UK Dairy Industry - Case Study Example

Dairy Crest is one of the most well-known brands in the food industry of the UK; it is a leading chilled dairy food company in the market. The company comprises two divisions: first division handles cheese and other fresh products, whereas activities of the second divisions include all operations with liquid products and other ingredients. What challenges does this company face on the market How they can be surmounted In order to answer this question one has to study market where Dairy Crest operates. Macro environment. Political forces. One can claim that diary industry operates in stable political environment. As a member of European Union, the government of the United Kingdom provide the policy of support of the dairy farmers. The main principle of this policy is the creation of environment where products of dairy farmers achieve targeted prices that in turn sustain decent living of the farmers. Government use the following methods to support dairy industry: 1) It Provides dairy farmers with export refunds (the refunds constitute the difference in the prices between European Union and the countries outside EU area). 2) It regulates the prices by the intervention (intervention in order to stabilize the prices). 3) Import and quota control. Tariffs can be imposed in order to protect internal market, and quotas are kept in order to regulate the total volume of the production of dairy products. Quota on dairy products has been reducing since introduction of it in 1984. However, there is no ground to expect that it will be reduced substantially in the foreseeable future. In spite of the fact that dairy industry operates in friendly environment, it has been facing some legal hurdles. For example, dairy makers could not under the law of the United Kingdom assert that their products could treat or prevent diseases, however could claim that their products had some useful benefits once the evidence to this effect had been provided. Dairy farmers might face some environmental initiatives implemented by the Government, though probability that they would somehow hurt dairy producers is low. Economic factors. Dairy industry of the UK is highly competitive. The UK is the third producer of milk in Europe. There are several large purchasers of milk on the market, and Dairy Crest is one of them. British economy is growing at the rate of 3% and there is strong demand on health food products; however dairy industry and Dairy Crest in particular suffers from several unfavorable economic factors: 1) High oil prices. High level of the prices on oil has already entailed decrease in the profit of Dairy Crest. 2) Falling prices and rising costs. The combination o of these factors might be the reason of the exodus of dairy producers from the market. Social factors. Social factors are one of the most important factors in the development of marketing strategy of Dairy Crest. British population is more health conscious, and Dairy Crest has already been trying to adapt itself to this trend by launching new updated version of its diary product St Ivel Gold and Clever Milk, both are enriched with beneficial oils. So far the expansion into health-food market has been successful; the company claims that the growth in this niche of the market has been more than three times higher than in the market of usual dairy products. UK has ageing population and it might not be an encouraging news for the producers of some of the dairy products, such as milk; however if the industry manages to produce more health-beneficial products, especially those that can help cure or prevent age-related illnesses, the ageing factor might be an advantage . Technological factors. One might not expect some revolutionary technological innovations on the market, however taking into account the fact that demand on the health food has been growing steadily, one can expect the rising in the expenditures on the R&D to produce more beneficial diary products. Microenvironment. Consumers. There is a growing trend among British consumers to purchase milk and other dairy products at the supermarkets. Both investors and management of the company realize that (the plummeting of shares of Dairy Crest after the failure of reaching a deal with Tesco is a vindication of it).However, Dairy Crest still continues to provide Tersco supermarket with other dairy products Given the fact that Dairy Crest has one of the stringiest criteria of checking the quality standards of milk products, as well as one of the best communication systems between farmers and supermarkets, one can claim that it has steadfast group of customers who purchase its products. In spite of the failure to reach the deal with Tersco it still has number of contracts with other supermarkets which serve as the basis of the successful business of the company. Suppliers. Dairy Crest is one of the largest purchasers of milk in the United Kingdom (2.2 billion liters a year). Milk is usually purchased from farmers and milk cooperatives. Dairy Crest has developed one of the best communication systems between its suppliers and supermarkets and has created one of the most efficient supply chains in the dairy industry. Most of the dairy farmers are located in the southern regions of the UK, the milk from this region is widely used for the production of cheese, milk powder and other dairy products. Dairy Crest sustains high standards of hygiene, herd health and animal housing; it provides farmers with the help to maintain the standards mentioned. Shareholders. There are several major shareholders of Dairy Crest the largest of them are: Morley Fund Management - 5.63% and M&G Investment Management-5.31%, milk suppliers hold 7 million shares, their holdings equal 34 million shares and constitute 27% of share capital of the Dairy Crest. Managers hold 1.5 % of the share capital. Swot analysis. SWOT analysis represents the weakness and strength of Dairy Crest. Internal Factors. Strength Weakness. Marketing. As Dairy Crest is a well-known British brand, the UK will remain the major market for its products. Its profit before tax is 17m GBP. The past and present concentration of Dairy Crest on British market might, in the long term, limit the possibilities for future expansions in other countries. People. Highly experienced and well-educated staff provides the support for the business. Launching of several new products might entail restructuring of the company. Finance. There is great potential especially in the niche of health benefiting products, as growth in sales of several of them has vindicated. There is also potential in the development of organic products (with sales over 50%). In order to be competitive in the market, Dairy crest should expand in the market of new health benefiting products; the development of which requires great expenditures on R&D. Unsuccessful products that fail on the market or do not produce enough demand may cause significant financial losses. Management. Highly experienced and is ready to launch new products on the market. Too much emphasis on traditional products may inhibit new vision. External factors. Opportunities. Threats. Customers. There is great potential for the launching of new organic and health benefiting products. The number of new brands should be restricted. The aging of population in the UK, might entail the decrease in sales in the niche of milk. Economic. The robust growth of British economy continues, which in turn assures the steadfast demand on the dairy products. High oil prices affect the price policy of the company and lead to the increase in the prices on the products. Due to high costs, there is an exodus of potential suppliers from the market of dairy. Market of non organic milk is overflowed in the UK. The company should think about expansion on other markets. Competitive. Daily Crest continues to be the leader in dairy spreads and organic milk sectors. New competitors can enter the market of organic milk and health benefiting dairy products. There is also an increased competition in other sectors of dairy products. Legal factors. Generally, government supports dairy industry. The is a mild danger of some new environmental regulations that will affect dairy industry. The Dairy Crest has become the subject of inquiry from " Office of Fair Trading" . The decision is still pending. Technological. The company has become the leader in its niches to due to the using of modern technology. There is a possibility of breakthrough in some technological fields by competitors. Conclusion. Dairy industry of the United Kingdom is highly competitive. It faces several serious problems, such as high costs and low prices of the products of dairy farmers. This in turn entails the reduction in the number of dairy farmers, vital sources of the supply of dairy products. However, long-term prospects remain good, especially if the expectations of potential consumers are taken into account. In the food market the company has had modest growth, however there is a great potential in the market of health benefiting products and spreadable butter. Taking into account the fact that population is more self-conscious and is aging, one has good reasons to believe that the demand on these types of products will be increasing in the long-term period, thus creating favorable possibility for the expansion of the company. However, one should not forget that traditional market segment of the company should be preserved, in order to sustain the expenditures on R&D, which is needed for the successful expansion in the new market. Neither one should forget that only several new brands should be developed; too many brands of new products may pose a threat to the company, as some of them can be unsuccessful and cause financial losses. There should be more aggressive advertisement campaign as well. When Dairy Crest launched its advertisement campaign on TV in 2005, it had been the first national advertisement campaign for one of its products in 20 years. The cheese sector of the company has been growing steadily, especially in the segment of cheddar market in mature sectors. This segment of the market remains profitable; both demand and price on cheese is rising, and the company has achieved growth in this sector in 2004. There is a potential for the growth in the cheese market as well, especially if new effective advertisement campaign is implemented. In the sector of dairy products, there is a huge potential in organic milk market. Such brands, as " St Ivewl Advance" , enriched with health benefiting oils has been launched successfully and the company intends to expand in this niche of the market. Those people who are health-conscious and physically active should be targeted by the company. In view of the aging of the population, there is a potential market in those types of the dairy products that help to prevent or cure age-relating diseases. However, there is a constant threat of the emerging of new competitor, especially if other rival company cooperates with scientific researchers to produce new type of the products. Nevertheless, one should remember that with high costs and low prices of dairy products, there is a dearth of financial resources available for the R&D projects in dairy industry. If Dairy Crest can adapt itself to the market fluctuations and expand successfully on the new markets by providing its potential customers with the dairy products that match their demands, it will remain, in my opinion a leader in chilled dairy products for many decades to come. Works cited. The Quota System. Available from UK Dairy Industry. Available from Dairy Crest Interim Release. Available from Farming relations. Available from Shareholder Information. Available from Dairy industry lobbies for health claims approval. Available from Supermarkets squeeze Dairy Crest. Available from Tesco deal loss hits Dairy Crest. Available from Government Must Understand Dairy Industry Pressure, says Dairy UK Chairman. Available from UK milk production facing 'worst case scenario', says study Dairy Crest is buttering up its investors. Available from Ageing 16% of UK population are aged 65 or over. Available from Read More