Dairy co-ops join forces to battle multinationals
By : Juliet D. Golden
You must be mad: Local dairy co-ops try to take on international brands.
Dairy cooperatives in southern Poland have joined forces to launch a new common brand for their milk products.
This spring, 14 dairy cooperatives in southern Poland will be scrambling to promote fresh products such as yogurt, kefir, cottage cheese and milk under the national brand name "Polish."
By pulling at patriotic heart strings, dairy producers are hoping to grab market share, especially from international yogurt producers whose products have become the brands of choice for consumers in recent years.
"Through strong advertising campaigns, Danone and Zott (Jogobella) have been major successes on the Polish market," said Kazimierz Konieczny, chairman of the board of the National Dairy Council (KZSM). "We have to do the same thing. We have to use the same marketing methods to convince consumers about the choice of products."
According to dairy association members, production of the Polish brand started late last summer. While sale figures are unavailable, turnover is on the rise, members said, adding that a key test for the product will be how it sells in May and June, their peak sale period.
"Sales (of Polish-brand products) are slow, but rising steadily," said Jozef Gagala, vice-president of Okregowa Spoldzielnia Mleczarska in Lubin.
For the time being, distribution of the brand will be limited to the southwest. But if it takes hold there, Konieczny said, new cooperatives will be enlisted from other parts of Poland and distribution will spread nationwide.
At present, international giants such as Holland's Campina, the U.S.' Yoplait, France's Danone and Germany's Zott, have successfully garnered a majority of the lucrative yogurt market. Danone and Zott alone command a 45% sector share. The third major player is domestic producer Bakoma, partly owned by Danone. Bakoma has a 22% share of the yogurt market.
Taken in mass, the dairy cooperatives account for anywhere from 25-30% of all yogurt sales in Poland. But because these sales are regionally fragmented and national brand loyalty is nonexistent, the co-op's long-term hold on market share looks tenuous, analysts said.
Against aggressive ad campaigns and tight distribution networks run by the market leaders, these co-ops are losing out to the major players.
"Cooperatives are producing less yogurt all the time because they are being pushed out of the market by Danone and Bakoma," said Bogna Sikorska, an analyst with CDM Pekao.
While cooperatives could cede the yogurt market to the giants and focus on other fresh dairy products where together they have 70% market share, they would then be stepping away from one of the most lucrative segments of the dairy sector. Yogurt sales have more than doubled over the last two years and now reach an estimated zl. 1.2 billion-zl. 1.4 billion ($292 million-$341 million) annually. More importantly for the co-ops, yogurt production yields bigger profit margins than other dairy products, such as cottage cheese and creams, which yield a 1-2% return. In contrast, profitability in yogurts is about 5-6%, according to Waldemar Bros, marketing manager for the KZSM.
In supplying the Polish brand, co-ops continue production and sales of their labels. While the aim is for co-ops to devote 50% of production to the new brand, in reality the ratio is much lower. "Our cooperatives have to become convinced that it is the only good road," Konieczny said. "If sales increase under that brand, then they will increase production on their own."
In joining the initiative, cooperatives share recipes and bulk-order packaging to ensure quality and brand recognition. While the common brand offers a chance for the co-ops to increase sales and fight off international competitors, it also means that the manufacturers' own products could take second billing to the new Polish brand.
"It's not easy to convince cooperatives that compete with one another to unite for a common goal," said Marek Murawski, head of the dairy council's technology department. "Each (co-op) is fighting for its own share of the market."
Such conflicts of interest have undermined co-ops' previous attempts to launch common brands before, market watchers said.
"Similar attempts have failed in the past," Sikorska said.
At the Lubin cooperative, its own Milekta brand remains the top priority. Only a quarter of the production at that co-op has been earmarked for the Polish brand, according to Gagala. Whether Polish products become more dominant will depend on how sales do later this spring.
"The best sales should be in May and June, that will be the test," Gagala said.
