstream products?
“For us, dairy will always be at the heart of our business and our core product,” he says. “At the same time, we see an opportunity to tap into the growing plant-based market space, as we have the supply chain expertise and innovation power to do so.
“Many consumers choose to mix and match dairy and plant-based, switching between the two, depending on whether it is for their coffee or their breakfast. For us, this is fine, as we see a sustainable diet as one that incorporates a variety of foods.
“It’s great to see the brand pick up momentum in Denmark, Sweden and the UK, and we plan to grow this category in the future.”
Sustainability momentum hasn’t ceased either, and Arla remains as committed as ever to reducing its environmental footprint, according to Tuborgh. The company recently set itself the target of reducing its greenhouse emissions by 30% by 2030, and to become net-zero carbon by 2050, across its operations.
“Despite the pandemic, I am very proud to say that our sustainability work continued and remains central on our priority list,” he explains, adding that, in 2020, it launched two major sustainability programmes: Arlagården and Global Climate Checks. “This work has enabled us to collect one of the world’s largest sets of externally verified climate data sets from dairy farming, creating a solid foundation for benchmarking, knowledge-sharing, and research across the dairy industry.”
Future Prospects
As for the future? In its annual report, Arla noted that it expects group revenue to be around €10.3 billion to €10.5 billion – roughly the same as this year, in other words. However, while it has successfully navigated Brexit, the company has acknowledged that many challenges remain, with a looming economic downturn on the horizon.
Mergers and acquisitions are off the table for the moment, in favour of greater focus on new-product development and technology.
“From a dairy perspective, one of the areas we’re really investing in is technology,” says Tuborgh. “As consumers were in lockdown, shopping online saw a significant increase, and we have therefore pushed our e-commerce ambitions forward, to ensure that we maximise our online availability and visibility with consumers.”
As we come out of the COVID crisis, however, both Arla itself and the wider dairy industry will, undoubtedly, need to be more agile.
“The coronavirus pandemic has fast-tracked both innovation and digital transformation, and led us to work in ways
we’d never thought possible,” he says. “For any business, it is now more important than ever to build strong processes that have the potential to quickly flex, as required.”
© 2021 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
